Last week we posted a pretty lengthy article about insurance for condo owners entitled, "Condo insurance considerations."

The piece delved into the differences between a Master Policy, which is what your condo association carries to protect the building and its common elements, and the Unit-Owner Policy otherwise known as an HO-6 policy. An HO-6 policy picks up where a Master Policy leaves off, protecting the inside of the unit as well as the owner's personal belongings. Items like replacing cabinets, appliances and flooring are also covered by the Unit-Owner Policy.

Earlier this month, our friend Michele Lerner who has written about Federal Title on many occasions, published a piece with the Washington Times entitled, "Insurance a must-have for condo owners." Her piece does an excellent job of expanding on the types of scenarios a condo owner might encounter where the HO-6 policy would come into play.  

"Condo owners need to understand that the master policy for the condo association often covers the buildings to reconstruct them as they were built originally and will not cover improvements, such as updated kitchens or hardwood flooring, that have been added to a home."

In my view, the most underrated insuring provision of the Enhanced Owner’s Title Insurance Policy relates to real estate tax assessments occurring after the transfer of ownership.

The Enhanced policy we offer through our underwriter First American states (as a covered risk): "A taxing authority assesses supplemental real estate taxes not previously assessed against the Land for any period before the Policy Date because of construction or a change of ownership or use that occurred before the Policy Date."

While the Standard (Limited) Owner’s Title Insurance Policy insures against a real property tax lien and/or assessment imposed by the taxing authority prior to the policy date (i.e., transfer of ownership), it does not insure against real property liens or assessments occurring after the policy date.

Oftentimes, prior to or at the time of closing, the governmental taxing authority fails to properly or accurately report unpaid taxes, or later imposes a supplemental tax bill due to new construction re-assessments or change of property use by the seller.

• For example, in the District of Columbia, the tax class may change prior to transfer of ownership from owner-occupied to vacant/abandoned, resulting in a sizeable tax assessment imposed after the buyer has taken ownership.
• Another example, in Maryland, a supplemental tax bill may be issued due to construction improvements, resulting in a hefty assessment imposed on the buyer well after the closing.

Part Two in an ongoing series

• For example, in the District of Columbia, the tax class may change prior to transfer of ownership from owner-occupied to vacant/abandoned, resulting in a sizeable tax assessment imposed after the buyer has taken ownership.
• Another example, in Maryland, a supplemental tax bill may be issued due to construction improvements, resulting in a hefty assessment imposed on the buyer well after the closing.

In each of these examples, the the homebuyer would be covered by an Enhanced Owner’s Title Insurance Policy but would not be protected if he/she elected to purchase the Standard (Limited) Owner’s Title insurance Policy.

There are many other insuring provisions to consider when selecting the type of owner’s title insurance coverage and I invite all of our prospective homebuyers to take a look at our title insurance coverage comparison.

Part Two in an ongoing series about differences in title insurance policies.

Part One: Land survey matters

Part Three: Building permits

Part Four: Mechanic's liens

While the need for casualty and other insurance in connection with single-family homes is obvious, the issues that confront condominium owners need just as much scrutiny. While the condominium association’s "master policy" may cover some rebuilding costs, the unit-owner needs to be assured that there are no gaps (or costly overlaps) in coverage.

A review of the condominium association’s master policy is an essential place to start.

Click beyond the jump to continue reading.

We've caught a lot of flack lately over our REAL Credit™, with some of our competitors saying the progressive program is a violation of D.C. Code.

After consulting the District of Columbia’s Department of Insurance, Securities and Banking (DISB) for guidance, DISB released a bulletin clarifying their position. According to DISB, a title company may provide a settlement discount (e.g., REAL Credit™) to a homebuyer so long as the credit is tied to an "action that improves the efficiency of the settlement transaction, such as applying electronically."

