Settlement Information


The real estate settlement (also know as closing) is the actual transfer of property ownership from a seller to a buyer.  Settlement occurs after the home search is done, the negotiations are completed, the house has been inspected, and the loan has been finalized.  Procedures vary from locality to locality, but in Maryland the settlement is handled by an attorney at a firm which focuses on real estate matters.

>> Preferred Settlement Companies
>> The Settlement Process
>> Closing Costs - Loan Related
>> Closing Costs - Taxes
>> Holding Title
>> Title Insurance - Peace of Mind

 

Preferred Settlement Companies

 Classic Settlements  Settlement Pros
 11333 Woodglen Drive #105  4719 Chestnut Street
 Rockville MD 20852  Bethesda MD  20814
 301-816-1717  301-907-8100
 www.settlements.com  www.SettlementPros.com
   
 Paragon Title & Escrow  Village Settlements - 3 offices
 7415 Arlington Road  177 Kentlands Blvd
 Bethesda MD  20814  Gaithersburg MD  20878
 301-986-1114  301-590-9300
 www.ParagonTitle.com  
   7500 Greenway Center Dr #640
 RGS / Fountainhead Title  Greenbelt MD  20770
 7101 Wisconsin Avenue #112  301-486-0799
 Bethesda MD  20814  
 301-654-9800  5283 Corporate Drive #301
 www.RGSTitle.com  Frederick MD 21703
   301-698-9300
   www.VillageSettlements.com


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The Settlement Process

Escrow

To finalize the sale of the home a neutral, third party (the escrow holder, a.k.a. escrow agent) is engaged to assure the transaction will close properly and on time. The escrow holder insures that all terms and conditions of the seller's and buyer's agreement are met prior to the sale being finalized, including receiving funds and documents, completing required forms, and obtaining the release documents for any loans or liens that have been paid off with the transaction, assuring you clear title to your property before the purchase price is fully paid.

The documentation the escrow holder may be collecting includes:

• Loan documents
• Tax statements
• Fire and other insurance policies
• Title insurance policies
• Terms of sale and any seller-assisted financing
• Requests for payment for various services to be paid out of escrow funds

Upon completion of all instructions of the escrow, closing can take place. All outstanding payments and fees are collected and paid at this time (covering expenses such as title insurance, inspections, real estate commissions). Title to the property is then transferred to the seller and appropriate title insurance is issued as outlined in the escrow instructions.

At the close of escrow, payment of funds shall be made in an acceptable for to the escrow. As your real estate agent, I'll inform you of the acceptable form.

The Escrow Holder will:

• Prepare escrow instructions
• Request title search
• Comply with lender's requirements as specified in the escrow agreement
• Receive funds from the buyer
• Prorate insurance, tax, interest and other payments according to instructions
• Record deeds and other documents as instructed
• Request title insurance policy
• Close escrow when all instructions of seller and buyer have been met
• Disburse funds and finalize instructions

The Escrow Holder will NOT:

• Give advice - the escrow holder must maintain neutral, third-party status
• Offer opinions about tax implications

Mortgage Escrow Account

A Mortgage Escrow Account is established to pay on-going expenses while there is a loan on the house. These expenses include property taxes, home insurance, mortgage insurance, and other escrow items. Generally, the Escrow Account is partially funded at closing and the home buyer makes on-going contributions

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Loan-Related Closing Costs

Loan Origination Fee
Administrative expenses in setting-up and processing the loan. The loan origination fee may be a percentage of the mortgage amount.

Points (optional)
An option for the home buyer is to pay points to lower the interest rate at which the loan will be repaid. Each point equals 1 percent of the mortgage amount. For example: on a $150,000 loan, 1 point would equal $1,500.

Appraisal Fee
The appraisal fee may be incorporated into the closing costs or required by the lender to be paid at the time the loan application is submitted.

Credit Report
Credit reports determine the creditworthiness of the loan applicant. This fee is often paid at the time of loan application.

Interest Payment
Typically the buyer is required to pay interest on the mortgage loan to cover the time between the closing date and when the first mortgage payment period begins. For example: If closing is on May 15. Your first monthly payment begins to accrue interest on June 1 with your first mortgage payment due July 1. At closing an interest payment covering the accrual period between May 15 and May 31 may be required.

Escrow Account
At closing a payment may be required to fund the escrow account if the lender is paying home insurance, property taxes and/or other expenses out of the escrow account.

