Category Archives: News

How Can a Delaware Statutory Trust (DST) Allow Me To Avoid Paying Capital Gains Tax on my Investment Property?

Sandy Gadow

What are the Alternatives to Avoid Paying Capital Gains Tax on my Profit when I Sell the Property?

At some point, many investment property owners get tired of dealing with tenants, property managers and property upkeep and costs. The problem is that often owners will have a substantial capital gains tax due to the property either appreciating in value or that the “cost basis” has been depreciated over the years to a very low point. It is possible to have a property worth $500,000.00 but the cost basis for IRS purposes is $40,000.00 due to depreciation. That’s a hefty tax bill—even taking into account deductions for improvements made over the years and sale costs or other allowable expenses—potentially $400,000+ subject to taxation.

Under a 1031 Tax-Deferred Exchange you essentially “exchange or trade” your current property for another “like-kind” investment property and any capital gains tax is transferred to the new property. You pay no tax until the new property is sold, but you are still responsible for the management and payment of bills on that property. There is a hard and fast rule that you must identify the replacement property that you intend to “exchange” into with 45 days from the date of sale of the relinquished property. This 45-day window is known as the identification period. Currently this 45-day rule has proven to be challenging due to the current lack of inventory in commercial and investment properties available for sale.

There is, however, another alternative, one that requires no property management on your part, and which pays you a monthly income check based on your cash investment. In 2004, the IRS approved a law that allows you to make a “like-kind” property exchange— similar to a 1031 tax deferred exchange — into what is called a “DST” or “Delaware Statutory Trust.”

What is the Difference between a 1031 Tax Deferred Exchange and a DST Tax Deferred Exchange?

In a traditional 1031exchange, you sell your investment property and chose a replacement “like-kind” property to purchase. Any capital gains tax owed will be transferred or deferred to the new property. You are still a property owner and responsible for paying the maintenance costs and property taxes on the property. With a DST transaction, on the other hand, you take the profit or money realized from the sale of your investment property, and pool it together with other investors in a property—one that you may not be able to buy on your own such as medical buildings, housing apartments, or large shopping centers or stores. You choose which type of property you would like to invest in. A trust is set up for each property and the trust handles all the maintenance, management, financing and accounting details for the property. The income generated is passed through to the “owners” or fractional trustees, with depreciation and other tax advantages also passed on to the owners. The trust collects the investment money, arranges any financing necessary on behalf of the trust, and manages or hires property managers. The trust itself holds direct ownership of the assets with the individual owners owning a proportional interest (or share) based on their investment amount.

How do I Invest in a DST Fractional Share Trust? Is it Safe?

There are several companies that specialize in handling DST investment opportunities. Typically, a “sponsor” or company representative will help you choose your investment preference and explain to you the Pros and Cons of the investment and how it will work for you. Each investment opportunity (property) will be a Trust with its own Trustees that will have a fiduciary responsibility to the beneficial owners (the fractional owners/investors).

A DST is similar in function to a limited partnership, where a number of partners (or owners) pool investment money together for investment purposes in which a master partner will manage the assets that are owned by the trust.

Similar to a limited partnership or LLC, the DST will provide owners with limited liability and pass through income and cash distributions to the minority owners.

Advantages

  1. A DST investment allows for a “fractional interest” in real estate interests to qualify as a “like kind” property for exchange purposes.
  2. Investing in a DST opens up new sectors that may not have been available to an individual property owner. The DST investor becomes a passive investor, and does not have to worry about the day-to- day issues of real estate management. This opens up a number investment possibilities that may not have been available to the investor. While it is always possible to hire someone to manage your properties as an individual investor, when you invest as part of a DST, the management for the trust will likely be of an institutional caliber. This also applies to the work and analysis done by professionals associated with the trust regarding investment and financing decisions.
  3. By choosing to make a DST exchange, you eliminate the 1031 requirement to find a replacement property within 45 days of the sale of the previous property. In addition, whether the replacement property is identified on day one or day 45 after the sale makes no difference—1031 transactions must be completed within 180 days of the original property’s sale.

