Find Answers to Common Real Estate Questions
- What do I need to bring to settlement?
- How long will the settlement take?
- How far in advance should I contact Avenue Settlement Corporation to handle my settlement?
- What if I cannot attend settlement?
- Who attends settlement?
- Who does Avenue Settlement Corporation represent at settlement?
- When can I find out how much money I need to bring to settlement?
- How should I hold title to my new property?
- I sold my primary residence this year. What form do I need to file?
- What are 1031 Like-Kind Exchanges?
- Why do I need Title Insurance?
- How can I learn about my closing?
To begin with, bring a valid government-issued photo ID, such as a Driver’s License, Passport or Military ID. Additionally, if you are bringing money to the settlement these funds will need to be “certified funds.” Certified funds can come in the form of a cashier’s check, teller’s check, money order, wire transfer or certified personal check (bank must certify). Cash is only acceptable in small amounts. Please call our office in advance if you intend to bring cash to settlement! You may also be required to bring additional documents which our office will inform you of in advance.
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While the time of a settlement can vary greatly, typically a refinance will take between 30 and 50 minutes and a purchase will take 45 to 75 minutes.
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If purchasing, you should contact Avenue Settlement Corporation as soon as you have a signed contract. By contacting us as early as possible, you allow us adequate time to obtain a title abstract on the property being purchased and clear any outstanding “clouds” on title prior to your contracted settlement date. Additionally, we can better coordinate the settlement with all parties involved including the sellers, purchasers, real estate professionals, and lenders.If refinancing, you should contact us after you submit your loan application. Do not wait for final loan approval, as the time between your loan approval and settlement is often only a few days. By scheduling with us early, you allow us time to obtain the title abstract and clear any issues with your title, obtain payoffs from your current lender, and coordinate closing with your new lender.
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In certain circumstances, a “power-of-attorney” can be prepared for you. A “power-of-attorney” is a legal instrument which allows another to sign legal documents on your behalf. Please give one of our attorneys or settlement officers a call to see if this is an option that would work for you. The lender will need to approve the use and format of any power-of-attorney.
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At a “purchase settlement,” typically the sellers, purchasers and their real estate professionals will attend the settlement which will be conducted by one of our competent and experienced attorneys or settlement officers. At a refinance settlement, usually only the borrowers and our attorney or settlement officer are present.
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In a purchase transaction, the title company “represents” the contract. The title company does not negotiate the terms of the transaction; rather we facilitate the execution of the terms of the transaction. We do not act for, advise, or “represent” any one party. In a refinance closing, we are there to follow your lender’s instructions and to explain the documents to you and verify that they are properly executed.
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As of October 3, 2015, the lender is required to provide a closing disclosure (CD) statement at least 3 days prior to closing. The CD will provide information on the terms of your loan, payment amount and amount required to close. The title company should also provide and confirm the amount due at closing. The CD is subject to minor changes that could result in too much or too little being brought to closing. If you happen to bring too much money to settlement, we refund back to you any excess amount upon completion of the closing. We can accept a personal check for small amounts if you didn’t bring enough to closing.
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There are several ways that property can be owned:
You own the property in your own name.
Tenants in common
Two or more people own property together. Under a tenant in common arrangement, each owner has a divisible interest in the property. Although most tenant in common ownerships are split equally (i.e., 50-50 ownership), there is no legal requirement that it has to be this way. Often, there are financial or other considerations that dictate a different ownership split — for example, 90-10 or 75-25.
In a tenant in common ownership, on the death of one owner, the deceased person’s percentage ownership is part of his or her estate. The property interest does not transfer to the surviving owner. If there is a will, that portion of the property is distributed in accordance with the instructions in the will. If the person dies without a will, called intestacy, the laws of the jurisdiction where the person lived controls the distribution.
The parties jointly own the property. Although some states require language to the effect that the property is held as joint tenants with right of survivorship, the majority of the states consider the property as being jointly held even if this magic language is not included in the deed.
Under a joint tenancy arrangement, on the death of one owner, the property automatically transfers to the surviving joint tenant. This is called a transfer by operation of law.
