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Archive | Buyer 101

The History of Title

Screen Shot 2015-09-01 at 10.32.32 AMIn 1868, the concept of title insurance began as a result of needed improvement to the traditional methods of conveying real property. At the time, the process did not provide confidence and safety to the parties involved in a real estate transaction. Historically, the transfer of title to real property was performed by conveyancers who were recognized authorities on real estate law but generally not lawyers. Conveyancers spearheaded all aspects of the transaction, including a title search, to determine the ownership rights of the seller and any other rights, interests, liens or encumbrances that might “cloud” the property’s title.

From the search, the conveyance then delivered a description (abstract) of the title’s status that laid the groundwork for the conveyancer’s opinion as to how clean or clouded the title. Due to inadequate public records, conveyancers had limited ability to ensure adequate buyer confidence. There was also the risk that their good faith opinion might ignore certain clouds on title or lack thoroughness. As a result, buyers were left to unfortunately bear the full risk of any title issues that might arise following their real estate purchase. The case of Watson v. Muirhead (57 Pa. 161) was filed in Pennsylvania in 1868 which is directly traceable to the limited protection issue of the time concerning the work a conveyancer provided to the purchaser of real property.

Muirhead, a conveyancer, had searched and abstracted a title for Watson, the purchaser of a parcel of real property. Muirhead chose to ignore certain recorded judgments and reported the title as good and unencumbered after consulting an attorney. As a result, Watson purchased the property but was later presented with liens that Muirhead had determined were not title impairments. The Pennsylvania Supreme Court ruled that there was no negligence on the conveyancer’s part and dismissed the case. The decision clearly demonstrated that, in the existing conveyancing system, the buyer would bear the full risk should an issue on title come up after purchasing the real estate.

This decision ignited the Pennsylvania legislature to later pass an act “to provide for the incorporation and regulation of title insurance companies” and the first title company, The Law of Property Assurance and Trust Society, was founded in Philadelphia in 1876. Addressing the concerns in Watson v. Muirhead, title insurance provided responsibility without proof of negligence, financial protection through a reduction of the risk of insolvency, and the assumption of risks beyond those disclosed in the public records (for which the abstractor was not liable). Title insurance has become an integral part in the majority of today’s real estate transactions in the United States. Regulated by state insurance agencies, the services of title insurers vary in different states and counties due to different laws, procedures and customary practices. Nonetheless, the critical objective is steadfast – to ensure all parties acquiring or transferring an interest in real estate can do so with the highest level of efficiency, security and safety.


Did You Know? Benjamin Franklin laid the groundwork for the model and concept of title insurance as we know it today?


Title insurance is available in Canada, England, Northern Ireland, Mexico, New Zealand, China, Korea, Australia, and throughout Europe?


Unlike other forms of insurance, title insurance emphasizes prevention rather than the assumption of risk.


(From 365Title)

See more: Buyer 101, Seller 101

Join Me on Periscope – Watch My Live Home Tours

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Hey Guys — Have you checked out Periscope yet? It’s a new FREE App owned by Twitter that lets you file or watch live streams of video with people all over the world. Once you shoot a video it stays up for 24 hours. So in that way it is a little like Snapchat, but much easier to use. I’m really excited about Periscope — I think it is a great way to share places, homes, gardens, cities, etc with other people. It’s like having your own TV station in your your phone. I put up a live stream of a new listing yesterday and had 238 live views watching it as I walked around the house! My very first live stream. Crazy, right? I’m going to start using it to share home tours and broker’s opens. And to walk you through gardens I’m designing. Another neat thing is that people can comment and ask you questions – so it can be interactive if you want it to be.

Download the App here and follow me @pattyhume.

By the way, I’m easy to find on social media — I’m @pattyhume on Instagram, Twitter, Pinterest, Periscope, etc.

See you on live on Periscope!

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See more: Buyer 101, Diary, Featured Properies

Understanding Capital Gains

A capital gain is a profit that results from the sale of an asset, such as stocks, bonds or real estate, which amounts to more than the purchase cost. This difference between sale price and original price (cost basis) is the capital gain. Capital gains  are often calculated for tax purposes and are not based on the purchase price but on its adjusted cost basis.

The IRS provides for a tax exemption on capital gains from the sale of a principal residence. Be sure to check with your Accountant or CPA for professional insight.

HOW TO CALCULATE CAPITAL GAIN

First, take the purchase price of the home. This is the sales price not the amount of money contributed at closing.

Second, determine the sales price or the final amount received in exchange for its recent sale.

Third, add adjustments:

+ cost of purchase, including inspections, transfer fees, attorney fees

+ with the exception of points paid on a mortgage

+ cost of improvement, including decks, casitas, room additions with the exception of repair or replacement to something already in existence such as a roof or air conditioning unit

+ cost of sale, including inspection fees, attorney’s fees, commissions and money spent on the home to ready it for sale

finally, total the adjusted sale price and subtract the adjusted cost basis from the amount the home is sold for to determine the capital gain.

