Todd Ewing

Todd Ewing

Todd Ewing founded Federal Title & Escrow Company in 1996 on a makeshift desk fashioned from a piece of wood stretched across a couple of sawhorses.

Federal Title is different from most other title companies because Mr. Ewing invests heavily in consumer-driven technology to attract new business instead of participating in Affiliated Business Arrangements or Marketing Service Agreements.

Mr. Ewing and Federal Title have a long track record of implementing technology to streamline the closing process and save consumers money.

His company first shook the industry by releasing Eagle Quotes, a software that allows users to produce accurate closing cost quotes and order settlement services online, tools that appeal directly to consumers. Shortly after, Mr. Ewing introduced the Real Credit instant discount for orders placed online, representing to consumers how much other title companies kickback to referral sources. More recently, Mr. Ewing developed a first-of-its-kind mobile app called Close It! that tells homebuyers and sellers exactly how much it will cost to buy or sell property in the DC metro area (and Florida).

Mr. Ewing received his law degree from Drake University Law School and his undergraduate degree from Iowa State University. He has practiced real estate law in the DC metro area since 1991 and is a member of the DC Bar and Maryland & Virginia Land Title Associations. He's also a partner with the law firm Tobin, O'Connor and co-founder of, the first online marketplace in the U.S. for real estate closings. 

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How to qualify for DC Homestead Deduction

Real estate agents and homebuyers often ask us about DC Homestead Deduction, a program that offers tax relief to District homeowners. Who qualifies and what are the benefits? 

As a complimentary service, Federal Title will complete and file the application as part of the closing services we provide.

Read the latest news on the DC Homestead Deduction.

Who Qualifies? 

  • An owner of a residential (1-5 units) property who occupies the property as a principal residence.
  • Must be a resident of the District of Columbia. Proof of residence may include obtaining a DC driver’s license, registering to vote, registering a vehicle, and filing of DC tax returns.
  • Generally, must be a US Citizen. Some G-4 visa holders may qualify as residents by providing a letter from their international organization employer.

View More Information About Qualifying Here

What are the specific benefits?

There are two main benefits to obtaining the Homestead Deduction. First, for the purpose of computing your yearly tax liability, it will reduce your real property’s assessed value by $72,450. At a tax rate of $0.85 per $100 of assessed value, that’s a annual savings of $615.82. Second, you are entitled to an assessment cap such that your property may not be taxed on more than a 10% increase in the property’s assessed value each year.

When does the Homestead Deduction take effect?

If a properly completed and approved application is filed from October 1 to March 31, the property will receive the Homestead Deduction benefit for the entire tax year (and for all tax years in the future). If a properly completed and approved application is filed from April 1 to September 30, the property will receive one-half of the benefit reflected on the second-half tax bill (and full deductions for all tax years in the future).

When should I apply for the benefit?

You should apply at the time of your closing or shortly thereafter. Federal Title can help you complete your application at the time of closing and, as a complimentary service, file the application on your behalf.

What if I have a Homestead Deduction on another property?

You cannot maintain a Homestead Deduction on a non-owner occupied property. If you no longer occupy a property that currently receives the Homestead Deduction benefit, you must notify the agency when eligibility ceases. View the Cancellation of Homestead Benefit form.

Information deemed reliable but not guaranteed. | Updated 31 August 2017

Clarifying a common misconception: title insurance premiums

We've said it before, and we want to make it absolutely clear because we continue to get questions about title insurance premiums. Title insurance premiums are NOT created equal.

While you no doubt have heard that title insurance underwriters are legally required to file their rates with the local insurance commission, underwriters do not file identical rate schedules.

It is true that title companies who are agents of the same underwriter must charge the same title insurance premium. But sometimes title companies become agents of multiple underwriters, using one title insurance underwriter for one jurisdiction and a second underwriter in another jurisdiction, etc.

Federal Title is a prime example of this. We use different underwriters depending on the jurisdiction, allowing us to pass extended savings on to our homebuyers.