Real Credit™ is allowed

1. Automatically confirms an order notifying all parties to the transaction together with a guaranteed quote for costs of title charges and transfer/recordation taxes.
2. Automatically disseminates e-mail correspondence, with embedded online forms, to all parties (e.g., title abstractor, land surveyor, real estate agents, lenders, homebuyers, and sellers)
3. Automatically delivers a preliminary HUD-1 to the lender to assist in the preparation of an accurate Good Faith Estimate

• A title company may not offer to match or beat any competitor’s fees
• A title company may not offer to purchase a home warranty on behalf of a homebuyer
• A title company may not offer a settlement discount that requires a coupon
• A title company may not offer a settlement discount “at the closing table” as a result of negotiations by any party during settlement
• A title company may not offer a settlement discount only if a settlement client does not qualify for a reissue rate

DISB is charged with the enforcement of a recently enacted statute (D.C. Official Code § 31-5041.07), which prohibits a title insurer from inducing a homebuyer to purchase title insurance.

As a homebuyer in the District of Columbia, Maryland and Virginia, you have a choice between two types of owner’s title insurance coverage— Standard (Limited) Coverage or Enhanced Coverage. When deciding on which coverage, you may consider the possibility of being forced to remove a structure because it extends onto adjoining land or easement.

The Standard owner’s title insurance policy contains 4 basic insuring provisions including (1) title being vested other than as stated, (2) any defect in or lien or encumbrance on the title, (3) unmarketability of the title, (4) lack of a right of access to and from the land. While the coverage under the Standard policy is broad, the policy form excludes coverage for certain matters that are traditionally outside the scope of a title search of the public records. One of those excluded matters concerns existing encroachments of structures or encroachments created subsequent to the date of the policy. In other words, the Standard policy includes an exception for survey matters.

Unlike the Standard coverage, the Enhanced owner’s title insurance coverage insures against forced removal of a structure (except for boundary walls and fences) due to an encroachment. Moreover, the Enhanced coverage covers the insured in the event that, after the date of policy, someone else builds a structure that encroaches on to the insured’s land.

Specifically, the Enhanced policy covers the insured in the event the insured is forced to remove an existing structure because it extends on to adjoining land or on to any easement, or it violates a subdivision restriction, or it violates an existing zoning law.

There are many other insuring provisions to consider when selecting the type of owner’s title insurance coverage and I invite all of our prospective homebuyers to take a look at our Comparison of Coverages.

Mortgage fraud investigations have skyrocketed since the financial crisis began in 2008, and a recent report released by the FBI's white collar crimes division indicates the number of investigations has steadily increased in the years since.

If that's not bad enough, apparently now the mafia is getting involved in the scheming, drawn by the chance to rake in "high profits through illicit activities that pose a (relatively) low risk for discovery.

As a homebuyer, you should familiarize yourself with the concept of mortgage fraud in its many forms.

As defined in the FBI's report, mortgage fraud is "a material misstatement, misrepresentation, or omission relied on by an underwriter or lender to fund, purchase, or insure a loan. This type of fraud is usually defined as loan origination fraud. Mortgage fraud also includes schemes targeting consumers, such as foreclosure rescue, short sale, and loan modification."

Buying a house is likely the biggest financial decision you will ever make. Select real estate professionals who understand your needs and look out for your best interests. The Internet is a great place to get started on your search, but you should supplement that information with input from your friends, family & neighbors who've recently bought or refinanced a home.

To get a sense of the types of questions you should ask at the beginning of your homebuying adventure, check out these pamphlets created by the Federal Trade Commission that cover deceptive mortgage ads, buying a home and tips for homeowners.

In the world of real estate closings and title insurance lurks an oft misunderstood concept we call the “Reissue Rate.” Simply put, a reissue rate is a homebuyer discount on the cost of an owner's title insurance policy. To obtain a reissue rate discount, the transaction must satisfy certain conditions from the title insurance underwriter.

The following sets forth the requirements along with the most common questions we encounter from homebuyers. (Our title insurance underwriter is First American Title Insurance Company, so for this discussion we will focus on their reissue rate discount guidelines. The reissue rate guidelines of other national title insurance underwriters may vary.)

How do I qualify for a reissue rate discount?

A reissue rate is available to a homebuyer when:

1. The seller has owned the property for less than ten (10) years; and
2. The seller purchased an owner’s title insurance policy within that ten (10) year period

Does Federal Title seek out a reissue rate discount on behalf of the homebuyer?

Yes. If the seller has owned the property for less than ten (10) years, Federal Title will search its underwriter’s database for a prior policy and/or request evidence of a prior policy from the seller

Do I have to use the same title insurance underwriter?