Disadvantages

  1. DST trusts are not a “liquid” investment that you can sell at any time you want — such as stocks and bonds or real estate.
  2. Investors should be prepared to invest for the life of the trust which is generally five to ten years.
  3. While trust managers my arrange financing to meet major capital requirements during the life of the trust, it is also possible that such expenditure needs to be funded from existing reserves and could potentially impact the amount of income and distributions passed on to the investor. This could potentially affect total return expectations from the perspective that a certain amount of reserves may need to held back for such occasion as opposed to going directly into investment opportunity.

There are many other aspects of a DST Trust versus a 1031 tax-deferred exchange to consider. In order to determine if this type of investment is right for you, visit a registered DST company on-line. Watch this helpful YouTube video that explains the Pros and Cons of a DST investment. 

State-by-State COVID-19 Addendum

Sandy Gadow

Most real estate associations have prepared COVID-19 addenda similar to those found in the California addendum, though the wording and scope may vary among them. Click your state below to find the pertinent information.

Alabama Kansas New Mexico Utah
Arizona Kentucky New York Vermont
Colorado Louisiana North Carolina Virginia
Connecticut Maine North Dakota Washington
Delaware Maryland Ohio West Virginia
District of Columbia Massachusetts Oklahoma Wisconsin
Florida Missouri Oregon Wyoming
Georgia Montana Pennsylvania
Hawaii Nebraska South Carolina
Idaho Nevada South Dakota
Illinois New Hampshire Tennessee
Iowa New Jersey Texas

How Will Real Estate Closings be Handled Since COVID-19?

Sandy Gadow

By Sandy Gadow

Title and escrow companies are adapting to the new environment brought on by the COVID-19 virus and taking guidance from the Centers for Disease Control (CDC) and World Health Organization (WHO) on how to conduct business to keep their customers and employees safe. Fortunately, more than 95% of the work a title company does is “behind the scenes” and away from public interaction. The actual in-person signing of documents is just one small piece of the entire closing process.

Many title employees across the nation are working from home and available through normal channels including web-based tools, e-mail or telephone conferencing. Closings are held by appointment only. Agents, lenders and any other unnecessary parties do not attend, and limits on the number of people who are allowed to physically attend are enforced.  Electronic transmission of documents and e-signing will be even more widely used than before and funds wired to and from banks and lending institutions. The use of mobile notaries and in-home closing will likely increase.

It may take longer to process and record documents since the title business relies on government offices to obtain and record legal documents. Title agents record deeds and search ownership documents, liens, judgments, etc. at the county court house. However, many county recording offices accept and process electronic recordings which help speed up the closing process. Your title agent will regularly monitor the status of government recording offices for their ability to record pending transactions and plan accordingly for your closing date.

Keep in constant contact with your closing agent, as rules may change quickly — county by county or state-by-state—as the situation evolves.

Most closing agents are taking strict precautions for the safety of both their clients and employees, including:

  • Conducting most closings and/or meetings by appointment only
  • Asking that non-essential parties refrain from attending closings and/or meetings
  • Making hand sanitizer available in all areas of the office
  • Wiping down tables and chairs, doorknobs, counters and other areas of public contact throughout the day
  • Providing new pens for each signing
  • Providing separate closing rooms, if available
  • Promoting best practices for personal hygiene and workplace cleanliness to employees
  • Restricting non-essential travel as well as employee attendance at industry conferences and events
  • Directing any employee with symptoms of illness to stay home

 

Copyright © 2020 Sandy Gadow. This column may not be resold, reprinted, resyndicated or redistributed without the written permission from Escrow Publishing Company.

Expert Tips That Will Make Your Title Business Successful

Sandy Gadow

By Sandy Gadow
Written for closing software Qualia.com

Now that you’ve set up your company, it’s time to focus on how to make your enterprise a success. You may wonder why one title business succeeds where others fail. The answer lies in providing top notch customer service, understanding your market, and using sound business practices.