We receive calls fairly regularly from confused agents, lenders and consumers who are wondering why our Quick Quote reflects a title insurance premium on a Maryland property that is hundreds of dollars less than the other quotes. It's not because our quote is incorrect, it's because our underwriter charges a lower premium.

That title insurance premiums are created equal is a common misconception we wish to clarify for our agents and lenders as well as consumers, because we believe they are our best ally when it comes to looking out for the best interest of our homebuyers.

Refinancing home loan will require new lender's title insurance policy

Refinancing home loan will require new lender's title insurance policy

For those who closed with Federal Title in the recent past and who may be considering refinancing their mortgage, we'd like to let you know we can provide you substantial savings on your closing costs.

In addition to providing a reissue rate discount on your title insurance premium, Federal Title also offers repeat clients a $200 credit applied toward settlement fees. When you order settlement services through our website, you can save an additional $100.

We'd like to remind you that it's your legal right to choose your own settlement service provider. Often times borrowers are not aware or informed of this right and end up spending more on closing costs than they should.

Get a free and anonymous Quick Quote from us and see how it stacks up to your mortgage lender's title company.

As you may know, we are the leading independent title company serving the DC metro area, and our settlements are conducted by licensed attorneys – not inexperienced notaries. Our online reviews tell our story.

RSVP to our software demo of

Create is a Web-based application we recently discovered that is helping us improve how we do business. It occurred to me that other real estate pros might like to see how they can also benefit from this useful tool.

We have organized a live demonstration of Create and invite you to join us at our Friendship Heights office on Tuesday, March 1 at 10 a.m. to learn clever ways you can leverage this software to improve your real estate business. Click here to RSVP.

The application provides excellent insight into the District’s inventory of real property – residential and commercial. It's essentially a clickable 3D map of the city. Click on any building to get a highly detailed report of the property, including such things as ownership, zoning and permits.

Beyond the property itself, Create offers a snapshot of current market conditions and the people currently living in the neighborhood: average household income, educational attainment, cars per household, average commute times and more. We've found this information to be useful for tailoring marketing strategies to the specific audiences and neighborhoods where we work.

I reached out to the developer of this nifty tool, Stefan Martinovic – who told me Create is generating buzz with nearly every active brokerage, developer and investment company in town – and asked him to present a live demonstration at our Friendship Heights office on Tuesday, March 1 at 10 a.m. Click here to RSVP.

In the meantime, you can test the application for free by heading over to from your desktop browser. Stefan is also offering a 40% discount on the premium subscription with the promo code "CreateLove."

What homebuyers need to know beginning this weekend

What homebuyers need to know beginning this weekend

Much of the focus of TRID has been on how it's going to change the real estate game from a business standpoint. But what do your buyers and sellers need to know about the final rule for TRID?

The folks over at Urban Turf, one of DC's most popular real estate blogs, called us yesterday and asked us to weigh in on the question.

In a nutshell, your buyers and sellers should be prepared to set aside more time for closings, especially in the beginning as the industry gets acclimated. Your buyers and sellers also need to bear in mind how sensitive the closing timeline is and be prompt when asked to provide information about their transaction.

Please take a moment to view the article and share it with your clients. Hopefully it will make the transition, which begins this weekend, a little easier for everyone.

Top 10 things real estate agents should know about the new TILA-RESPA integrated disclosures

Top 10 things real estate agents should know about the new TILA-RESPA integrated disclosures
Editor's note: The director of the Consumer Financial Protection Bureau issued a statement announcing a delay in the implementation of the new TILA-RESPA integrated disclosures until October 1, 2015.
Big changes are on the way that will impact real estate agents, lenders, buyers and sellers alike. The HUD-1 is out come August 1, and the Closing Disclosure form (CDF) is in. 

A new form inevitably means new procedures and deadlines to observe, which is why we've put together this list of things we think are most important to know about the new regulations. 

1.  The lender – not the settlement agent – will in most cases be preparing and delivering the CDF, which will be used to most loan applications taken for new mortgages after August 1, 2015.