(from Title360 Home Seller’s Guide)


Thinking of selling? 
Download a FREE 26 page Home Guide for Seller’s – Click Here to Download


See more: Buyer 101, Seller 101

What is Escrow?

Escrow is the depositing of funds and documents that establish the terms and conditions for the transfer of property ownership with an impartial third party (title company) for delivery upon completion of the terms of the escrow instruction.

You’ve probably heard the term: documents are held “in escrow” or that the parties have “opened escrow.” The principals of the escrow (Seller, Buyer, Lender) will give to the escrow holder written instructions setting out the terms and conditions under which the further delivery is to be made. The Escrow Officer holds responsibility for seeing that these terms are adhered to. 

WHO CHOOSES THE ESCROW COMPANY?
The selection of escrow is typically done by agreement between the principals. In most areas of the country, the Seller typically makes the selection but it does vary. Often times, this aspect of a transaction is directed towards the Seller’s preference because if a home has fallen out of escrow prior, disclosures and reports are already ordered and paid for with an escrow company so it makes sense based on cost and efficiency to stay with the same company. Real estate agents or Lenders often recommend an escrow holder but it is the right of the Seller and Buyer to select the company they deem to be most competent and experienced.

THE PURPOSE Of AN ESCROW
The common use of an escrow is to enable the parties in a real estate transaction to deal with each other with less risk, since the escrow holder acts as:

  • Custodian for funds and documents.
  • A clearing house for payment of all demands.
  • An agency to perform the clerical details for the settlement of the accounts between the parties.

TYPICAL ESCROW TRANSACTION
An escrow begins with the Realtor® ‘opening the order for title work’ and providing the Purchase Agreement and all executed documentation to escrow. Once received, the escrow agency prepares a preliminary report. Upon receipt of the preliminary report, an analysis is made to determine the necessary action and documents required to complete the transaction:

  • Demands for satisfaction of liens not acceptable to Buyer and/or Lender.
  • Documents for recording.
  • Instructions and requirements of the new Lender.
  • In most areas, Buyer and Seller instructions are prepared for signature from the information gathered.

When all the title and financial requirements are met, and instructions from all parties can be fully complied with, the escrow is said to be ‘in perfection’ and can close. Once the financial settlement takes place, documents are recorded and the title insurance policies are then issued.

(from Title360 Seller’s Guide)


Thinking of selling? 
Download a FREE 26 page Home Guide for Seller’s – Click Here to Download


See more: Buyer 101, Seller 101

What Does Title Insurance Protect Against?

Title insurance covers the insured party for any claims and legal fees that arise out of such problems. These rights or claims remain attached to the title to the property until they are rectified.

  • False impersonation of the true owner of the property
  • Forged deed releases or wills
  • Instruments executed under invalid or expired power of attorney
  • Undisclosed or missing heirs
  • Mistakes in recording legal documents
  • Misinterpretations of wills
  • Deeds by persons of unsound mind
  • Deeds by minors
  • Deeds by persons supposedly single, but in fact married
  • Liens for unpaid estate, inheritance, income or gift taxes
  • Fraud

AGAINST CLAIMS TO PROPERTY
If a claim is made against your insured title, the title insurance provider protects you by:

  • Defending your title, in court if necessary, at no cost to you.
  • Bearing the cost of settling the case, if it proves valid, in order to protect your title and maintain your possession of your property.

Title insurance gives you the assurance that possible claims on title to the property can be discovered from the public records – have been called to your attention so that these defects can be corrected. It is insurance that, if any undiscovered claims covered by your policy arise out of the past to threaten your ownership of real estate, it will be disposed of, or you will be reimbursed exactly as your title insurance policy provides.

(from Title360 Home Seller’s Guide)


Thinking of selling this year? 
Download a FREE 26 page Home Guide for Seller’s – Click Here to Download


See more: Buyer 101, Seller 101

FAQ on Title Insurance

Q) WHAT IS TITLE INSURANCE?

A) Title insurance is a policy of indemnity protecting homeowners and Lenders from financial loss in the event that certain problems develop regarding the rights of property ownership. There are often hidden title defects that even the most diligent title search will not reveal. In addition to the protection from financial loss, title insurance pays the cost of defense against the covered claim.

Q) WHO PAYS FOR TITLE INSURANCE?

A) In most regions, the Seller typically pays for the Owner’s title insurance policy as it is the Seller’s customary means of proving to the Buyer “clear title.” If the purchase is financed, the Buyer pays for the Lender’s title policy which conveys to the Lender that title is “free and clear.” If the Buyer is paying cash, there is no requirement for separate title insurance.

Q) WHO NEEDS TITLE INSURANCE?

A) The Seller, Buyer and Lender all benefit from the insurance provided by title companies. Buyers and Lenders in real estate transactions want to know that the property they are involved with is insured against certain title defects. Title companies provide this needed insurance coverage subject to the terms of the policy.