Let’s look at this example: A and B own property as joint tenants with right of survivorship. A dies with a will that specifically gives A’s share of the property to C, his child. However, since the property is jointly held, B will end up with full ownership. C has no claim to the property.
Joint tenancy ownership can be unilaterally changed by one of the joint tenants. Let’s go back to our example. While A is alive, he decides to give his share of the property to C. He prepares a will to this effect. But he also asks his attorney to prepare a deed, changing title to reflect that A and B hold title as tenants in common. Although B should be informed of this transaction as a matter of courtesy, B has no control over what A does with his share of the property. Now, when A dies, his interest will be distributed to his child C, in accordance with the terms of the will.
Tenants by the entireties
This is title reserved for husbands and wives. Although some married couples will hold title as joint tenants with right of survivorship, the more common arrangement is to take title as tenants by the entireties. This means that on the death of one spouse, the surviving spouse automatically (by operation of law) becomes the owner of the entire property.
Title ownership is important in life as well as in death. If, for example, there is a creditor who holds a judgment against one of the joint tenant owners, that creditor can force the sale of the property in order to satisfy the judgment.
Let us assume that the judgment creditor is owed $50,000 by one of the joint tenants, and the jointly held house is worth $300,000, with a $200,000 mortgage. The judgment creditor can get a court order requiring that the house be sold. The first mortgage lender will get its $200,000. The remaining $100,000 will be divided so that the judgment creditor will get his $50,000 and the joint tenant who did not owe any money will get the difference.
When husband and wife hold title as tenants by the entireties, however, a judgment creditor of only one of the parties cannot force a sale to satisfy the debt. This can be done only if both husband and wife owe the money.
Thus, the way title is owned can be important, whether you are alive or dead.
Your mother now owns the property, since it was held as tenants by the entireties. The land records, however, still show ownership in both names. While it is not critical to have the title placed solely in the name of your mother, it is not expensive to update the records, and it may solve problems that could arise later.
Your mother will need a certified copy of your father’s death certificate. This means that the certificate will have an imprinted seal from the government office that issues such certificates. She will then have to record a document, called a confirmatory deed, in the office of the Recorder of Deeds in the jurisdiction where the property is located. There should be no recordation or transfer tax, and the filing fee should be nominal, perhaps $20 or $30. Some local jurisdictions may require some additional documentation, such as an affidavit of exemption from tax.
Why should your mother make sure that title is in her name? Peace of mind is perhaps the most important factor. Additionally, many years later, you may not have your father’s death certificate and there may be delays in attempting to locate one quickly, should the need arise to sell or refinance the property.
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If you meet the ownership and use tests, you will generally only need to report the sale of your home if your gain is more than $250,000 ($500,000 if married filing a joint return). This means that during the 5-year period ending on the date of the sale, you must have:
- Owned the home for at least 2 years (the ownership test), and
- Lived in the home as your main home for at least 2 years (the use test).
If you owned and lived in the property as your main home for less than 2 years, you may still be able to claim an exclusion in some cases. The maximum amount you can exclude will be reduced. If you are required to report a gain, it is reported on Form 1040, SCHEDULE D, Capital Gains and Losses.
For additional information on selling your home, refer to Publication 523, Selling Your Home.
Publication 523, Selling Your Home
Tax Topic 701, Sale of your home – after May 6, 1997
Tax Topic 703, Basis of assets
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By using a §1031 tax-deferred exchange, an investor is able to defer the recognition of capital gain tax that would ordinarily be assessed on the sale of investment property, and use the entire amount of the equity in what is essentially a “tax-free” sale to purchase substantially more replacement property. To qualify as an exchange, the relinquished and replacement properties must be qualified “like-kind” properties, and the transaction must be structured as an exchange.
Any property held for productive use in a trade, business, or investment can be exchanged for like-kind property. “Like-kind” refers to the nature of the investment. Any type of investment property can be exchanged for another type of investment property. For example, a single-family rental can be exchanged for a five-unit apartment building. An office building can be exchanged for a retail building. Any combination of investments will work, so long as basic requirements are met.What are the requirements for an exchange?
To avoid paying any capital gain tax on an exchange, the investor should observe the following guidelines:
- Purchase property of equal or greater sales price than the property sold (the “relinquished property”).