Providing Top Notch Customer Service

First and foremost, the title business is about people—the quality of your personnel and the level of service that they provide. Assemble a team of trained professionals with experience and a track record of consistent results. Explain your goals and company targets to your employees, and create an open–and rapid–way to communicate.

Set up a system of checks and balances, using daily reports, regular meetings, and instant reminders.

Be open to suggestions and be willing to make adjustments as needed. Create an atmosphere of transparency in the office so information can be easily shared.

Understanding Your Market

The second component to success is a thorough understanding of what will drive your business and who your customer will be.

Your business will be driven by the community you serve. The needs of a big city will be different from the concerns of a rural community. A small town or a resort area may have special requests that address local conditions. Will your business be dealing with a combination of high-rise condominiums and single family homes, or large parcels of land, perhaps located in flood zones or hurricane prone areas? Will the community have a high concentration of mortgage-driven purchases, or have a majority of “all-cash” deals, where quick closings are required thorough. Knowledge of the local market and property peculiarities will help you better serve your customer. Once you understand the area and your potential customers, you can put a business model in place.

Sound Business Practices

Starts with your software

Set up your business with the latest tools available. Implement top-notch title settlement software and be open to new systems; while they require a small upfront time investment, the long term efficiency and profit gains far outweigh the initial transition period. Utilize software that allows for paperless closings, erecordings, and robust reporting.

Choose a program that tracks in real time, integrates easily so you don’t have to waste time rekeying duplicate information constantly, and is intuitive to use–not only for your staff, but for your customers as well.

Review monthly and quarterly reports, and look for ways in which you can improve upon your success.

Location Location Location

Choose the location of your office wisely. Look for a convenient space with easy access to other businesses and shops. Check out the competition and look up the location of title agents in your area. Be on the lookout for recently opened commercial properties, where the developer may be inclined to offer a discounted rent to new tenants.

Marketing Musts

Create a professional-looking and easy-to-navigate website. This will be your Online Storefront. They’re pretty quick to build nowadays with sites such as Wix. Include your “mission statement” and focus on what you can do better than other closing agents. Provide valuable information about the closing process and the local real estate community. Include links to local banks, contractors, moving companies or other home-related services.

Target your marketing efforts. Consider your customer — whether it be a buyer, seller, real estate professional, mortgage lender, or lawyer. Think of ways to focus on their needs. Studies show that the majority of homes (89%) are sold with realtor assistance. Use this as your clue when you prioritize your advertising strategy. Focus on new business from the realtor community–the local real estate agencies, realtor associations, or local Boards of Realtors.

Join the regional or state title association. Introduce yourself and offer to give a talk on closing practices, typical title problems, and what your business can do to help realtors close more deals. Reach out to any contacts that you already have and ask for a referral.

Word of mouth referrals can be one of your most valuable assets. Treat each client as not only a one-time customer, but as also a source for future referrals. Create loyalty by going above and beyond expectations. Be willing to stay after hours. Be proficient in out-of-town closings and complicated transactions. Take time to explain the complex settlement process to first-time buyers and follow-up regularly. After the close of escrow, send out a closing binder with copies of the final document. Send out thank you letters, or other notes of appreciation for their business.

Title Agents, Is Your Technology Behind the Times?

Sandy Gadow

By Sandy Gadow
Written for closing software Qualia.com

There’s no doubt about it. Technology has rocked the real estate industry, fundamentally changing every step of the process from beginning to end.

Just look at how companies like Quicken Loans and Zillow have reinvented how consumers find, sell, and purchase real estate. Buyers from around the globe can now search for properties as they sit in a cafe or as they fly from JFK to SFO. And thanks to virtual reality photos, they can “walk” through a home located in Hong Kong, London or San Francisco, in “real time.” Thanks to instantaneous communication, the selection process can be made seamlessly, the paperwork can be easily digitized, and the documents can be signed electronically.

Technology Opens New Doors

Real estate professionals were among the first to embrace technology and explore the myriad possibilities that it provided. They realized that a good website would enable them to reach a broader audience and significantly expand their customer base. Technology proved to be not only time-saving but also cost-effective, and viral videos, quick response time, as well as consistent follow-up were only a portion of the many advantages.

