HOAs, Resale Certificates, and Restrictions Violations
The resale certificate is a due diligence report for the buyer that allows them to understand how their property is affected by being in a homeowner’s association (“HOA”).
Obviously the buyer needs to understand what their initial capital contribution in that property will be. They also need to understand what their dues are and when they are paid and all of this information is contained in the resale certificate. There are also some lesser reviewed items in the resale certificate that buyers should be sure to review.
One of these items is lawsuits. The resale certificate will have a paragraph in it that reads something like:
If a buyer sees this it means the HOA is involved in lititgation of some sort which can affect the buyer's costs associated with homeownership sometime in the future. The buyer should obtain and review a copy of this lawsuit to make sure that they understand the implications.
Another thing the buyer should review is restrictions violations. They are usually shown like this:
Existing restrictions violations can have two impacts on homeownership. First, the HOA may issue fines or assessments against the homeowner. Second, when it comes to closing time the title company may not be able to issue the T19.1 endorsement to the buyer. You can read more about that endorsement here: bit.ly/3IBgg6P More importantly, they may not be able to issue the T-19 endorsement to the lender which often times results in the lender not being able to fund the loan.
So what can be done? The seller can resolve the restrictions violation prior to closing and have the HOA issue a letter that the violation has been satisfied. This can of course take time so it is important that agents flag those violations early on in the transaction so that the agents can begin the discussion and negotiation process with their clients. These are also two very good reasons why a buyer should never waive obtaining the resale certificate.
What else should a realtor know about the Resale Certificate? Every management company operates on their own schedule and since they are not a party to the contract they are not bound by the delivery dates that real estate agents negotiate in the contract for delivery requirements. Realtors should understand that a failure to timely deliver the resale certificate gives the buyer the right to cancel the contract. Whether it is the buyer or seller that is responsible for ordering the resale certificate, failure to obtain timely is a cancellation contingency:
When filling out the Addendum for Property Subject To Mandatory Membership In a Property Owner’s Association a real estate agent should put a reasonable time frame in that allows for title to obtain the resale certificate from the management company. If a contract has too short of a timeline in this addendum then there is a good chance the buyer can terminate the contract due to failure to deliver the resale certificate.
Your closing teams at Texas National Title will also warn you up front if the management company has communicated to us that they cannot deliver by the due date. When you receive these notices it is important that you review your file to see if an amendment is necessary to preserve the interest of your clients.
Working with a knowledgeable title company is the key to success! Our escrow teams are the experts that you need and the partners that you can trust. Any time you have questions please do not hesitate to contact us!
Title Insurance FAQ
In this month’s Closer’s Corner we share information about title insurance. It is very important to the transaction and often quite misunderstood.
What is title insurance? Title insurance insures against financial loss caused by defects in title to real estate. Title insurance companies defend against lawsuits attacking the title, or in the case of a covered loss, reimburse the insured up to the policy limit.
What kinds of defects does title insurance protect you from? It protects the insured (i.e. the buyer or lender) against loss due to title defects, liens, or other similar matters. Title insurance protects the buyer from claims of ownership by other parties. It protects the buyer against losses from certain problems that arose before they bought the property and it offers coverage and assistance for the buyer post-closing if covered issues arise.
How long does it last? An owner’s policy lasts as long as the buyer or their heirs own the land. It could even provide warrantor’s coverage after the buyer no longer owns the property, depending on the policy provisions. The premium is paid only once when the policy is purchased.
What’s the difference between a title commitment and a title policy? The title commitment comes before closing and affords the buyer a preview of how their title policy will be issued. The title policy is issued after closing once we’ve funded and recorded all documents. The commitment says that a title company is willing to issue title insurance under certain conditions and if the seller fixes certain problems. The policy provides the actual coverage for the property.
What does the title commitment do? The title commitment shows that upon closing and funding the title company will issue a policy and the title commitment gives the buyer the opportunity to review exceptions and exclusions to coverage that will be itemized in the title policy.
A buyer should always review their title commitment in detail prior to closing so that they are aware of the limitations and encumbrances that exist on a property. Exceptions and exclusions are items not covered by the policy.