2. The CDF must be delivered to the buyer/consumer at least three business days prior to the scheduled closing date.

3. The settlement agent must deliver information to the lender approximately 10 to 14 days prior to the closing date for completion of CDF to meet the delivery requirement. 

• You will need to communicate to the closing agent all your buyer charges and credits 10 to 14 days prior to the closing date. (Federal Title has simplified this communication by emailing you and your homebuyer a link to an easy-to-complete online form as soon as we receive the new transaction order.)

4. The settlement agent will need your real estate broker’s state license number and your individual real estate license number for the new CDF.

• Federal Title stores license numbers for most brokers and agents in their respective profiles within our WorkFlow system, saving agents time and effort involved in communicating this information each time Federal Title receives a new transaction order.

5. The CDF sent to the buyer/consumer won’t include the seller’s side of the transaction. 

• The settlement agent (not the lender) is responsible for completing and delivering the seller’s side of the CDF. (Federal Title will prepare and deliver a separate CDF and/or settlement statement to the seller well in advance of the closing date.)

6. You likely won't receive an advance copy of the CDF from the lender before it’s delivered to the buyer/consumer. 

• The lender will likely send the CDF to the settlement agent when it’s sent to the buyer/consumer.

• The settlement agent will probably not be permitted to send a copy to real estate agents; you will need to obtain a copy from the borrower.

7. Changes to the CDF after delivery to the buyer/consumer MAY trigger a new three-day waiting period if changes cause the Annual Percentage Rate (APR) to be inaccurate, the buyer changes loan product or a prepayment penalty is added.

• Changes and adjustments affecting the value of the property (as determined by the lender) may trigger additional disclosure and review periods under the Equal Credit Opportunity Act (ECOA) controlling the delivery of the appraisals.

• You may want to consider two pre-settlement inspections or walk-throughs (e.g., first inspection 7 to 10 days in advance of closing and a second inspection on the day of the closing).

8. Review and become familiar with the CDF so that you can answer buyer and seller questions. Note the CDF refers to Owner’s Title Insurance as optional in some circumstances. Obtain appropriate advice for the buyer/consumer on the protections given to them through owner’s title insurance.

• Federal Title’s Close It! calculator application is a perfect resource for gaining familiarity with the new CDF.

• Please point your prospective homebuyers toward Federal Title's articles on title insurance and title claims. share Federal Title’s Guide to Owner’s Title Insurance with prospective home buyers.

9. The new TILA-RESPA Integrated Disclosure (TRID) rules may affect the contract terms that you help negotiate for either the buyer or the seller. It’s important to communicate with the lender and closing agent to determine a realistic time frame for closings under these new rules.

• For example, a closing 20 days out or less may no longer be realistic.

• When specifying the closing date, take additional time into consideration.

10. What system do you have in place to communicate changes to the contract (after it’s been signed) to the lender? Consider having a conversation with buyers about the high importance of timely responses to lender requests, and remind sellers they must follow the contract to the letter because not doing so may delay the closing.

DC ups Homestead Exemption benefit

DC ups Homestead Exemption benefit

The District of Columbia's Tax and Revenue Office announced they have increased the Homestead Exemption benefit to $71,400, which is applied against the property's assessed value.

That translates into an annual benefit of $606.90 for homeowners who qualify.

The benefit is limited to residential property which must be occupied by the owner/applicant and must be the principal residence of the owner/applicant. 

Federal Title will continue to file the application on behalf of all homebuyers who qualify.

Choosing your own title company - yet another reason

Two of the largest financial institutions in the country are having their feet held to the fire over blatant violations of the Real Estate Settlement Procedure Act, according to a complaint filed in federal court last week by the Consumer Financial Protection Bureau and Maryland Attorney General.

The complaint involves employees of Wells Fargo and JPMorgan Chase who participated in a kickback scheme with a now-defunct Maryland title company Genuine Title in which loan officers received cash, marketing materials and customer information in exchange for referrals. 

"This type of quid pro quo arrangement is illegal, and it’s unfair to other businesses that play by the rules," said Maryland Attorney General Brian Frosh.