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Tax Closing Costs

Annual Property Taxes

This closing cost typically is prorated between the buyer and the seller. When the seller already has paid the property taxes, the buyer reimburses the seller for the remainder of the seller-paid period in which the buyer will be occupying the property.

Likewise, if the seller has not yet paid the taxes, the seller reimburses the buyer for the unpaid period in which the seller occupied the property.

One-Time Transfer Taxes and Recording Fees

These are the costs for transferring ownership of a property and recording the purchase documents. The fees often are calculated as a percentage of the sales price. As to who pays these fees - it is dependent upon local governmental regulations and/or local customs.

Maryland Code states that any recordation tax or any state or local transfer tax shall be shared equally between the buyer and seller unless otherwise negotiated in the contract.
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Holding Title

Before you reach the closing day, you will want to make a decision as to how you will "hold title" to the property. This decision has legal, tax and estate planning ramifications. Therefore, it may be prudent to consult an attorney or certified public accountant (CPA).

The following information is supplied for informational purposes and should not be relied upon as legal definitions.

Buying Alone

Sole Ownership
o A single individual who has not been legally married.
o An unmarried individual who was married and is now legally divorced.
o A married individual who wishes to acquire title in his or her name alone. At the time of closing, the spouse of the buyer will be required to specifically disclaim or relinquish his or her right, title and interest to the property.

Living Trust
A living trust is created while an individual is alive and gives the individual control of the distribution of his or her estate. The individual transfers ownership of his or her property and assets into the trust.

Buying with Others

Tenancy in Common
Enables each partner in the property to sell, lease or will to his/her heirs that share of the property belonging to him/her.
o Who can take title? Any number of individuals.
o Ownership Division: Any number of interests, equal or unequal.
o Who holds title? A separate legal title to his undivided interest is held by each co-owner.
o Possession: Equal right of possession.

Joint Tenancy
Property owned by multiple individuals where if one of the owners dies, the remaining owners acquire the share of the deceased owner automatically.
o Who can take title? Any number of individuals.
o Ownership Division: Interests cannot be divided.
o Who holds title? There is only one title to the whole property.
o Possession: Equal right of possession.

Community Property
Property owned equally between a husband and wife. Each must sign all agreements and documents of transfer.
o Who can take title? Only a husband and wife.
o Ownership Division: Interests are equal.
o Who holds title? Similar to title being in a partnership, title is held in "community."
o Possession: Equal right of possession.

Additional Ways to Hold Title

• Corporation
A corporation is a legal entity, created under state law, consisting of one or more shareholders but regarded under law as having essentially the same as those of an individual. The entity has continuous existence until it is dissolved according to legal procedures. Land owned by a corporation cannot be attached for personal debts or judgments rendered against any of its shareholders.

• A Partnership
A partnership is an association of two or more persons who can carry on business for profit. A partnership may hold title to real property in the name of the partnership with partners having an equal or an unequal interest in the property.

• A Trust
A trust is an arrangement whereby legal title to property is transferred by the grantor (or trustor) to a person called a trustee, to be held and managed by that person for the benefit of the people specified in the trust agreement, called beneficiaries.

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Title Insurance = Peace of Mind

Title Insurance is one of the two insurances that a buyer purchases to protect the huge investment he or she makes when buying a house:

Fire, or homeowners, insurance covers the risk of loss should the house itself be damaged or destroyed,

Title insurance covers the risk of the possibility that another person has a better right, lien or claim to the property than has the buyer.

Title insurance companies provide an up-to-date search of the title to the property. When they determine that a buyer’s rights and interests to the property are clear based on recorded information, they will issue a title insurance policy to cover any un-recorded issues that might undermine the buyer’s rights and interests. If the title search uncovers problems with the title, the company will have these problems cleared prior to closing.
  
Title insurance is a one-time cost, payable at closing. It covers not only the buyer for the length of his ownership of the property but also the bank/mortgage lender.
 
The title insurance policy describes the property and identifies any recorded limitations to ownership. It also sets forth the title insurance company's responsibilities should a claim arise that is covered by the terms of the policy. Typically title insurance protects from loss:
 
• the title insurance company will defend the title at no expense to the buyer when someone contests the title in legal action,
• or, the title insurance company will protect the buyer from financial loss up to the amount of the policy if there is a title defect that cannot be eliminated.

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