What types of polices are there? There are two types of policies: Owner’s Title Policy (“OTP”) and Lender’s Title Policy.
The owner’s policy protects a buyer against losses from some ownership problems that arose before they bought the property, but that were not known at the time of closing. For example, a buyer could lose title to their property due to fraud, errors or omissions in previous deeds, or forgery of a previous deed. The owner’s policy protects the buyer from the covered risks listed in the policy. The loan policy is issued to the mortgage lender. It protects the lender’s interest in the property until the borrower pays off the mortgage.
Why does a buyer need a loan policy? Often times we are asked if a buyer can waive getting an Owner’s Title Policy and that is an incredibly risky thing for a buyer to want to do. A buyer that does not get title insurance is 100% on their own for any issues that later arise from the purchase of the property and they wouldn't have a title policy to help resolve the title matters. Additionally their lender will require a loan policy as a condition of the mortgage so waiving the OTP does not actually result in a significant cost savings to the buyer. When an OTP and loan policy are purchased at the same time, the loan policy is issued at a discounted price of $100. If a buyer decides not to purchase an owner’s policy, they would still pay full price for the loan policy (and they would receive no credit from the seller if the seller had agreed to pay for the OTP per contract).
What if my home increases in value? Am I still covered? The buyer is covered for the value of the initial sales price.
If they add improvements, or if the home increases in value over time, they can buy an increased value endorsement to cover the increased property’s value.
What is a title defect? A title defect is anything that can cause a title to be considered invalid or defective in some way.
Some examples are:
Invalid documents due to forgery, fraud, undue influence, duress, incompetency, incapacity, or impersonation.
Failure of any person or entity to have authorized a transfer or conveyance.
A document affecting title that is not properly executed, signed, witnessed, notarized, or delivered.
Undisclosed or unrecorded easements not otherwise apparent on your land.
No right of access to and from the land.
A document executed under a falsified, expired, or otherwise invalid power of attorney.
A document not properly filed, recorded, or indexed in the public records.
Ownership claims by undisclosed or missing heirs.
Defect arising from an improper prior foreclosure.
Undisclosed restrictive covenants affecting your property.
Lien issues can also cause title defects. Some examples of lien issues are:
A statutory or constitutional contractor lien for labor that began before the closing.
Lien for materials furnished by a contractor.
A previous owner failed to pay a mortgage or deed of trust
A judgment, tax, or special assessment
A charge by a homeowners or condominium association.
What doesn’t a title policy cover? A title policy won’t cover defects that are created after the policy is issued. It also does not cover defects created by the insured. Nor does a policy cover municipal issues such as zoning or city permitting requirements.
What is a good way to explain title insurance to customers? Did you know that TNT supplies a specific marketing piece addressing this topic in both English and Spanish languages that is available to you for buyer and seller presentations? Access TNT’s “What is Title Insurance?” flyer and many other Buying, Selling, and Closing themed marketing pieces through the TNT Website at: www.texasnationaltitle.com/austin/tools/brochures/buy-selling-closing
Our closing teams at Texas National Title are all well versed in the complexities associated with closings. We are the experts that you need and the partners that you can trust in all things escrow and title! Please do not hesitate to contact us with any additional questions that you have.
What is an endorsement? An endorsement is something that changes the terms of the coverage in the title policy to the buyer or lender’s benefit. It is an attachment to the policy that generally offers more coverage from what is included in the basic policy.
One of the endorsements that adds extra and important coverage for the buyer is the T19.1 endorsement.
What does the T19.1 do and what should an agent tell their client about the coverage? First, agents should be careful about going into too much detail in describing title policy coverage so as to avoid making legal representations. That said, it is good to have a general explanation and then you can refer them to your trusted escrow officer at TNT.
A good way to remember what the T19.1 covers is the acronym “M.E.R”: M - Minerals | E - Encroachments | R - Restrictions
Insurance Provisions for Minerals In general the minerals portion of the T19.1 includes provisions for damage to the improvements on the property that is caused from a future exercise of a right to use the surface of the property for extraction or development of minerals.
