How to Avoid Title Snafus

Generally speaking, title companies do a very good job of searching real estate titles and insuring the buyer against possible title claims. Certainly, title companies play an important role in Pennsylvania, as they conduct the settlement. Title insurance is required any time you are getting a mortgage. Title insurance is purchased in last couple of weeks in process of selling a home.
You can think of the work of a title company like our view of a duck swimming on a pond. It looks smooth on the surface, but there is a lot going on “underneath” to make sure everything goes smoothly.
A title search ensures the seller is the rightful owner by looking at the entire chain of ownership. I have had buyers who were prevented from buying because back money was owed – they found out at the settlement table, and that is very late!
A title claim can be bewildering, especially for the heirs who are likely in unfamiliar territory. One case I was involved in recently had the children of a deceased person suing to say the person signing for estate sale did not have the authority to sell. The title company defended the buyer in this.
Elder Law Attorney Janet Colliton, Esq. explains that liens on a property could include:
• Tax liens, including inheritance tax liens
• Government (IRS or state) lien
• Credit card lien
• Contractor lien
• Criminal liens and judgments
“The seller may not know about the lien. This seems incredible but consider if the seller purchased the property from an estate. The seller may not know whether the inheritance taxes were paid by the estate. If the inheritance taxes are not paid, the taxing entity can put a lien on the real estate,” said Janet Colliton, Esq.
Here’s another example: A property had an IRS lien, and the judgment went back a long time. The seller had bought from an estate, and the estate didn’t have any information regarding tax payments. It turned out the judgment had expired, and it was erased, but not from the title report. An attorney had to work with them to make sure it was erased from the title report.
There are cases where the seller is behind in paying the mortgage on the property, and the lienholder bank decides to initiate foreclosure while a property is under contract to be sold. The mortgage has not been paid off. This can be an issue with a reverse mortgage, the bank can be extremely aggressive. That is difficult to overcome, cannot get an answer from the bank on how much money is owed, as there are fees, interest, etc.
Not every property sale is a disaster waiting to happen. But there are stumbling blocks that can arise. Here are some tips to help you avoid these title snafus:
1. First and foremost, it’s important to have someone “in your corner” – a highly experienced real estate broker and/or an attorney (someone who has been to a lot of settlements and understands the law)
2. It’s preferable that your broker or attorney have a good, working relationship with the title company
3. If the seller has paid off the mortgage, he or she should produce a “Letter of Satisfaction” from the bank or mortgage company (if you pay off a mortgage, make sure you keep this “Letter of Satisfaction” in a safe place)
4. The “Letter of Satisfaction” should also be filed with the Recorder of Deeds office in the county where the property is located
5. If buying from an estate, make sure there is documentation to prove inheritance taxes have been paid
6. Your broker or attorney should avoid having funds held in escrow to pay taxes, as the title company will overestimate the amount of tax owed, and it may take a while for you to get your money back
I can’t stress how important it is to have representation. Some home buyers think they can do this themselves, but too often, they don’t realize that they aren’t saving time and money. It can cost them, and they may not realize they lost out because they don’t have the experience and don’t know their rights.

5 things every buyer should know about this market

  1. Find the right loan program for the type of home you are considering. Typically, the first place a buyer turns for a loan is their local bank.  Although the bank provides mortgage loans, they only have the types of loans that they offer and there’s usually limited flexibility for the borrower. Working with a mortgage broker provides access to many different banking products as well as specialty loan programs and provides flexibility in finding the right loan for the buyer. Your agent should have experience with a variety of lenders match the borrow with the type of house they want, with an appropriate lender.  This is especially true with self-employed and first time buyers, and unusual properties such as foreclosures and estate sales.
  2. Work with a responsive, full time agent. Today’s market your agent should be very responsive to your request for seeing Homes. Your agent should be full time in the business meaning that you’re working with someone who makes their income from this and is not just earning extra money on the side .  This has the benefit that you’re agent can readily schedule showings.  Where you’re not working around another jobs schedule and waiting for responses while they’re a part time agent is at their ‘real job’.
  3. Look at the financial impact of buying. You are to avoid financial surprises whether you’re buying your dream home a first time home or downsizing your monthly payment is extremely important to manage your budget your finances and your agent should be estimating what that monthly payment and down payment money is going to be before you put an offer in on a home.
  4. Get a Home Inspection. Inspections are a way to avoid surprises later during your ownership with maintenance, repairs, renovations or planned improvements.  In PA these same contingencies can be used to evaluate the future marketability of your home and the use of it for a home business.  Even new construction should allow some type of inspection the process during building so that you make sure your home is being constructed in the proper manner.  Getting a home warranty can mitigate many issues with systems and appliances, consider obtaining one for your purchase.  The inspection contingency is intended to inform the buyer of what they are purchasing and identify surprises.
  5. Be ready to make a decision quickly. In a seller’s market, homes rarely stay on the market long, so when a house that is in their budget and checks off all of their needs come along, buyers should not hesitate.  Buyers should be ready to submit an offer quickly, or they may risk missing out on the home altogether.  Whether you are in a buyer or seller’s market depends on market conditions such as days on market and the sale to asking price ratio.  Your Agent should be knowledgeable- get this information up front.
  6. Bid competitively, structure your offer and limit contingencies. The structure of your transaction means that the financing, contingencies and dates in the contract work with the buyer’s needs, schedule (leases, sale of existing home), address major concerns with the property, and protect buyer’s financial interests.  All of these items are incorporated up front, in the contract.