- Use all of the net equity from the relinquished property to acquire the replacement property.
- Obtain equal or greater debt on the replacement property.
The investor has 45 days from closing on the relinquished property to identify the replacement property – in writing – and a maximum of 180 days to close on the replacement property (or until the tax filing deadline, including extensions, for the year of the sale of the relinquished property).
In addition to deferring payment of capital gain tax, exchanges offer the investor a large number of non-tax opportunities. For example:
- Increase leverage – use the tax dollars saved by an exchange to purchase investment property of greater value.
- Increase depreciation deduction – exchange property with improvements nearing the end of their useful lives for property with newer improvements.
- Reduce management obligations – exchange several difficult to manage rental properties for one large professionally managed rental property.
- Provide for estate and retirement planning – exchange one large property for multiple properties to leave for heirs.
- Improve cash flow – exchange raw land for improved property with a positive cash flow.
- Increase appreciation – exchange commercial property for other property that will appreciate in value more quickly.
What is a Qualified Intermediary?
A Qualified Intermediary ensures the successful completion of the exchange by coordinating and documenting the transaction. By acting as Qualified Intermediary, Avenue Settlement Corporation provides the investor with the “Safe Harbor” protections against actual or constructive receipt of funds, as required by §1031. The fee for our services ranges from $750.00 to $2,500.00, depending upon the complexity of the transaction.
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To protect possibly the most important investment you’ll ever make – the investment in real estate.A lender goes to great lengths to minimize the risk of lending money for the purchase of real estate. First, credit is checked as an indication of the borrower’s ability to repay the loan.Then, the lender seeks assurance that the quality of the title to the property to be acquired and which will be pledged as security for the loan is satisfactory. The lender does this by obtaining a loan policy of title insurance.THE LOAN POLICY DOES NOT PROTECT THE BORROWER
The loan policy protects the lender against loss due to unknown title defects. It also protects the lender’s interest from certain matters which may exist, but may not be known at the time of the sale.But, this policy only protects the lender’s interest. It does not protect the borrower. That is why a real estate purchaser needs an owner’s policy, which can be issued at the same time as the loan policy, usually for a nominal one-time fee.
WHAT IS THE DANGER OF LOSS?
If the lender has title insurance protection and the owner does not, what possible danger of loss exists?
As an example, assume real estate was purchased for $100,000. A down payment of $20,000 is made, and a lender holds an $80,000 mortgage lien, or beneficial interest. The lender acquires title insurance protecting the lender’s interest up to $80,000. But the purchaser’s down payment of $20,000 is not covered.
What if some matter arises affecting the past ownership of the property? The title insurance company would defend and protect the interest of the lender. The purchaser, however, would have to assume the financial burden of his or her own legal defense. If the defense is not successful, the result could be a total loss of title.
The title insurance company pays the lender’s loss and is entitled to take an assignment of the borrower’s debt. The purchaser loses the down payment, other equity in the property that may have accumulated, and the property. And the balance on the note is still due!
HOW CAN THERE BE A TITLE DEFECT IF THE TITLE HAS BEEN SEARCHED AND A LOAN POLICY ISSUED?
Title insurance is issued after a careful examination of copies of the public records. But even the most thorough search cannot absolutely assure that no title hazards are present, despite the knowledge and experience of professional title examiners. In addition to matters shown by public records, other title problems may exist that cannot be disclosed in a search.
WHAT TITLE INSURANCE PROTECTS AGAINST
Here are just a few of the most common hidden risks that can cause loss of title or create an encumbrance on title:
- False impersonation of the true owner of the property
- Forged deeds, releases or wills
- Undisclosed or missing heirs
- Instruments executed under invalid or expired power of attorney
- 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
WHAT PROTECTION DOES TITLE INSURANCE PROVIDE AGAINST DEFECTS AND HIDDEN RISKS?
Title insurance will pay for defending against any lawsuit attacking the title as insured, and will either clear up title problems or pay the insured’s losses. For a one-time premium, an owner’s title insurance policy remains in effect as long as the insured, or the insured’s heirs, retain an interest in the property, or have any obligations under a warranty in any conveyance of it. Owner’s title insurance, issued simultaneously with a loan policy, is the best title insurance value a property owner can get.