Insurance Provisions for Encroachments The Encroachment section includes provisions for certain encroachment issues on a property. Common examples are:
Removal of an improvement because it violates a setback line shown on the plat or in the real property records;
Encroachment of the improvements into an easement; or
Encroachment of the improvements into neighboring land.
Insurance Provisions for Restrictions This coverage generally provides coverage for enforcement of the existing restrictions. Some examples are:
Current violation of the restrictions that existed at closing but was not disclosed by the HOA;
First rights of refusal;
Without purchasing this additional coverage the buyer would have no protection under their policy for the examples discussed above.
Requirements for Issuance In order to issue the T19.1 Texas National Title must be presented with the survey and a current T-47 (if we are using an existing survey). If that survey shows existing encroachments then the coverage in the T19.1 may need to be modified.
Cost of Issuance This endorsement can be issued on residential or non-residential property and is a pretty nominal cost. For residential property the cost is 5% if purchased with Survey Deletion a/k/a Area and Boundary Coverage (as discussed in previous Closer’s Corners). If purchased on its own it is 10%. For non-residential properties the charge is 10% and 15% respectively.
This Closer’s Corner is intended to be a general overview of the T19.1 Endorsement that is available to be attached to an Owner’s Title Policy. To review the endorsement in full a copy can be located here: www.tdi.texas.gov/title/documents/form_t-19-1.pdf
Our closing teams are very knowledgeable about title policies and endorsements. While we cannot provide legal advice for a specific transaction we can always talk about our insurance products and help our clients get a general understanding of the coverage that can be obtained by a buyer. A prudent real estate agent wants to be able to inform the client of their options and then direct them to Texas National Title for more in-depth information.
Closing Into or Out of an Entity
It is not uncommon for a property owner to hold title in the name of a corporate entity. This can be a corporation, limited liability company, partnership or other entity type provided for by law. They do this for many reasons that can include liability protection and tax advantages.
When real property is going to be conveyed though, the title company needs to know a few very important things about that entity. When preparing to close our transaction we need to know the following:
1. Who has authority to complete the transaction? 2. What powers do our signers have? 3. Are there any limitations on those powers? 4. Does the entity properly exist? 5. Is the entity in good standing to conduct their transaction?
To confirm that we are ready to close we need to obtain the necessary governing documents from the parties. This typically includes the Operating Agreement or Company Resolutions (limited liability companies), a Partnership Agreement (partnerships) or a Corporate Resolution (corporations).
These governing documents must be reviewed in detail before a closing can occur and sometimes we need your help with getting these documents from your clients for our review.
CLOSINGS WITH ENTITIES: WHAT SHOULD A REALTOR KNOW? As a realtor, it can be a big help to notify your clients when they list the property, that the title company is going to request a copy of the governing documents and they are necessary for the file.
It is also very helpful to notify the title company if your clients intend to purchase in the name of the entity so that we have advance warning and can work with them to properly structure the file.
If you have a client ask you about deeding their property into an entity after closing you can send them this article and put them in touch with their TNT closer: bit.ly/3YbhZF6
Our closing teams at Texas National Title are all well versed in the complexities associated with closing into or out of an entity. We are the experts that you need and the partners that you can trust in all things escrow and title! Please do not hesitate to contact us with any questions that you have.
Protect Yourself from Listing Fraud
Listing fraud and seller impersonation has become a very serious threat in the real estate community.
Agents are getting deceived into taking listings from fraudsters and in some cases even going all the way under contract or closing! The instances of fraud continues to rise and rise.
Join us on February 8th to attend our fraud avoidance class taught by Latra Szal, President of Texas National Title. In this class we will discuss various types of fraud that we are seeing and the steps agents can try to take to avoid accidentally participating in a fraud. You will also learn how this recent fraud can affect your real estate closings.
Wednesday, February 8 10:00-11:00am | Zoom Video
Our closing teams at Texas National Title are the experts that you need and the partners that you can trust in all things escrow and title! Please join us for the Zoom and do not hesitate to contact us with any questions that you have.
MUD, PUD, or PID?
What is the difference and what should a realtor know?