Thanks to technological advances, expensive mailers and other printed advertising mediums have either been eliminated or greatly reduced. Customer service rose to a higher level of service as realtors were able to keep in contact with existing and potential clients 24 hours a day. Realtors quickly realized that if they didn’t adapt to modern technology and use it to streamline their business, they would be left behind.

Barriers To Entry for Title Agents

Title companies, escrow agents, and closing attorneys—the “back-office workhorse” component to every successful real estate deal—lagged behind, but the explanation was understandable. Closing agents deal with a vast array of issues that involve coordination and synchronization between a multitude of tasks and entities. As a neutral third party to the transaction, closing agents must act with strict impartiality and confidentiality while simultaneously answering questions and acting on behalf of each party involved in the transaction. From preparation and interpretation of title reports, disclosures, inspections, governmental compliance requirements, mortgage documents, unique regional or state laws, all the way to contractual obligations in the sales agreement that must be strictly met, the job of a closing agent is a juggling act of epic proportion.

With so many factors to consider, closing agents were (understandably) reluctant to change. The adoption of new technology was an unknown, “scary” and untested concept. The existing “old fashioned” way of doing business seemed to be working, so why change? Although it might be time-consuming and not the most efficient system, errors were picked up, deadlines met, and the final result (a closed deal) occurred. But at what expense?

The Future of Title & Closing

“Stressful,” “nail-biting,” “time-consuming,” and “dreaded,” are often words associated with a real estate closing—both by the consumer and by the title professional. But the industry’s move into the modern era of technology could change all this.

In future posts, we will explore how implementing the right technology can make the entire closing process less stressful and more efficient than ever before. We will outline specific examples of how title companies can use technology to attract customers, improve margins, provide stronger security, improve organization, help users adapt to new laws and regulations, and much more.

Thinking about Starting a Title Company? 6 Simple Steps to Do it Right & Fast

Sandy Gadow

By Sandy Gadow
Written for closing software Qualia.com

It is an exciting time for the real estate title industry. Modern technology has made the once-dreaded phase of every real estate transaction — the closing — highly efficient and remarkably less stressful than ever before.

Thinking about starting your own title company? To be successful, industry knowledge, attention to detail, top-notch customer relations, and organization is critical. However, none of these attributes matter if you can’t get your title company up and running based on a business model that is within your budget.

While the legal requirements to open a title or escrow company will vary from state to state, this blog will outline the basic steps to get you started.

1. Understand your State Insurance requirements

Each state requires its own set of insurance requirements. Good news is that they make it relatively painless to see what they are. Just go to your state’s department of insurance website. For a state-by-state overview, NAIC has compiled a survey of state insurance laws regarding title data and title matters using responses from each state’s regulators.

There may be requirements for licensure, education, insurance and financial stability to be met. Typically you just have to provide proof of legal business registration (discussed below), insurance and bond documents (also discussed below), as well as a background check.

Some states require that a title or settlement or escrow agent act under an “attorney approved system” where a licensed attorney must oversee closings handled by paralegals.

Additional notes: In ME attorneys must close; can be title company or attorney in PA, can be escrow company or title company in TX

2. Nail your licensing exam

You may be required, depending on the state, to take a pre-licensing course and exam. The licensing exam will cover insurance regulation, general insurance concepts, title insurance principles, title exceptions procedures for clearing a title, and real estate transactions.

Your state’s department of financial services can provide a list of approved educational entities for your prescribed classes. For example, here is Florida’s portal for finding courses and providers. If you are an attorney, and you are already licensed in your state, you may be able to waive this requirement.

3. Get bonded

Title companies are generally required to carry a fidelity bond and/or a surety bond, generally no less than $50,000. Surety bonds protect both the consumer and the companies and range in coverage from 10% to 20% of the title agency’s net worth, and can range from $200 up to $1,000.