More than 100 loan officers from at least 18 Wells Fargo branches allegedly participated in the scheme as did at least six loan officers from three Chase bank branches, according to the complaint. Consequently, Wells Fargo is facing $24 million in civil penalties and $10.8 million in redress while JPMorgan Chase faces $600,000 in civil penalties and $300,000 in redress. 

The details of the complaint reveal blatant RESPA violations going back to 2009 and involving thousands of home loans and tens of thousands of dollars. Genuine Title went so far as to foot the bill for direct-mail campaigns and branded marketing materials. They even paid some loan officers cold, hard cash. 

One former Wells Fargo loan officer was singled out by name in the complaint for accepting cash payments. His then-girl friend, now-wife was also identified in the complaint for taking the payments on behalf of the loan officer to disguise the arrangement. They will pay a $30,000 penalty. 

The huge dollar figures and overt rule-breaking are not what makes this case special, though. What makes it special is the offenders got caught and will face their day in court. For those of us in the trenches – the so-called "rule abiders" of the title industry, fighting the good fight independently – we are aware that this kind of thing occurs all too frequently and we can only shake our heads. 

The truth is most consumers still don't know they can select their own settlement service provider. Nine times out of ten, the homebuyers we encounter say they just went along with whatever their agent or lender recommended because it was convenient. They have no idea about the potential for a conflict of interest and how they could be saving hundreds of dollars by choosing their own independent title company. 

The only way to combat this sad fact of the home buying experience, is to get the message out to consumers as well as the businesses who seek to take advantage of them. We fully support the CFPB and other government regulators who shine a light on these anti-consumer and, often, illegal business pursuits. 

Federal Title now a trusted & verified SSI agent

Federal Title is now a trusted and verified title agent, having completed a standardized risk management process through risk management firm Secure Settlements Inc.

We successfully demonstrated to SSI that we meet federal regulatory requirements. Our implementation of the American Land Title Association's industry best practices was also helpful in attaining this new distinction. 

Mortgage industry risk management is a relatively new market niche, and SSI is the first company to offer title agents a standardized risk management process. Increased risk management in the mortgage industry is also a byproduct of the Dodd-Frank Act, passed in 2010, which mandated new consumer financial laws and created an agency known as the Consumer Financial Protection Bureau. 

Banks are under the CFPB microscope, and they in turn are taking a hard look at third-party service providers to ensure business practices and services are on the up-and-up in terms of the new requirements mandated by Dodd-Frank. Because of the potential for regulatory penalties and legal damages 

We choose to view the increased scrutiny of the CFPB, as well as regulations mandated by Dodd-Frank, as an opportunity to improve our business and further distinguish ourselves from other title companies in the region.

SSI's "Trusted and Verified" seal of approval is a visual queue to our clients that we're looking out for the best interest of all parties involved in the real estate transaction. 

Marketing Service Agreements face more scrutiny

The Consumer Financial Protection Bureau (CFPB) is actively seeking enforcement actions against Marketing Service Agreement (MSA) participants. 

Their latest enforcement action occurred last week against Lighthouse Title, a Michigan title company,  resulting in a $200,000 civil penalty,  forcing Lighthouse Title to cancel all existing MSAs and prohibiting them from entering into future MSAs. 

If your brokerage currently participates in MSAs, your broker would be well served to carefully review the findings issued by the CFPB in this order

Perhaps the most weighted finding by the CFPB stated that Lighthouse Title violated federal law by entering into MSAs with the understanding that, in exchange, the brokerages would refer closings and title insurance business to the title company and, further, by paying those brokerages fees with the understanding that in exchange the brokerages would refer business. 

It’s important to note that the CFPB didn’t state that the "understanding" to refer business had to be in the written agreement. 

One of the key factors to identifying an "understanding for the referral of business" was a determination that brokerages referred significantly more transactions to the title company when they had an MSA with the title company than when they did not.

Why else would a title company enter into an MSA and pay fees to a brokerage if not for the referral of business?  Otherwise, the title company would simply hire a marketing/advertising firm to "market" its services — right?