No. If the title company you selected underwrites through a different title insurance underwriter than the title insurance underwriter that issued the seller’s policy, you still qualify for a reissue rate.

What is the amount of the reissue rate discount?

In Maryland and the District of Columbia, the homebuyer receives a 40% discount based on the prior policy (seller’s policy) coverage amount.

For example, let's say a homebuyer needs a policy to cover a $500,000 purchase, while the seller's existing policy coverage amount is for $400,000. The 40% reissue rate discount would apply to the first $400,000, and the homebuyer would pay full price for the remaining $100,000.

On standard owner's coverage for a Maryland property, this would amount to a savings of approximately $504. Here is a breakdown of the dollar amounts using Original Title Insurance Premium rates on a $500,000 purchase in Maryland and Standard Owner's Coverage:

Assuming the homebuyer qualifies, what is the average reissue rate discount?

Of course the answer to this question depends on the purchase price (new coverage amount) and the seller’s original purchase price (prior coverage). However, according to Federal Title’s internal analysis of nearly 20,000 transactions over a 15-year period, the average reissue rate savings by purchase price point is as follows:

How often is the reissue rate applied to real estate transactions in the DC metro area?

The reissue rate discount is applicable in approximately 65% of all transactions. The other 35% of the time, the homebuyer doesn’t qualify for the reissue rate at all (since seller has owned for longer than 10 years). Federal Title's REAL Credit™ is applicable in 100% of real estate transactions.

UPDATE: Federal Title will provide the homebuyer with the reissue rate discount, when applicable, in addition to the REAL Credit™ for District of Columbia properties. However, for Maryland and Virginia properties, Federal Title will provide either the reissue rate or the REAL Credit™ (whichever of the two produce the higher savings).

How does Federal Title’s REAL Credit™ stack up against the average reissue rate savings?

Federal Title always provides homebuyers with the most savings. More often than not our REAL Credit™ gives higher savings compared to a reissue rate discount. In cases where the reissue rate savings exceeds the REAL Credit™, we apply the reissue rate savings.

Below is a comparison of the average reissue rate savings vs. our REAL Credit™ for purchases in the District of Columbia.

The comparison we provide between REAL Credit™ v. Reissue Rate is a comparison ONLY of those transactions in which the seller owned for less than 10 years. In other words, if we were to use an average reissue rate savings of ALL transactions, the dollar amounts would be much lower.

Below is a comparison of the average reissue rate savings vs. our REAL Credit™ for purchases in the Maryland.

The comparison we provide between REAL Credit™ v. Reissue Rate is a comparison ONLY of those transactions in which the seller owned for less than 10 years. In other words, if we were to use an average reissue rate savings of ALL transactions, the dollar amounts would be much lower.

In the current economy, short sales have become an increasingly common part of our day-to-day business. Due to declines in market value, the contracted sale prices on many homes are not enough to satisfy all of the liens encumbering the property and to pay the transaction costs.

Therefore, inherent in these types of transactions is the need for legal advice and guidance that is separate and distinct from the run of the mill title service provided by non-attorney title agents.

Generally, non-attorney title agents may perform the following functions:

1. Search the title and identify superior and subordinate liens;
2. Gather information and prepare the form required by the lender to obtain a payoff statement;
3. Obtain estoppel letters from each lien holder in which they commit to release their lien upon payment of a certain amount and/or satisfaction of other conditions;
4. Prepare HUD-1 closing statements;
5. Communicate information between the parties to the transaction; and
6. Obtain payoff amounts, complete the closing and issue the requisite insurance policy.

These represent the bare-boned services provided by any title company and unfortunately, in any real estate climate, these general functions are not sufficient to protect the buyer and/or seller when unforeseen issues arise.

On the other hand, attorney title agents enhance the title services provided by being able to provide the client with an abundance of services, a few of them being:

Give opinions or explanations of the legal significance of any documents involved in the transaction;

1. Clear title issues which require the services of licensed real estate attorneys;
2. Counsel homeowners that sell their property in a short sale transaction as to the possibilities or legal ramifications of deficiency judgments and the impact of the proposed short sale on those issues;
3. Counsel homeowners as to the strategy of negotiating a short sale as it might affect pending or future foreclosure and the implications of legal enforcement actions or other legal rights and remedies;
4. Counsel the homeowner on the impact of filing for bankruptcy protection generally or as it relates to a short payoff and/or foreclosure; and
5. Counsel the buyer as to whether the proper actions were taken in a pending foreclosure and whether there were any omissions that may cloud title.