Surety Bonds insure that your company can fulfill its obligations to its customers, and that the customers will have the opportunity to get their funds back if something should happen to your company.

Most states require Errors and Omission insurance (professional liability insurance) in the amount not less than $250,000.00. E & O insurance will cover you if there is a claim of negligence against your company.

4. Form a company

Check with an attorney for advice on what type of company entity you should form. Whether it be a corporation or limited liability company, you’ll need one for most state requirements and they provide you with different legal and tax benefits. Nowadays, this is relatively easy to accomplish online.

As part of forming your entity you’ll also apply for your Employer Identification Number or “EIN” from the IRS. There is no cost for this service and the turnaround time is usually quite quick. The EIN is like your business’s Social Security Number. It’ll help you get your bank accounts set up and be used for taxes.

Name your company and perhaps even spring for a trademark to protect your brand. Be mindful, state laws vary on naming requirements. When you’re done, don’t forget to register your title agency’s name with the Secretary of State or the County Clerk.

5. Select an underwriter

Before you can start, you will need to choose a qualified underwriter. A title underwriter is responsible for checking the title and ensuring that ownership rights to the property can be guaranteed. Their expertise will affect the quality of the resultant title insurance policy.

Qualia is integrated with several underwriters so that you can easily complete all of your title work in one place. Below is a list of our partnering national and regional providers, as well as their provided contact information.

National Partners:

Fidelity National Title Group

Linda Grahovec ITP IEP NTP
VP, National Communications, Regional Director
of Education & Marketing
Phone: 630-222-0778
Email: linda.grahovec@fnf.com

Old Republic Title

Jeffery J. Bluhm
Executive Vice President, Old Republic National Title Insurance Company
Manager, Agency Services & Administration
T: 612.371.1148 or TF: 800.328.4441
jbluhm@oldrepublictitle.com

Stewart Title

Visit website to find your area’s contact information

First American Title

Visit website to find your area’s contact information

Westcor Land Title Insurance Company

Visit website or email agency@wltic.com

North American Title Insurance Company (NATIC)

Visit website to find your area’s contact information

Regional Partners:

CATIC

Licensed in Connecticut, Massachusetts, Rhode Island, Vermont, Maine and New Hampshire Rosanne Corsetti-Ziogas
V. President – Sr. Agency Advisor
(860) 513-3114 rziogas@catic.com

Email us at partners@qualia.com for the most up-to-date list of integrated underwriters.

6. Last but not least, get your license

Once you have completed your state’s licensing requirements, it is time to apply for a license. Refer back to your state’s website to access their registration paperwork and/or portal.

Next: The fun stuff of building your business

Once your company is set up, you’re ready to start crushing your business goals. In our next post we provide pro-tips on how to build your business including customer service, marketing, and reporting. Click here to read it now.

Outstanding Permit That I Knew Nothing About. What Can I Do?

Sandy Gadow

Dear Sandy,

I bought a house and had a home inspection done as part of my due diligence. Everything was fine and we closed escrow on time.  It is now a year later and I received a letter from the City stating that there is an outstanding permit on my air-conditioner and I must get it re-inspected and pay a fee of $90.00. If I do not, I could be fined further costs. I went down to City Hall, paid the $90.00 and asked why this was happening. The “open” permit was for work done 3 years ago. I was told it was my responsibility to get the permit “closed” which would require a new inspection. Can the inspector who did the building inspection be held responsible?

Mike J.

Dear Mike,

It is frustrating, but in many inspection reports performed by licensed contractors or home inspection specialists, they exclude and waive responsibility for either unpermitted or not closed out permitted work. Often, this information is not readily available by a visual inspection, but requires a phone call to the City building department, to determine if they are any open permits. Ask your home inspector to include this service for you, or alternatively, make the call to the City yourself. Open permits can also be found on-line in a search of the public records.

In some cases, the seller could be held responsible if they did not disclose the open permit, but you would have to prove “intent” and often a seller is not aware that the open permit existed. Most title insurance policies do not cover open permits.