When a property is located in a PUD, MUD or PID there are disclosures that are required of the transaction and failure to obtain that disclosure can result in termination of the contract or even a monetary penalty.
MUD: Municipal Utility District A MUD is a district created under the Texas Water Code or by an act of the legislature to provide certain utilities such as water, sanitary sewer, drainage and flood control, and any of these services or facilities have been financed with bonds that are payable by the persons who live in the district.
Chapter 49 of the Texas Water Code requires a person selling a property that is in a MUD to give notice to the buyer of those potential fees for owning this property. This same law states that the notice must be given to the buyer prior to the buyer entering into the contract OR as an addendum to the contract at the time the contract is negotiated. If the notice is not timely provided, the buyer can terminate the contract at any time.
MUDs are often collected through a homeowner’s property tax bill.
PUD: Public Utility District A PUD is created by the community and generally operates under a board, similar to how a homeowner’s association works. This PUD is created for the sole purpose of providing electricity, water, sewer and telecommunications to a subdivision.
PID: Public Improvement District A PID is similar to a MUD in that it can be used for subdivision infrastructure items, but it can also be used for additional items like landscaping, parks, sidewalks, roadways and public safety items. These districts are provided for in Chapter 372 and 382 of the Local Government Code.
Where a PID differs from a MUD is that the PID is not a political entity. A PID is funded through bonds secured by liens against the property and once issued, the bonds are paid back by way of a special assessment. These assessments are typically levied for a set number of years.
Tips for Realtors It is important to keep in mind that a disclosure for each of these matters is required to be signed before the contract is executed. The TREC contracts have been modified (effective now, mandatory for use 2/1/2023) to provide a space to list all disclosures previously provided:
Failure to have these provided prior to closing can result in a painful outcome, so real estate agents should always make sure the appropriate forms are getting filled out.
Not sure what form you need? Your closing team at Texas National Title can help you determine which forms are required.
Closings Involving a Trust
TRUSTS IN GENERAL: What are they? Trusts in themselves are not legal entities which can own, manage or sell property. A trust operates through one or more trustees, who usually are individuals but may be corporations. It is these trustees who hold legal title to the property for the benefit of the beneficiaries of the trust.
WHAT DOES A TITLE COMPANY NEED WHEN A PROPERTY IS HELD IN TRUST? To be able to close, a title company needs to be able to review the client's Trust Agreement. When we are reviewing we look for three main things:
Who are the trustees?
What powers have they been given under the Trust Agreement?
What limitations, if any, were placed on those powers?
The biggest piece of the equation is getting a copy of the client's Trust Agreement, which can be a challenge as this document typically contains confidential information.
IDENTIFYING THE TRUSTEES The Trust Agreement will outline the parties to the agreement. Typically we see the parties to be: "Settlor or Grantor": The party that is creating the trust and transferring property into the trust. "Trustee": The person responsible for management of the trust. "Beneficiaries": The parties on whose behalf the trust has been created. These definitions can be all the same person or each definition can be a separate person.
TRUSTEE POWERS The Texas statutes generally provide that a trustee of a trust has the power to sell, buy, encumber, and lease the property. The Trustee has a fiduciary duty to the trust beneficiaries in their management of the trust. A Trust Agreement can limit or expand the power of the trustee for management of the trust which is why the Trust Agreement must be provided to the title company. The Trust Agreement must be carefully reviewed to make sure that the power the trustee needs to complete the transaction is specifically given to the trustee.
Occasionally the initial Trustee is now deceased or has declined to serve as Trustee. We then have to look for the Successor Trustees in the agreement. Usually the Trust Agreement will provide for a successor trustee upon the death, disability or resignation of the original trustee. It is important to verify that we are dealing with the current trustee of the trust and we look to the agreement for that information. If the trust agreement does not provide for a successor, or if the named successor cannot so act, it may be necessary to seek court appointment of a successor.