At Federal Title our attorneys can assist buyers or homeowners with the often times unexpected yet frequent legal matters that arise during the purchase and sale of real property. At Federal Title there is always an attorney title agent on each transaction that is prepared to explain, negotiate and if needed, represent your legal interests in every transaction.

As the number of home foreclosures and short sales continue to dominate the housing market, it is important for foreclosure homeowners and short sale sellers to understand the impact of their decisions on their credit scores. 

In a May 2, 2011 article in the Baltimore Sun by Eileen Ambrose, an interview with FICO scores director Joanne Gaskin, discusses the potential hazards on credit scores.

While many argue that a short sale impacts credit scores less than a foreclosure or deed-in-lieu of foreclosure, Ms. Gaskin states that "[B]oth are considered a default. There is little difference in impact."

However, it is possible for a short sale to have less impact depending on how the lender reports the short sale to the respective credit bureaus. If the short sale lender does not include the amount of shortage from the sale, the homeowners FICO score would be approximately 35 points higher than if the homeowner underwent a foreclosure.

Another myth that Ms. Gaskin addresses is that being 30 days late on a mortgage payment will not affect a credit score as much as being 90 days late. This is untrue because once you are late, the damage to your credit score has been done. “The first 30 days late makes a significant impact and it takes a good deal of time to repair that credit,” according to Ms. Gaskin.

Click beyond the jump for a chart that shows how foreclosure and short sale can impact your credit score.

You just signed a contract to buy your dream home, the one with the white picket fence, the game room and the custom kitchen. The only issue is that the sale of your property is taking place on June 20, while this house will not be ready until June 25. Immediately you call the buyers of your property, and while they have no problem waiting to move into the property, the lock on their loan expires on June 20. Now what?

The solution is a simple one, and it is frequently used. The Post Settlement Occupancy Agreement, sometimes also called a Rent Back Agreement, is an agreement whereby the buyer of a property agrees to allow the seller of the property to stay on at the property past the settlement date.

Typically the seller agrees to pay the buyer a per diem fee in exchange for being permitted to stay in the property past the closing date. Usually the per diem charge is the equivalent of the buyers PITI (Principal, Interest, Taxes, Insurance) on the property and, if applicable, condo dues or homeowner’s association dues. This way it is not costing the buyer anything to allow the seller to stay on.

Also, typically a security deposit is withheld from the seller’s funds by the title company. This is a way for the buyer to be protected and make sure that the seller has not damaged the property during the rent back period. After a final inspection at the end of the rent back period, assuming that everything goes well, the buyer informs the title company to release the security deposit back to the sellers. If there is a problem during the final inspection, the buyers and sellers need to come to an agreement on how the security deposit is to be distributed.

The purpose of the security deposit is to make sure that there is no damage to the property during the rent back period. It is not to be withheld as an escrow for repairs that were discovered in the original home inspection. Often buyers will attempt to use the rent back security deposit to cover home inspection item repairs that were never completed, but this is an improper use.

Also, creation of a rent back agreement does not create a Landlord-Tenant relationship. The standard GCAAR form that most agents use in the DC metro area makes this point clear. The District of Columbia recognizes tenant rights such as the tenants first right of refusal, so the distinction is an important one.

Post Settlement Occupancy Agreements are quite common and they offer a great solution to the difficulties of timing the purchase settlement and the sale settlement in a manner that is convenient for all parties.

The DC Office of Planning is now searching for three District employers to partner in a pilot program that will offer homebuyers up to $12,000 toward their down payment and closing costs on a home near their place of employment or transit.

“OP will match employer contributions (up to $6,000 per participating employee) to attract and retain DC residents, with the primary purpose of encouraging employees to live close to their place of employment and/or transit,” according to a statement.

A Request for Applications (RFA) for up to $200,000 in matching homeownership grants, to be administered by qualified DC-based employer was released for the pilot program known as Live Near Your Work on April 29, 2011.