Lower FHA Mortgage Insurance Premiums Benefit Borrowers

Sandy Gadow

 

WASHINGTON (January 9, 2017) – As the nation’s housing market continues to improve, U.S. Housing and Urban Development Secretary Julián Castro today announced the Federal Housing Administration (FHA) will reduce the annual premiums most borrowers will pay by a quarter of a percent.  FHA’s new premium rates are projected to save new FHA-insured homeowners an average of $500 this year.

National Association of Realtors (NAR) President William Brown says that this reduction is “a fresh start.” Brown added that “FHA mortgage products exist to serve an important mission: providing homeownership opportunities to credit-worthy borrowers who are overlooked by conventional lenders.”

FHA is reducing its annual mortgage insurance premium (MIP) by 25 basis points for most new mortgages with a closing/disbursement date on or after January 27, 2017.

Today’s action reflects the fourth straight year of improved economic health of FHA’s Mutual Mortgage Insurance Fund (MMIF), which gained $44 billion in value since 2012.  Last year alone, an independent actuarial analysis found the MMI Fund’s capital ratio grew by $3.8 billion and now stands at 2.32 percent of all insurance in force—the second consecutive year since 2008 that FHA’s reserve ratio exceeded the statutorily required two percent threshold.

Secretary Castro said FHA’s action reflects today’s risk environment and comes at the right time for consumers who are facing higher credit costs as mortgage interest rates are increasing.

“Ed Golding, Principal Deputy Assistant Secretary for HUD’s Office of Housing added, “We’ve carefully weighed the risks associated with lower premiums with our historic mission to provide safe and sustainable mortgage financing to responsible homebuyers.  Homeownership is the way most middle class Americans build wealth and achieve financial security for themselves and their families.  This conservative reduction in our premium rates is an appropriate measure to support them on their path to the American dream.”

NAR President Brown commented that “dropping mortgage insurance premiums will mean a lot more responsible borrowers will suddenly be eligible to purchase homes through FHA — and that means more money in the fund to protect taxpayers.”

The NAR encourages the leadership at FHA and HUD to look at eliminating the requirement that requires FHA borrowers to maintain mortgage insurance for the life of the loan — regardless of their equity in the house. On the other hand, borrowers with traditional mortgages can–in most cases– eliminate the mortgage insurance requirement once they have reached a 20 percent equity stake in the property.

 

What Are Split Closings and Are They A Good Idea?

Sandy Gadow

What You Need to Know 

I recently read an article on “split closings” that made several generalizations that could potentially add to the confusion that many buyers (and sellers) often experience when they approach the settlement or closing phase of their transaction.

The term “split closing” is referred to when two title companies are involved in issuing the policies of title insurance.  This occurs when the seller wants to use a specific title company and the buyer prefers to use another.  Under Section 9 of the The Real Estate Settlement and Procedures Act (RESPA), sellers may not make using a specific title insurance company a condition of the sale. In other words, the buyer may specify the title company of their choosing to issue the policies. However, there are exceptions.

The Exceptions

  • When the seller agrees to pay for both title insurance policies (owner and lender’s) the seller can stipulate the title company that will issue the policies.
  • If the buyer is paying for title insurance (either the lender and/or the owner’s policy), then the buyer can choose the title company of their choice to issue the policy that they will be responsible to pay for.

Confusion arises when the parties are not aware that Section 9 only deals with the purchase of title insurance and that the law does not apply to where the transaction will be closed (in other words, the closing agent).

To Explain

Even if the buyer will be paying for the title insurance and therefore allowed to use the title insurer of their choosing– the seller can still require a particular unaffiliated closing agent or lawyer be used to close the transaction.

With so many entities involved in a real estate closing, you may wonder why the buyer, or the seller, would choose to add yet another layer to the already muli-faceted process.  This is often explained when either party has either a favorite title insurance company–or one they have dealt with in the past– and one known to them to be reliable and efficient.