By its ruling and findings, the CFPB is effectively saying that if MSAs are premised on an understanding that the brokerage will refer business to the paying title company, then the MSA is in violation of federal law.

Language stemming from outdated DC law should be removed from lender's loan packages

Several mortgage lenders continue to require borrowers to sign a statement at closing as to whether a borrower has a non-borrowing spouse or domestic partner living with the borrower.  

The recitation provided by the lender reads, "Washington, DC law provides that a mortgage, deed of trust, or assignment for the benefit of creditors is not binding or valid unless it is signed by the spouse or domestic partner of the debtor who is living with his or her spouse or domestic partner. Consequently, a non-borrowing domestic partner or spouse may have an ownership interest in the property of the borrowing domestic partner or spouse.  As a result, the Lender will require that both spouses or registered domestic partners sign the security instrument in order to ensure it is fully enforceable."

The recitation comes from an outdated DC law, and your legal counsel should have it eliminated from the loan package since it creates much confusion among the borrowers at closing.

DC law used to provide:

§ 15-502. Mortgage or other instrument affecting exempt property 

   (a) A mortgage, deed of trust, assignment for the benefit of creditors, or bill of sale upon exempted articles is not binding or valid unless it is signed by the spouse or domestic partner of a debtor who is living with his or her spouse or domestic partner.

This purports to say that these instruments are not valid without a spouse or domestic partner’s signature, but this was an error, and legislation in 2006 corrected it.

In 2006 § 15-502(a) was changed to add the following language at the end:  

"This section shall not apply to instruments related to property exempted in § 15-501(a)(14)."

Under § 15-501 (a)(14), which was also amended in 2006, instruments related to property exempted means deeds of trust, mortgages, mechanics liens, and tax liens related to a debtor’s residence.

The effect of the amendments is to make clear that a spouse or domestic partner’s signature is not required on security instruments. 

In addition, more generally, in 2001, DC abolished dower rights. (DC Law 13-292, Omnibus Trust and Estates Amendment Act of 2000.)

The cost of title insurance does vary. Homebuyers should shop.

Too often, I hear real estate professionals telling homebuyers or borrowers that "title insurance is all the same – no reason to shop." This frequently shared conventional wisdom is only partly true.

While the terms of coverage are virtually the same, the cost of the title insurance premium does vary. Since choosing a settlement company is the right of the homebuyer, the homebuyer/borrower should take time to shop for the best title insurance rates.

Many state insurance commissions, including the District of Columbia and Maryland, require title insurance underwriters to file their respective rates. As a result, the filed title insurance rate premiums do vary among the several underwriters.

Depending on the settlement company’s underwriter, a particular settlement company, for the exact same coverage, may offer lower title insurance premiums than their competitors.

Take, for example, Federal Title’s title insurance premium of $1,588.00 on a Maryland purchase with a $450,000.00 coverage amount.  

Nearly every competing settlement company quotes and charges a premium of approximately $1,838.00 – or, approximately $250.00 more than Federal Title for the exact same terms/amount of coverage.

The bottom line is that consumers (i.e., homebuyers and refinancing homeowners) should exercise their right to choose their own settlement company and in so doing, take a few minutes to shop both the settlement charges and the cost of title insurance.

$3,000: personal check limit at closing

The Federal Title & Escrow Company team will make every effort to provide its clients with a precise Cash to Close amount, in advance of the closing date, so our clients can arrange for a wire transfer or obtain a cashier’s check for the exact amount.  

In some instances, due to last-minute changes in financing or sales contract revisions, the Cash to Close amount will change after the client has already wired her funds or obtained a cashier’s check.  

If the change results in an additional Cash to Close amount exceeding $3,000, the law prohibits the client from writing a personal check to Federal Title and the client will be required to wire or obtain a cashier’s check for the additional amount.

DC Code §31-5041.06(d)(3) states, in part, that a title insurance producer may accept a check in an amount not to exceed $3,000 that has not been finally paid before any disbursements.  

