Andrew Ewalt's Law Blog

Mortgage Escrow: What Is It?

Many of my clients/borrowers are surprised and confused to discover at  closing that they will need to pay more than just interest and principal in their monthly payment to the mortgage company. The reason for this is often attributable to escrow accounts. 

Typically a mortgage company will use escrow accounts to accumulate money from the borrower on a monthly basis to ensure the timely payment of important real estate related expenses.  These are often property taxes, home owners insurance premiums, and other recurring expenses.

In addition to each months escrow payment  lenders can  keep an annual reserve cushion amount totaling up to two-months of each recurring expense.  Due to recent changes in the law (for new loans) borrowers are entitled to an immediate refund of escrow if the amount exceeds the two-month cushion and so long as the amount is less than $50.00.

Most of mortgagors use escrow services for collection of payments for customers, and customers get them through buy to let mortgages. But when they have to pay some money on monthly basis they get shocked to see the bill of free home mortgage. Most of banks do not provide full services for customers and customers even do not bother to calc mortgage. Whenever you proceed for loan, you should have to use amortization table to figure out what cost you annually and monthly basis. In selection of any mortgage loan, you need to consider mortgage rate.

Real Estate Closing Checklist Part II: The Closing

The actual real estate closing occurs when the Buyer and Sell come together to exchange documents and money and when the Buyer  officially becomes the new owner of the real estate.  Though this is a rather simplified summation of the closing, in truth there are a number of requirements for both the Buyer and Seller to meet in order for the transaction to be  complete. 

Buyer:  Your closing typically will take between 1 and 1.5 hours.  This all depends on whether you are taking a mortgage or are paying cash at the closing.  If you are taking a mortgage you will be required to sign a number of important bank documents in order to secure the loan. These documents include among many others the

-Promissory Note: This is the document outlining your promise to pay the lender the amount you are borrowing to purchase the real estate.  The amount of the loan, interest rate and term of the loan are outlined here.

-Mortgage Deed :  This document reflects the terms of the Note and the responsibility of the borrower.  The Mortgage Deed gives the lender the home you are purchasing as collateral for your promise to pay the Note. The Mortgage Deed is typically recorded on the local land records so that the mortgage becomes public record and so that the real estate can not be conveyed (sold) until the mortgage has been released (payed off).

-RESPA/HUD-1:  This form outlines very specifically all of the financial aspects of the transaction and accounts for every penny of the transaction. This document includes both the Buyer and Seller information.

-Title Search and Insurance:  A title search will be preformed by the Buyers Attorney and is important in identifying the specific legal details of the real estate and what if any encumbrances are recorded on the land records.  The encumbrances typically found are mortgages that must be released by the Seller before the closing.  Additionally, the Buyers lender will require a Title Insurance Policy be purchased by the Buyer in order to protect the lender if a future title issue where to arise.  Though not required it is also a very good idea that the Buyer purchase their own policy to protect their interest. The Title Insurance is available through your attorney.

Sellers:   The Sellers portion of the closing should not take nearly as long as the Buyers because there are not nearly as many documents for the Seller to sign, this usually last around half of an hour.  Traditionally, the Seller and their attorney will arrive at the Buyers attorneys office for the closing.  The Seller is responsible for:

-Deed:  This is the bill of sale for the real estate. Signed by the Seller it contains the legal  description of the property.  The most common form of deed used in Connecticut is the Warranty Deed.  This form of deed transfers the real estate to the Buyers free of and encumbrances.

- Conveyance Tax Return: Connecticut charges a conveyance tax (sales tax) on the sale of real estate.  This tax is paid by the Seller typically from the proceeds of the sale of the real estate.  A return which includes the tax ID numbers of both parties is filed by the Seller when the Deed is recorded in the land records.

-Payoffs and Encumbrances: The Seller is responsible for paying-off all loans or encumbrances attached to the property and recorded on the land records. These will be identified by the title search done for the Buyer.

Our firm represents many clients in both residential and commercial real estate transactions. This is a general outline of the important closing elements. Please feel free to call our office for more information on how we can assist you with your upcoming real estate purchase or sale.

Real Estate Closing Checklist

Often people can get very nervous when their real estate purchase is about to close.  In order to alleviate some of the butterflies it can be helpful to accomplish a few tasks prior to closing.

1.  Contact your realtor, attorney and lender to verify everything is in order.

2.  Review all loan documents and the purchase contract.  Discuss any issues with the attorney.

3.  Contact the utility companies (electric, telephone, cable, water/sewer, gas) to have the service changed to your account.

4.  Purchase homeowners (hazard) insurance.  If you are obtaining a loan the lender will typically require that one year of homeowners insurance be prepaid prior to the closing.

5.  Due a final walkthorugh of the property to make certain that everything the seller agreed to accomplish prior to closing has been completed and per the contract that nothing has changed or been removed.

6.  If you are required to bring additional funds to the closing, obtain a certified check from your bank for the exact amount required (your attorney will inform you of this amount within a day or so of the closing).  These funds will typically be deposited in your attorneys Clients Funds account along with your mortgage funds obtained from the lender.

Title Insurance Pros and Cons

During a recent real estate closing I was asked whether “title” insurance was necessary (for those of you who are unfamiliar, title insurance is a form of insurance that guarantees that no other individuals can claim an interest in your property.) 

The answer to this question is that it depends on whether a buyer is taking a mortgage or not. 

Whenever a bank or lending institution is involved in providing funds (mortgage) for an individual to purchase real estate the bank or lender will require the buyer of the home purchase a title insurance policy on behalf of the bank or lender.  The reason for this is that the bank or lender wants to be certain that their interest in the property is protected. Thus the value of the bank or lenders title policy is often equivalent to the amount of money that the buyer has borrowed.  However, though the lender requires the borrower purchase a title policy on the lenders behalf they do not require that the borrower purchase a separate “owner’s” policy for themselves. 

An owner’s policy is a separate policy from that of the bank or lenders policy and is designed to protect the buyer’s interest in the real estate.  The value of the owner’s policy is equivalent to the purchase price (property value) of the real estate.

As noted previously owner’s policies are not mandatory and as such it is important to determine that one is being provided.  However, the one time cost associated with an owner’s policy is generally not much more then that of the bank or lenders policy. As such the title insurance company often bundle these policies together providing your bank or lender with their insurance while providing you with a policy without much additional cost.  Ultimately, it is the decision of the buyer in counsel with their attorney to determine whether there is a need for an owner's policy. However, for the peace of mind the one time cost of this insurance can provide, it is highly recommended.

Taxing Your Second Home

There are special tax rules that apply to second home expenses and income recieved from renting the real estate. Here is a list of some issues that should be considered:

No Rental:  Mortgage insterest and property tax can generally be deducted.

Rental 14 days or less:  Rental income is income tax free, you deduct mortgage interest and taxes, but may not deduct maintenance or other rental expenses.

Rental more than 14 days:  Report the rental and income and deduct the rental related expenses up to the amount of the rental income.

It is important you discuss any of these tax related matters with a qualified tax professional. For a great referral please give me a call.