Applications for consideration in the first round of selection are due June 17, 2011. Applications received after this deadline will be considered in the second round of selection, with an October 7, 2011 deadline, if three partners are not selected in the first round.

We will keep you posted as this story develops.

Florida’s existing home and condominium sales rose in March 2011, according to the latest housing report released by Florida Realtors.

Existing home sales increased 12% during March 2011 with a total of 18,522 homes sold statewide compared to 16,540 homes sold statewide in March 2010. Florida’s median sales price for existing homes last month was $126,300 compared to a year ago figure of $136,000 which is a 7% decrease.

In addition, in Florida’s year-to-year comparison for condominiums, 9,703 units sold statewide in March 2011 compared to 7,830 units in March 2010 for an increase of 24%. The statewide existing condominium median sales price last month was $84,300, whereas in March 2010 it was $94,800 for an 11% decrease.

Seventeen of Florida’s metropolitan statistical areas (MSAs) reported higher existing home and existing condominium sales in March 2011. This is the fourth consecutive month that Florida Realtors has reported higher year-over-year existing home and existing condominium sales across the State of Florida.

Ample supply of available housing at very attractive prices coupled with historically low interest rates and restored consumer confidence are fueling the apparent uptick in real estate sales across the Sunshine State.

Furthermore, a strengthening economy will continue to support this upward trend in real estate transactions in Florida. Interested buyers should consult with a highly qualified Florida Title Insurance Company to guide them through the purchase process.

"In this world nothing can be said to be certain, except death and taxes," Ben Franklin once famously said. Yet when it comes to taxes on real property – especially for first-time homebuyers – we find much uncertainty and confusion exists.

Homebuyers should expect to pay two main types of taxes on their homes, 1) transfer taxes are non-recurring and paid once at settlement and 2) real property taxes are recurring and paid semi-annually (when you pay depends on where you live).

Transfer taxes

Aside from the down payment, transfer taxes are often the single largest expense a homebuyer will pay at settlement. Transfer taxes are also known as recordation taxes, stamp taxes or grantee taxes but are all lumped together on the HUD-1 settlement statement and identified, collectively, as "Transfer Tax."

For example in Montgomery County, Maryland, a homebuyer will customarily pay one-half of the total county transfer tax, state transfer tax and recordation tax. The total of these three taxes will be collected as a single line item on the HUD-1 and called "Transfer Tax."

Even more confusing in the District of Columbia and Virginia, the law requires homebuyers to pay the “Recordation Tax,” yet federal regulation requires those recordation taxes to be lumped together and identified on the HUD-1 as "Transfer Tax."

For the purpose of this discussion, the term "Transfer Tax" will include any and all one-time, non-recurring, taxes customarily paid by the homebuyer at the time of closing.

Transfer taxes vary depending on where the property is located, which may lead some homebuyers to think they are being penalized if purchasing a home in a city or county with a higher transfer tax rate, such as the District of Columbia.

While it's true that transfer taxes for DC properties are significantly higher than in Maryland or Virginia, the overall amount a homeowner will pay in taxes evens out over time thanks to property tax rates.

Property taxes

Homeowners are typically expected to pay their property tax bill in two installments spread over the year. (For a summary of real estate tax rates by jurisdiction, including when property tax payments are due, see the homebuyer tax section of our website.)

As mentioned above, the District of Columbia may have one of the region's highest transfer tax rates, but it also boasts the region's lowest property tax rate at just $0.85 per $100 of assessed value. In Bethesda, Maryland the property tax rate is $1.027 per $100 of assessed value, while homeowners in Arlington County, VA pay $0.958 per $100 of assessed value.

Tax comparison

Let's see how the taxes shake out for a homeowner in Washington, DC versus Bethesda, MD versus Arlington, VA over the course of 10 years, assuming tax rates remain unchanged.

Remember: "Transfer Taxes" include ALL state recordation taxes and state/county transfer taxes as customarily apportioned, by jurisdiction, between the homebuyer and seller.

This figure also assumes that the purchase 1) is an owner-occupied residential purchase and, 2) that the homebuyer is a first-time homebuyer. Let's use $500,000 as our purchase price with 20 percent down:

Total taxes paid (estimate)
$500,000 purchase price
Over 10 years

As you can see, the total amount of transfer tax plus property taxes paid over 10 years is far less in the District of Columbia compared to Maryland and Virginia.