This means that Federal Title & Escrow Company is prohibited from accepting a personal check at the time of closing that exceeds $3,000.

In memory of Bonnie

The Federal Title family is deeply saddened after learning of the loss of our dear friend Bonnie Lewin. All of us wish to extend our heartfelt sympathies to Bonnie’s family and her many friends. We will remember her as someone of great character and a devoted advocate of those she served.

Avoid the DC recapture tax 'surprise'

If you are an agent listing a property for a decedent’s estate/personal representative in DC, help your client and the prospective purchaser avoid a potential big surprise – the real property recapture tax.

DC Office of Tax and Revenue has recently been imposing a recapture tax against properties that were receiving senior citizen tax relief but ineligible due to the property owner’s death – i.e., a change in eligibility.

That is, upon the death of the owner, the personal representative for the estate would be responsible for notifying DC, within 30 days, that the property is no longer eligible for the benefit.

Since it’s unlikely the personal representative is aware of this requirement, the property continues to unjustly receive the benefit until such time as the property is sold.

Once the property is conveyed, DCOTR is notified by DCROD of the change in status and retroactively applies the proper tax status from the date of death through the date of conveyance. This often results in a hefty recapture tax amount then applied against the real property tax account.

As the settlement company, we are being proactive in our efforts to notify DC prior to closing and obtain the recapture tax amount such that it can be handled prior to or at the time of closing.

In some cases, due to timing, this is not possible and the purchasers are left with a recapture tax incurred by the decedent’s estate.

We advise all agents listing a property for a decedent’s estate to be aware of this issue, check the tax status to determine whether it is unjustly receiving the senior citizen tax relief benefit, and make the personal representative aware of the requirement to notify DC of the status change and be prepared to pay a recapture tax.

A wake-up call from CFPB regarding Marketing Service Agreements

If you are an agent, broker, or mortgage lender who has been solicited by a title company to enter into a Marketing Service Agreement (MSA), you would probably be best served to avoid the temptation.

The Consumer Protection Financial Bureau (CFPB) has made it clear that they are actively probing and investigating such arrangements as one of their top priorities. Most recently, an MSA between a top Maryland real estate team and their “partner” title company resulted in a massive class-action lawsuit and, potentially, an enforcement action by the CFPB (see full story here).

Federal Title has actively taken a strong stance against both MSA’s and Affiliated Business Arrangements (ABAs), recognizing that such arrangements only enrich the referral sources at the expense of the consumer and further drive up the costs of title charges. Read our related articles on MSAs and ABAs.

New Maryland bill to limit cost of condo resale package

Maryland law requires the seller to provide specific information pertaining to the resale of property within a Homeowner’s Association (HOA) or a property designated under a condominium regime.

Typically, this information is produced by the management for the HOA or condominium, and the HOA or condominium charges the seller a fee for the production and delivery of the information.

It is the belief of some Maryland legislators that the fees being charged are excessive and, as such, these legislators are seeking to limit the amount that may be charged.

Before the Maryland legislature are bills S229/HB412, which would limit the fee a condominium council of unit owners or HOA may charge an owner (seller) for providing this legally required information to a prospective homebuyer.

The current law calls for a "reasonable fee," but it is left undefined so many organizations have simply been using the requirement as a way to profit – charging upwards of $400 to $500.

There's currently a proposal to limit the fee to $50. Hearings on the legislation continue and we will keep you apprised of the final bill.

UPDATE: The Senate passed SB 229.  They amended HOA’s out of the bill, thus making it applicable only to Condo Associations; and they upped the fee that could be charged from $50 to $100.  The House Committee then amended the bill further, but the Senate committee refused to concur with those amendments and so the bill died when the clock ran out at midnight.

Scheduling a settlement date is a contractual obligation for homebuyers

An often overlooked provision in paragraph #6 of the GCAAR Regional Sales Contract provides that the "Purchaser agrees to contact the Settlement Agent within 10 Days after the Date of Ratification to schedule Settlement and to arrange for ordering the title exam and, if required, a survey."

