John Bethell

After conducting thousands of closings I know that the title insurance commitment is the least understood and most ignored of all the residential real estate closing documents. Few buyers understand what a title commitment is for. They just know that they need it or that their lender requires it.

The title commitment (in some markets it's a prelim or a binder) is the operating manual for attaining legal ownership of the home that you're buying. It is a summary of the rights associated with the property. Here's how to use the title commitment to make sure that you get the property rights that you bargained for.

Prior to the closing, request the title insurance commitment and review it with your Realtor®, attorney or other representative.

Schedule A of the commitment lists the basics of the transaction. Verify that this information is correct and advise the title company of any concerns. Are your names spelled correctly? Does the insurance amount equal the purchase price? When there are multiple counter offers, sometimes the title company doesn't receive the last one.

Are the owners shown in the commitment the same people who signed the purchase agreement? Often when there are multiple owners, we find that not all of them signed the purchase agreement.

Does the property description in the commitment seem to match the one in the purchase agreement? Pay close attention to acreage amounts and question any inconsistencies. It may be that not all of the property or even the wrong property was searched.

Schedule B Section I of the commitment lists all of the documents and other requirements necessary for the title company to issue their policy to you. Besides the deed, new mortgage and affidavits, this is where you'll find a list of all of the seller's liens that must be paid off before you can receive clear title. Prior to the closing, make note of the face value of all the liens shown. If the total is close to or exceeds the purchase price it may be an indication that the seller is short.Consult with your Realtor®, attorney or other representative in these situations.

At the closing, examine the settlement statement to make sure that all the liens are being paid off. (In some locales, Privacy Practices prevent the buyers from seeing the seller's statement. Instead ask the title company to waive the seller's liens on your copy of the commitment or by a separate endorsement.)

Schedule B Section II of the commitment will show the details of the current real estate taxeswhich is usually the basis for any tax prorations on the closing statement. This section is also where any easements, restrictions and other property rights that will remain on the property after the closing are listed. Review these matters to ensure that you understand what you are purchasing. This is especially important if you are contemplating changing the use or altering improvements on the property. Restrictions may prohibit your plans or intended use.

Some title companies do not do a complete search of the public records for easements and restrictions. Instead they make their policies subject to "any and all recorded easements and restrictions." Follow this link to learn more about this consumer unfriendly practice that I dubbed "Title Insurance Lite."

In some markets the commitment may be organized differently than described here. All of the information will be there though. Keep looking until you find it.

Bring your title commitment to the closing. You can refer to it as needed to make certain that all the documents and tax prorations are correctly prepared. And if you don't understand something, ask for clarification. Most people only buy a few properties in their lifetime. Don't be embarrassed by what you don't understand. Mistakes are much easier to prevent before the closing than to correct after it.

Finally, compare your commitment to the final title policy when you receive it. The seller's liens should be gone. There should be nothing in Schedule B of the policy that you didn't agree to. Put your policy with your other valuable papers.

The commitment is the operating manual for obtaining your home's property rights. And as with anything complicated and unfamiliar, it pays to read and understand the manual.

------------------------------

This is another in my ongoing series "Ask the Title Guy." If you're a realtor® or lender I hope these posts will prove helpful in explaining things to your clients. I will be tagging them as "Ask the Title Guy", so when you stop back, you'll know exactly where to look. And if you have a question you'd like me to address either leave a comment or email me directly.

pictures purchased www.123rf.com

We just distributed our 2008 year-end Monroe County Statistical Package to our clients. Monroe County, although not immune to the effects of national mortgage and home price ills, fared well in 2008 all things considered.

The total number of recorded deeds representing a sale transaction fell to 2178 - a drop of 22.5 percent from 2007, which may seem bad but is much better than most markets in Indiana and around the country. This is the fifth year in a row that sales transactions declined. (I'm hoping to live long enough to once again face the challenges of managing in an improving market.)

The leader in total mortgage consideration in 2008 was again Monroe Bank with over $139 million lent. Monroe Bank and Indiana University Federal Credit Union were neck and neck in total mortgages recorded with 663 and 631, respectively.

Not surprisingly, a number of previously active lenders disappeared completely from our report during 2008, either through merger or ceasing operations. ABN Amro, Fieldstone Mortgage, Washington Mutual all were sporting big fat zeros as the year moved along.

Most interesting to me is that the number of new foreclosures being started has not increased in Monroe County the last two years.

A steady employment picture is one benefit of living here where many people work for either the Indiana University or in the health care profession. I don't see layoffs in the immediate future for either of them.

The statistics are compiled as a by-product of maintaining our property records data base, the most comprehensive and up to date index of all matters affecting title to real estate in Monroe County. This extensive data base allows us to perform most title searching and examining activities within our office at any time rather than at the courthouse only while it is open. As a result, we can meet the narrowest of time frames for getting your transaction completed.

Interested in more detail? We'd be happy to send you a copy of the 15 page report. Please use the contact option on this web page or leave me a comment.

If you're not from Indiana, you can't appreciate how involved we all get at this time of year. Watching it on TV. Reading about it in the paper. Passionately rehashing the strategy and decisions every day at the water cooler, in coffee shops and in bars all over the Hoosier State.