This is partly because of the lower annual tax rate of just $0.85 per $100 of assessed value, and largely due to the Homestead Deduction, which homeowners qualify for so long as the property is their principal residence. Individuals who own multi-unit dwellings with five or less units also qualify for the deduction so long as they occupy one of the units.

Now, let's try the same thing, only this time we'll use $300,000 and $700,000 price points:

Total taxes paid (estimate)
$300,000 purchase price
Over 10 years

Total taxes paid (estimate)
$700,000 purchase price
Over 10 years

First-time Homebuyers

Homebuyers who have not owned property in Maryland and the District of Columbia may be exempt from paying their portion of transfer and recordation taxes. Unfortunately for Virginia homebuyers, no tax incentive exists.

To qualify for the transfer tax exemption in Maryland, all buyers must be first-time homebuyers. So, for example, if a wife owned a condo prior to marriage and now wants to purchase a house with her husband who is a first-time homebuyer, the exemption would not apply.

Furthermore, if you are purchasing as a "first-time homebuyer," and you intend to take title in the name of your revocable trust, or another type of entity, you will not qualify for the tax exemption in Maryland.

In the District of Columbia, the program is known as DC Tax Abatement, and, for a purchase price of $332,000 or less, it provides an exemption from the DC 1.1% Recordation Tax and an allowable credit from your seller(s) of 1.1% equal to the DC Transfer Tax. This is a 2.2% swing in favor of the homebuyer!

Additionally, the DC Tax Abatement program excuses first-time homebuyers from having to pay real property tax on their property for five years beginning October 1 following the date of closing. To qualify, first-time homebuyers must 1) prove they live in DC, 2) must not have owned a property in the District for one year prior to the closing date, 3) meet the income requirement and 4) meet the purchase price requirement.

In sum, homebuyers can expect to pay two kinds of taxes on their property: transfer taxes and property taxes. Even though transfer taxes may be higher from one jurisdiction to the next, it doesn't necessarily mean a homebuyer is guaranteed to pay more taxes over the course of his/her ownership. First-time homebuyers may be eligible for tax exemptions.

For more information on taxes paid at settlement or during the course of homeownership, please contact the team at Federal Title.

Earlier this year, JPMorgan Chase admitted to improperly overcharging thousands of military service members on their mortgages and foreclosing on their homes. As the result of a class-action lawsuit filed in a federal court in Beaufort, South Carolina, JPMorgan has agreed to pay $56 million to settle those claims.

Click beyond the jump to review terms of the pending settlement.

Short sales. These two words strike fear in buyers, agents and title companies. Whenever we receive a contract for a short sale, there is an immediate push to get out the seller HUD-1 to the short sale lender, ASAP!

We get calls from everybody involved to drop everything and get that short sale HUD-1 out for review immediately. We’re told that any delay by us will delay the settlement.

The reality is that after we send out the short sale HUD-1, the short sale lender doesn’t even bother to review it and approve it for months. I’ve had plenty of frantic calls from listing agents insisting that the short sale HUD-1 needs to be sent out by the end of the day, only to not get an approval (and thus a closing) for six months. In some cases, the response has taken even longer.

Apparently Reps. Tom Rooney (R-Fla.) and Robert Andrews (D-NJ) have heard about these issues as well. They recently introduced a bill in the House of Representatives that would require mortgage servicers to respond within 45 days of receiving a short sale request.

As might be expected, the National Association of Realtors immediately backed the bill. The hope is that the bill will assist homeowners who are unable to avoid foreclosure, since the lengthy delays often correspond with the seller’s inability to make timely monthly payments.

Even if the bill is passed, it remains to be seen if it is practical. Often approvals are needed from multiple entities, and obtaining approvals from all the parties in 45 days may be difficult. Also, the bill requires that the servicer must send notification to the borrower within the deadline whether or not the request is approved, changed or if additional information is needed.

So this does leave a servicer the opportunity to ask for additional information, thereby extending the deadline.

Despite this, passage of the bill could be a significant step in improving the short sale process, and saving all of us in the real estate industry some stress when it comes to a short sale closing.