Homebuyers and their agents should pay particular attention to this requirement.

Recently our office was notified that a seller had declared the purchaser in breach of contract due to purchaser's failure to schedule settlement within 10 days from the date of ratification.

While the purchaser had ordered a title exam with our office, neither he nor his agent had scheduled the settlement date.

Through email notification, Federal Title reminds homebuyers and their agents to schedule the closing with our office within this time period. Unfortunately, in this particular instance, our notifications were ignored.

Post settlement occupancy agreements: A useful tool, but beware of potential pitfalls

A post settlement occupancy agreement allows a seller to continue to live in his home after settlement, under an arrangement where the seller is essentially renting the home back from the new purchaser.

This type of arrangement can be a life-saver for a seller who is purchasing another home but won’t be able to close on that purchase until a few days or weeks after he sells his current home. Joe wrote a very informative blog post about post settlement occupancy agreements and how they can be a solution to settlement timing issues. 

I thought I would take a look at things from a different perspective and point out some potential pitfalls of such arrangements. In order to be protected, both purchasers and sellers need to prepare for the worst.

What do I mean by the worst? Imagine a case where a seller who is renting back catches the house on fire, and the house burns down to the ground. There are a lot of tricky issues in such a situation.

One thing we know for sure is that the purchaser now has no home to move into, which is obviously a problem, no matter how the liability issues get resolved.

In the normal case of a house fire, there is a homeowner’s insurance policy that would provide coverage. Here, presumably the purchaser obtained a homeowner’s policy with an effective date of the date of the settlement.

The GCAAR standard post settlement occupancy form states: "From the date of settlement the Buyer shall obtain and maintain insurance on the Property with the Buyer’s policy being primary in the event of other available insurance." (Form #1309, paragraph 6.)

The trouble is that despite this provision, the purchaser’s insurance company might have a different opinion.

For example, it is possible that the purchaser’s insurance would not cover the fire, under an exclusion based on the fact that the policy holder was not living in the property at the time of the fire?

Even if the purchaser thought ahead and got coverage for someone renting property, the typical post settlement occupancy agreement will say that the arrangement is not a landlord/tenant relationship, which might cause complications for insurance coverage.
For example, the GCAAR form states, "Nothing in this Agreement shall constitute a Landlord/Tenant relationship between Buyer and Seller." (Form #1309, paragraph 8.)

It also may be that the seller continued his/her homeowner’s policy through the rent-back period, but it is possible that this insurance would not cover the fire damage, due to the fact that the seller no longer owned the home at the time of the fire. The seller may have also gotten renter’s insurance for the rent-back period (the GCAAR form requires it), but typically that will cover only belongings, not damage to the house itself.

Even something less extreme than a whole house burning down can pose some tricky questions in a post settlement occupancy situation.

The buyer now owns the house, along with the appliances, HVAC, etc. If the seller negligently breaks the door off of the refrigerator during the rent-back period, one would think that the seller should be held responsible, and, normally, that would be the case, at least under the GCAAR standard form, which provides for a deposit by the seller to be applied to any damages to the property caused by the seller in excess of ordinary wear and tear. (Form #1309, paragraph 2.)

But what if the refrigerator simply stops working 2 weeks after the closing, during the rent-back period? Whose responsibility would that be?

Since the refrigerator is now the buyer’s, generally one might think the buyer would be responsible, but paragraph 3 of the GCAAR form provides that the seller is to deliver the property (i.e., deliver it at the end of the rent-back period) in the condition specified in the sales contract. The sales contract provides that the condition of the property at delivery is to be in substantially the same condition as of the date of the contract, the home inspection or some other date to be specified. If the refrigerator was working at the specified date, then the seller is responsible if it is not working at the end of the rent-back.

The bottom line is that both buyers and sellers should carefully review any post settlement occupancy agreement to see what the agreement provides concerning liability for issues that arise during the rent-back period and concerning the responsibility for obtaining insurance.

They then should make any revisions to that agreement that are necessary to protect their interests, in consultation with an attorney, if possible. They should also contact their insurance agent to discuss insurance coverage for the rent-back period.