Q) WHAT TYPES OF POLICIES ARE AVAILABLE?

A) Title companies routinely issue two types of policies: An Owner’s policy which insures you, the homebuyer, for as long as you own the home; and a Lender’s policy which insures the priority of the Lender’s security, interest over the claims that others may have in the property.

Q) WHY DOES THE SELLER NEED TO PROVIDE TITLE INSURANCE?

A) Title insurance represents a guarantee that the property being sold is unencumbered by any legal notices or judgments that might limit or jeopardize ownership. Any prospective Buyer will need evidence that their real estate investment is free of title defects and isn’t likely to take the Seller’s word on that. In fact, the title insurance policy is required in most contracts of sale. Absent title insurance, the Buyer would need to thoroughly search county and other records to try to find out, and if they made a mistake in searching, they’d have no recourse.

Q) WHAT PROTECTION DOES A TITLE POLICY PROVIDE?

A) A title insurance policy contains provisions for the payment of  the legal fees in defense of a claim against your property which is covered under your policy. It also contains provisions for indemnification against losses which result from a covered claim. A premium is paid at the close of a transaction. Unlike other types of insurance, there are no continuing premiums due.

Q) WHAT ARE MY CHANCES Of EVER USING MY TITLE POLICY?

A) Not all title searches are free from defect. As such, there have been Sellers who, as a example, might find during escrow that there are undisclosed mortgages or liens on their property from an original developer. Claims against your property may not be valid, making the continuous protection of the policy all the more important. With title insurance, you could go forward with your closing as scheduled and the title company would undertake the obligation to discharge the liens and clear the title. When a title company provides legal defense against claims covered by your title insurance policy, the savings to you as a Seller for that legal defense alone will greatly exceed the one-time premium paid.

Q) WHO CAN HELP ME ANSWER A FEW MORE QUESTIONS?

A) You can visit www.Title365.com to see a two minute introduction video and explore the Title365 online platform. To speak with a knowledgeable professional, you can call toll free 877.365.9365 or email info@title365.com.

(from Title360 Hoe Seller’s Guide)


Thinking of selling? 
Download a FREE 26 page Home Guide for Seller’s – Click Here to Download


See more: Buyer 101, Seller 101

Next 1st Time Home Buyer Q + A: May 17th

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It’s spring! Are you ready to take the next step towards home ownership?

I’m hosting another 1st Time Home Buyer Q + A at my house in Echo Park. It will be an evening of great food, drinks and tons of info! Natalie Salins, from Movement Mortgage will pay us another visit to answer all your burning real estate finance questions. And I’ll take you step by step through the process of home buying and we can chat about up and coming local neighborhoods to explore.

Even if you have bought before, but want to talk to a lender or understand the local market better you are welcome to attend. Hope to see you there!

Sunday, May 17th – 5:30 – 8pm. Details will be email to you, once you reserve your spot. 

Best,

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RESERVE YOUR SPOT NOW


See more: Buyer 101, News

Understanding Home Warranty

HOME  WARRENTY (2)
The Home Warranty’s Role in Your Sale

As a Seller, a home warranty is basically an insurance policy covering the mechanical, electrical and plumbing systems of a house against unforeseeable events after you close escrow. A policy can ward off potential disputes after the sale for repair and/or replacement of covered items.

Whether the Seller pays for the home protection plan and home warranty coverage or whether the Buyer pays for it, will depend on your local customs. In many regions, the Seller often pays for the coverage because it’s a Seller benefit in that the Buyer won’t be calling after closing if something breaks.

TYPES Of COVERAGE
Home warranty plans range, on average, from $250 to $450 depending on coverage, and are prepaid for a year in advance. When used, the homeowner often pays a co-pay direct to a service provider when a service covered under the plan is rendered. Most home warranty payments are not due until the close of escrow and it becomes part of the Seller’s closing costs. The policy is mailed to the new policy holder and can be renewed on an annual basis going forward.

Coverage varies from state-to-state and from policy-to-policy. Basic home warranty plans cover routine heating, plumbing and electrical systems. Optimal coverage for air conditioning, pools and spas, and appliances, is often charged on a per item basis. More comprehensive plans cover such items as irrigation systems, roofs and garage door openers.

A home warranty plan can also be ordered at the time of listing to protect the seller during the listing period, usually not exceeding six months, then assumed by the Buyer at the time of the sale.

HOW IT WORKS
Once the policy is in effect, when service is needed, the policy holder often has the option to either call the warranty company who will facilitate a call directly from an outside service company to arrange for service or they can call the warranty company’s in-house service department directly to arrange service. If an appliance is malfunctioning and cannot be repaired, depending on contract coverage, the home warranty company will pay to replace and install the appliance, for example.


Thinking of selling? 
Download a FREE 26 page Home Guide for Seller’s – Click Here to Download


See more: Buyer 101, Seller 101