Of course I'm talking about Indiana Basketball Property Tax Reform. Yes, that now annual rite when our legislators take up a subject near and dear to the hearts and wallets of their constituency. The time when they feverishly attempt to right past injustices (perpetrated by previous legislatures) and find the holy grail of equity in our Property Tax system.

If you're writing or accepting Purchase Agreements this year, make sure you understand what's going on with the taxes. There are a dozen or more bills introduced that might change what you know.

Last year, taxes on homestead properties benefited from a $640 million dollar one-time state subsidy. This year that subsidy is only $140 million. Off-setting that subsidy reduction, caps on the amount of taxes that can be levied against different classes of property are being implemented. The caps are one and one-half percent of assessed value for residential, two and one-half percent for residential rental and three and one-half percent for commercial and other property. The legislature may vote this session to have the caps put on a ballot so that they can become part of the state constitution. Or they may change it all retroactively. Who knows?

A variety of other factors complicate the uncertainty. The property tax replacement and homestead credits from the state to local government are being eliminated. But the state is taking on much of the school funding responsibilities historically funded by property taxes. Many homes have radically different assessed values. Some counties haven't issued last year's tax bills yet.

I wish I could offer advice as to how this will affect your transactions. I'd just be guessing. And guessing is what I will begin doing. In March I am required to insure lenders that the first installment of taxes is paid even though no bill is available. Title companies all over Indiana will begin escrowing at closing an amount they feel will be adequate to pay the taxes when the bills come out. Two years ago 25 percent of our escrows were short. Last year only two short files. This year-GULP!

The advice I can offer is to be very careful about how you represent property tax issues with your clients. No one can say for sure what taxes will be in the future. Uncertainty is an inherent risk of property ownership that Buyers need to accept. Not their Realtor®. Not their Lender. And not their Title Company.

This is a final reminder that if you purchased a property in Indiana in 2008, there are only four days left (until December 30^th, since most county offices will be closed on the 24^th, 26^th and the 31^st) to file for your Homestead and other credits with your County Auditor. If you are living in the property as your principle residence, you are entitled to a Homestead credit.

Run - don't walk to the Auditor's office.

This credit will save you hundreds and possibly several thousands of dollars on next year's real estate taxes. At this late date do this in person. Don't trust the mail.

If you already filed for your credits, find your receipt and keep it in a safe place. In the event of a mix-up, the burden of proof will be on you to prove that you filed. Don't expect the County to cut you any slack. They won't.

A couple of weeks ago we mailed Homestead Tax Credit reminders to each of our purchasers during the past year, about 800 in total. We received more than one-dozen calls from folks who had forgotten to file or not realized that they should file. All were quite appreciative that we took the time to remind them. I confess though, my primary motivation in doing the mailing is to avoid unpleasant phone calls after the tax bills come out next spring.

Our Closers explain this in every closing. There are usually two or three forms signed wherein the Buyer acknowledges that we've told them. Yet, human nature being what it is, people don't hear us or don't follow through.

When the tax bill comes, it's too late.

So don't wait any longer. Missing out on this will cost you plenty in extra real estate taxes.

Indiana Real Estate or Mortgage professionals please feel free to republish this post for your clients.

Steve Dalton commented on my last post that sometimes "title companies get in the way" of closing legitimate real estate purchases and refinances.

Title companies are at the bottom of the hill that is a real estate transaction.

And guess what? It all rolls down hill. Delays, misunderstandings, mistakes, and last minute stipulations get compressed as the closing date looms. And since the title company is the last one that generally has to do anything prior to closing, I'm not surprised, and even expect, that clients may feel that we get in the way from time to time.

What may seem as needless meddling in the consummation of the sale or refinance is usually the title company trying to resolve conflicting instructions received from one or more of the parties to the transaction.

Common conflicts between the Purchase Agreement and the Lender's Closing Instructions revolve around the Buyer's net cash back or net cash to close being outside the Lender's permitted tolerance, handling inspection and repair credits, and how the Seller's contribution towards closing cost is defined and set out on the HUD-1. In Indiana, the Purchase Agreement often requires prorating taxes in a way that is simply not possible given the inherent one to two year lag time of tax assessments.

We resolve all the conflicting instructions by requiring written clarifications and Amendments to the Purchase Agreement, Closing Instructions or Title Commitment. If this process seems to you to be getting in the way of a closing, it's probably our fault for not explaining this correctly.

Just like you, we don't get paid unless the deal closes. Why would we want to make things needlessly difficult? We don't. All we're trying to do is resolve the conflicts so that we can close the transaction without compromising our fiduciary responsibilities to all the parties.

There's always a reason behind what a title company may require. If we don't explain it sufficiently keep asking until you understand. Sometimes, you can clear up a misunderstanding that will make things easier or even eliminate the requirement. As always, good communication is the key to a successful closing experience for you and your clients.

Good communication helps us dodge that rock at the bottom of the hill, too. For which we are eternally grateful.

Photo courtesy of Free Digital Photos. Net