CLOSING SCENARIOS WITH TRUSTS TRUSTS AND POWER OF ATTORNEY DOCUMENTS Historically a trustee was not permitted to delegate their fiduciary duty of operation of the trust to someone by way of a Power of Attorney. A legislative change in the last few years altered that limitation and now use of a Power of Attorney may be possible under a trust. The Trust Agreement must not exclude that power from the Trustee's fiduciary responsibilities though, so review of the Trust Agreement by the title company's underwriter is a must before a Power of Attorney can be considered.
SELLER PROCEEDS Many underwriters require that the proceeds from sale be distributed only to the named persons or entities that are in title. That means if title is held as "John Doe, Trustee of The John Doe Trust" a title company should be depositing funds into a bank account that is styled "The John Doe Trust." Many times sellers come to closing and instead want to deposit funds into an account owned by the individual. This may be permitted under very limited circumstances but the title company needs to know if this is the intent of the parties well before closing. If a seller comes to closing and then wants to disburse proceeds to an account that is not in the name of the trust there can be delays in funding the file. If your seller does not have a bank account set up in the trust name please notify your closing team well before closing.
BUYERS IN TRUST When your buyer wants to take title in the name of a trust, the Trust Agreement must be reviewed if they are getting a loan to purchase. It is also important that title is taken in the name of the trustee for the trust and not just the trust name alone.
BUYERS THAT TAKE TITLE INDIVIDUALLY BUT LATER DEED TO THEIR TRUST This second conveyance can negatively affect title policy coverage for the purchaser. If you have a client that wants to later deed into a trust they should contact us before they file a deed. There is an additional endorsement to their Owner's Title Policy that can be purchased to extend the coverage to the trust instead of just them individually.
CLOSINGS WITH TRUSTS: WHAT SHOULD A REALTOR DO? As a realtor, it can be a big help to notify your clients when they list the property that the title company is going to request a copy of the trust agreement and it is necessary for the file.
It is also very helpful to notify the title company if your clients intend to purchase in the name of the trust so that we have advance warning and can work with them to properly structure the file.
Our closing teams at Texas National Title are all well versed in the complexities associated with closing into or out of a trust. We are the experts that you need and the partners that you can trust in all things escrow and title! Please do not hesitate to contact us with any questions that you have.
Surveys: What is Important for a Realtor to Know
What is a Survey? A real property survey is a report that indicates the location of improvements relative to the boundaries of a property. A real property survey report generally contains an illustration of the physical features of the property and a written report detailing the surveyor's opinions and concerns.
What are some reasons why we have to have a survey? The first reason that a survey is needed for closing is because many of the TREC contracts require a survey. Additionally, most lenders require one to approve the loan.
As far as title needs are concerned, here are some ways that we use surveys:
To provide area and boundary coverage (for more information on Survey Deletion please see our August Closer's Corner article on this topic
To create a new legal description (i.e. carving out a portion of a property);
To confirm the legal description provided by the contract;
To confirm legal access;
To confirm physical access (when issuing certain endorsements);
To issue endorsements that are required by the lender; and
To locate any improvements in relation to the public utility easements, restricted areas or adjoining properties.
Who is responsible for providing the survey? The short answer is: This is negotiable between buyer and seller. In looking at the Texas Real Estate Commission's One to Four Family Residential Contract there are three main options. The second and third options are pretty easy to understand as Option 2 has the buyer paying for a new survey and Option 3 has the seller paying for a new survey. It is Option 1 that can create some confusion between the parties. That paragraph reads as follows (emphasis added):
(1)Within ________ days after the Effective Date of this contract, Seller shall furnish to Buyer and Title Company Seller's existing survey of the Property and a Residential Real Property Affidavit promulgated by the Texas Department of Insurance (T-47 Affidavit). If Seller fails to furnish the existing survey or affidavit within the time prescribed, Buyer shall obtain a new survey at Seller's expense no later than 3 days prior to Closing Date. If the existing survey or affidavit is not acceptable to Title Company or Buyer's lender(s), Buyer shall obtain a new survey at Seller's Buyer's expense no later than 3 days prior to Closing Date.