    It is tempting to submit a low offer as a starting bid, but in a seller’s market, buyers need to put forward their highest offer from the very beginning or they are likely to lose out on the home. It is also important to remember that in multiple bid situations it is not always the highest offer that is most attractive to the seller but the one with the fewest contingencies. Removing restrictions related to the sale of a current home and being flexible with things like the move-in date, personal possessions left behind, accepting known defects, etc. can make a bid stand out to a seller.

Who’s got the Buyer’s back in New Construction?

We all likely know someone who lost money in the purchase of a new home. Over the years, I have heard of deposits that were kept and no home built, even though the buyer was willing to purchase, water problems hidden by a builder, failure of the builder to fix problems, poor community designs, bad locations, choosing the worst lot int he job, etc. I hear these horror stories LONG after I can do anything about them. So, I ask the question ‘Who represents you in a new construction transaction? ‘

Your representation can be straightforward if you have a buyer agent accompanying you, or murky when, you walk in to a model home, alone.  If you walk in alone, in PA, you’re simply assigned the builder’s agent- a person that represents the BUILDER.  On the other hand, a good buyer agent, familiar with new construction and the resale of a home (your home is only new once), can add value in the process in a number of ways. They should walk you through the process with insight, market knowledge, and advise with an eye toward resale- whenever that would occur.  Advise you on required amenities for resale of that style of home and options that will cost a lot more to add later.

The builder’s agent, (the randomly assigned agent identified earlier), works for the builder and is considered their representative or agent. This person is not likely to be familiar with the resale of a ‘used’ home and acts somewhat like a cheerleader and definitely as an order taker. They ask what you want and give you a price for your order.  Its not likely they will talk you out of pricey upgrades that won’t be valued upon re-sale.

When I work on a new construction purchase, as an agent for buyer, I want to navigate the process as an advocate for the Buyer, to always add value for my client. This includes talking through the layout of the community to select a lot, discuss the impact of options, upgrades, selections and to help set priorities. Some things may be completed later for less while other are important to address from the start or they will cost much, much more later. Everything you pay the builder to complete is part of your tax base, on which you pay, FOREVER.

Some specific examples of what I mean by these general comments:
I had a buyer wanting to finish the basement, but couldn’t manage the builder’s additional cost in their planned loan. Looking for options, we had the builder ‘rough in’ basement plumbing for a bath, but leave the finishing project for the homeowner. The builder’s additional cost was minimal and meant that plumbing was already in place in the floor for the future finishing project that could include a bath. This will save the expense of cutting the concrete floor to install a drain line when the bathroom is needed.

A buyer of a rancher style, one floor, home requested the main floor laundry be moved to the basement- a familiar re-sale floor plan. We weighed the options of what the next buyer would want and had a second laundry (again, just the cost of a ‘rough in’ ) added to the basement for their immediate use, while retaining the main living floor access to a washer and dryer for the next buyer.

As for ‘ Who represents you in a new construction transaction?’, unfortunately, for many consumers, it’s either the builder or no one. The builder’s agent may even ask if you if you want ketchup with that order. As a seasoned, full time real estate professional and Buyer’s Agent, I say neither of these are real representation.