No Easy Answer

There is no easy answer to the question of whether there is an advantage to using a “split closing” for your transaction.  The company (or entity) that handles a real estate closing varies state to state and even county to county.  For example, in Florida lawyers are commonly used in conjunction with title and escrow companies.  On the other hand, title companies handle closings in Northern California, and escrow companies manage closings in the Southern areas.

In a number of eastern states, a lawyer will probably close the transaction. In South Carolina, North Carolina, Delaware, Connecticut, Maine and Vermont, lawyers are technically required to handle the settlement. In other states, (approximately 16) an attorney is required to prepare the deed, although the lawyer can generally be employed by the title agency or an insured branch office. In many states, including Virginia and Maryland, as well as the District of Columbia, there are attorney-assisted closings, title company closings and closing assisted by real estate agents.

Local custom is generally followed in relation to who pays for which closing costs (escrow fees, doc stamps, title insurance, etc), but those fees are negotiable. Who will pay for what should be decided before the sales agreement is signed.

Over-lapping reports and charges

  • In a “split closing” where two title companies are involved, the listing and selling agent often order a title report from their respective title companies.
  • The seller’s title company is obligated to provide a copy of their report to the buyer
  • If there is a lender, the buyer’s title company must present a copy of the title report to the lender
  • Both buyers and sellers execute their separate documents at their respective title companies
  • The buyer’s title company receives funding from the mortgage company, and is generally the one that records documents
  • Funds are wired from the buyer’s title company to the seller’s title company to cover seller’s costs and proceeds
  • Typically, the majority of the functions in a split closing are handled by the buyer’s title company.
  • When dual title policies are issued by the same company- such as a buyer’s and a lender’s policy–a discounted, or “simultaneous issue” rate is charged. When two separate policies are produced, there may be an additional charge (up to double the cost)

The only real functions of the seller’s title company will be to order a payoff of an existing loan, potentially prepare the deed, and handle the closing for the seller.  If the seller’s title company is not issuing the policy of insurance, it is likely that they will charge an additional escrow fee — and possibly other charges.

To Summarize:

If you have a favorite closing agent, by all means, make this preference known to all parties involved. The most expeditious and economical way to handle this would be for the buyer and seller to agree to use one title company for both the title search and issuance of the policies of insurance, and use individual escrow or closing agents (or lawyers) for the escrow portion of the transaction (the holding of and disbursements of funds, etc). These decisions should be made and agreed before signing the purchase contract.

As with any real estate closing, compare costs and fees among inspection companies, appraisers, lenders, lawyers, title companies, escrow companies, and any other third party involved in the sale.

Suggested Reading

How Closings are Handled State by State

How to Get Someone to Pay Closing Costs

Finding hidden costs on your closing statement

Real Estate Brokers’ Ties with Title Insurers Might Cost Colorado Consumers

Condominium and Co-op Insurance – Is there a difference?

Sandy Gadow

Reader Question: Could you please address the relevant differences for co-op owners seeking adequate home insurance coverage? Are they the same as for condominium owners? JH

Reply:   Although the ownership is different between a condo unit and co-op unit owners, the insurance needs are basically the same in a condominium unit as they are for an owner in a cooperative building. The best way to know your responsibilities is to look at the Association Declaration or “Condo Docs” to assess your insurance responsibilities. You may want to look for an insurance agent that specializes in writing condominium and cooperative policies specific to your state. Community association laws can vary from state to state

According to Clifford Treese, a community association specialist who collects data for the Foundation for Community Association Research (FCAR) and for the Community Associations Institute (CAI), “There are not a lot of differences in the basic coverages for a condominium or a cooperative — as a community association.  In terms of unit owners, both will insure with an HO-6.”

Treese added, “The cooperative may have a secured party(ies), i..e lender(s) that need a mortgagee endorsement on the master/blanket insurance policy.  Cooperatives with FHA Mortgage Insurance will have a Regulatory Agreement that will require certain types of insurance.  Also, like in a condominium, the cooperative’s governing documents will need to be examined. The cooperative definitely will need Business Income/Loss of Rents — for monthly charges that cannot be collected because of a covered cause of loss.”