Under this paragraph the seller is responsible to deliver their existing survey accompanied by the Residential Real Property Affidavit (T-47). Failure to deliver either the survey or the T-47 in the prescribed amount of time means that the buyer now has the right to require that a new survey be ordered – at the seller's expense! A prudent real estate agent should make sure that their client can deliver both the survey and the T-47 in the stated timeline before they allow their sellers to choose this option.
Additionally, the T-47 itself is often the subject of confusion among the parties. The purpose of the T-47 is for the seller to provide a sworn affidavit that accompanies the survey to provide information that is required by the Texas Department of Insurance which governs the issuance of title policies. A title company relies on the statements made in the T-47 to determine if we are able to provide the coverage required by an owner and their lender.
Since we are relying on this affidavit for policy issuance it is critical that a seller make sure they complete this question in full detail:
Notes made in this section will need to be reviewed by the escrow officer well before closing to make sure that the survey is acceptable for the transaction to be insured.
Our closing teams at Texas National Title are very knowledgeable about reviewing and understanding surveys. We are happy to help review surveys before the property goes under contract and we are here to be your partners in navigating this topic. We are the experts that you need and the partners that you can trust to get your deals closed!
Taxes and Closing Pitfalls
In previous Closer's Corner articles we have discussed taxes and how they can affect your transaction: Property Tax Time
This month we will specifically look at the Over 65 exemption and how it can affect a buyer or seller.
When looking at tax prorations we find that there is little to no guidance offered by the contract. The contract states:
Taxes for the current year, interest, maintenance fees, assessments, dues and rents will be prorated through the Closing Date. The tax proration may be calculated taking into consideration any change in exemptions that will affect the current year's taxes. If taxes for the current year vary from the amount prorated at closing, the parties shall adjust the prorations when tax statements for the current year are available. If taxes are not paid at or prior to closing, Buyer shall pay taxes for the current year.
The contract does not offer instruction on how taxes should be prorated when there is an exemption that applies to the seller but does not also apply to the buyer.
To further complicate the matter the entity that decides how to handle the tax exemptions is the county tax office and their methods can be quite difficult to understand. We often see the county remove an exemption that was on the property post closing which can mean (1) the buyer gets a larger tax bill for the year and (2) the prorations at closing may not balance to the taxes the county will be assessing for the year
Since the power to alter exemptions falls on the county and not the title company, it can be a real challenge to properly prorate taxes between buyer and seller for closing. For this reason the title company often has to seek guidance from the listing and selling agent as to how to prorate taxes for any given file.
Over 65 Exemption If a taxpayer is eligible for an Over 65 they can pay their taxes in installments without penalties instead of having to pay it all at one time. The taxpayer may also “defer” or postpone tax payments, with the consent of their lender, by filing a “tax deferral affidavit.” This only defers the tax liability and interest continues to accrue. With a deferral, the taxes are due in total 181 days after the death of the owner that qualified for the exemption.
These types of exemptions are transferable to another home. Note however, if the taxpayer claims another homestead during the year, the exemption is no longer allowed on the prior homestead for the remainder of the year and the taxing units will prorate the taxes based on the number of days elapsing after the taxpayer ceases to qualify to the end of the year.
Typically the seller carrying an Over 65 exemption also has very reduced taxes.
Let's look at a sample scenario: John has owned his property for five years and he carries an Over 65 exemption. His property is valued at $900,000 and his annual property taxes are $4,000 due to the exemption. Jane is buying the property and Jane does not qualify for the exemption. Without the exemption the property taxes would be $10,000.
If the taxes are prorated with the exemption the daily proration amount would be $10.96. If the taxes are prorated without the exemption the daily proration amount would be $27.40. If closing were to occur at the end of the September the difference in the tax proration / credit to the buyer would be $2,992.08 compared to $7,480.20.
Let’s assume that the exemption was not raised for discussion between the buyer and seller and instead the title company just prorated without considering the exemption at all. In that scenario the buyer could receive the smaller credit from the seller but if the county removes the Over 65 exemption that same buyer could get a tax bill for closer to $10,000 for the whole year. When this happens the buyer has the option to go back to the seller and seek reimbursement for the increased amount due from their ownership period.
WHAT IS THE BEST WAY TO AVOID THIS SURPRISE? As a realtor you should be looking at the tax certificate to flag any files with potential exemption issues. The best time to address a discrepancy is before closing so that the issue can be resolved with mutual consent between buyer and seller. If the issue is discussed and negotiated prior to closing then the parties are aware of the potential risks before closing and there can be no surprise later in the year for either side.
Since the county controls this process the main focus should be making the clients knowledgeable about the changes that can happen so that they are appropriately prepared.
From a closing standpoint the title company is able to prorate the taxes in any manner in which the parties jointly approve. Talk to us! While we cannot tell anyone what the county will (or will not do post closing) we can help explain the proration options. When we get to closing we will also have all parties sign a disclosure confirming that they understand the process that was used for closing.
Our closing teams at Texas National Title are very knowledgeable about property taxes and prorations procedures. We are happy to help review the most up-to-date info before the property goes under contract and we are here to be your partners in navigating this topic. We are the experts that you need and the partners that you can trust to get your deals closed!
Understanding the Funding Process
One of the most important times in a closing is when the transaction finally funds! That is the time when ownership transfers from the seller to the buyer and there is a lot that goes on behind the scenes to get funding accomplished.
WHAT HAPPENS DURING THE FUNDING PROCESS? First, it is important to understand that working on funding only happens after all parties have signed. As a real estate agent you want to try and schedule your closings for early in the day (ideally before lunch time) if you are trying to close and fund in the same day.
After all parties sign the closing documents the title company then has to package up a portion of those executed documents and send them to the lender for review. Our closing documents then go into a review queue for the lender and the lender is checking the following items:
Were all necessary documents signed?
Does the signature on the documents match the signature on the initial loan application?
Are the documents as executed acceptable to their investor guidelines?
Every lender has a slightly different process for funding review and every lender also has a different timeline for their review which can make the funding process occur very quickly or can make it take quite a while.
WHY DO I SOMETIMES HEAR FROM MY LENDER THAT WE ARE FUNDED BUT TITLE SAYS WE ARE NOT YET? For a lender the word “funded” often means that they’ve initiated their wire for the loan proceeds. For the lender’s purposes their transaction is funded in their system. From there though there are many more steps that have to happen before the whole file is actually funded.
WHAT HAPPENS AFTER THE LENDER APPROVES FUNDING? Once the lender has issued funding approval the fun begins. At this point the title company is looking for the loan funds to be wired into our account so that we have all funds necessary to disburse the transaction. Some lenders will send their wire in advance and just have us hold it before we disburse but many lenders will not release their funding wire until they have reviewed all of the signed documents.
Another thing that can delay funding is the buyer not sending their funds in timely. Many buyers wait until they come to closing to wire their funds which means a title company’s ability to fund quickly is arbitrarily delayed.
The title company has to wait until we have all funds from the parties (buyer, lender and sometimes even seller) before we can fund. We also have to wait until we have approval from all parties to fund.
Once all of the money is in and all approvals have been given we go to work on the funding process. This means we are doing the following items:
Wiring out the seller proceeds;
Wiring out any funds to a seller’s payoff lender;
Disbursing agent commission checks;
Paying all vendors that were shown on the Closing Disclosure;
Packaging up the loan documents to overnight to the lender; and
Recording the conveyance documents from the transaction.
WHAT CAN CAUSE A DELAY IN FUNDING? There are several things that can cause a delay in funding. The most common delays are:
Signers arrive late for closing (which pushes back the signing time, puts their file further back in the lender’s queue to review and potentially pushes them past a wire out cut off time);
Buyers not bringing their funds to closing in a cashier’s check (or send their wire prior to closing);
Buyers do not bring their ID with them to closing;
Lenders waiting to wire their loan funds until after they’ve reviewed the documents;
Lender documents containing errors that were caught in the funding review (which can require the buyer to come back in and resign the documents);
Closings that are scheduled late in the day; and
Issues with getting mail-out documents back on time for funding.
Working with an efficient and focused title company is the key to success when it comes to funding! Our escrow teams are experts in handling your transactions and we are here to help you get your deals closed (and funded) quickly!