One other thing that a buyer should do before agreeing to allow the seller to rent back after closing is to check with his lender to see whether the lender will permit it.
Typically lenders will allow a short rent back. For anything longer, the buyer could be in violation of the covenant in the loan documents that states that the property will be owner-occupied.

If the seller is paying a security deposit and/or "rent" at closing, these numbers will appear on the closing statement, which the lender needs to review and sign off on.

You don’t want the lender learning about the rent-back for the first time when they receive the draft closing statement from the title company and see those numbers.

New govt regulations take effect, drive up closing costs

Homebuyers in 2014 will no doubt experience a higher range of closing costs than those homebuyers coming before them. With the start of this new year, both mortgage lenders and title companies are now subject to several new regulations spawned by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. 

For example, as administered through the newly formed Consumer Protection Financial Bureau (CFPB), new disclosure forms will be required of mortgage lenders and title companies by August of 2015, including, but not limited to, the Loan Estimate (replacing the current Good Faith Estimate) and the Closing Disclosure (replacing the current HUD-1 Settlement Statement).

The requirement of these new disclosure forms effectively voids all current closing software production systems and demands a complete overhaul of those software systems. Re-tooling these software systems will be just one expense that will be passed along to the consumer. 

Another closing cost increase will be shifted to consumers with the forced adoption of Best Practices policies by title companies. Because the new law imposes liability on mortgage lenders for the acts of third-party vendors, including title companies, the mortgage industry has forced the hand of the title industry to adopt a uniform Best Practices policy. 

That means every title company, small or large – local or national – must implement and administer its own Best Practices policy and remain subject to yet another time-consuming annual audit. It also means that title companies (large or small) will likely have to expand their payroll to accommodate a chief compliance officer or an equivalent thereof. 

Whether or not the consumer is better protected remains to be seen but, for now, we do know that the costs of all these changes will be reflected on the new Closing Disclosure in the form of increased closing costs.

Meet our new compliance officer protecting homebuyers and home sellers

Moving into the year 2014 and beyond, "Compliance" is the word at Federal Title as our industry undergoes a major facelift in the wake of the Dodd-Frank regulatory outgrowth.

We are very proud to announce the addition of Dianne Pickersgill, Esq. to fulfill our newly created position of Chief Compliance Officer.

Dianne received her Juris Doctorate from Harvard Law School and prior to joining Federal Title represented clients in the areas of affordable housing and HUD multifamily regulatory compliance issues.

Dianne will oversee all of our regulatory compliance issues, including implementation and monitoring of our Best Practices policies.

She will essentially act as an internal auditor to assure, among many other things, the protection of our clients’ non-public personal information, the protection of our clients’ funds, and to make sure every Federal Title employee keeps a clean desk and complies with our Best Practices policy.

If you should have any questions about our policies for the protection of non-public personal information or how we best protect our clients’ funds, please don’t hesitate to contact Dianne directly.

Using Power of Attorney? Think again

Fannie Mae recently issued new restrictions on the use of power of attorney (see bulletin details). As a result, these new restrictions will apply to virtually every real estate transaction. 

One important restriction is that if you are doing a cash-out refinance, you cannot use a power of attorney. There are no exceptions to this rule.

If you are doing a non-cash-out refinance or a purchase, you will need to satisfy these key requirements in order to use a power of attorney:

1. Prior to closing, the Principal (the person not attending the closing and appointing the Attorney-in-Fact) must provide the title company and lender with a written statement detailing the reasons he or she cannot attend the closing.

2. If no borrowers will be present at closing, the Attorney-in-Fact (the person signing on behalf of the Principal) must be the Principal's relative or Attorney-at-Law. A "relative" is defined to include a fiancé, fiancée or domestic partner of the Principal.

3. If at least one borrower will be present at closing, the Attorney-in-Fact signing for the absent borrower(s) does not need to be the Principal’s relative or Attorney-at Law.  So, for example, if an unmarried couple is buying a house together, and only one of them can be present at the closing, it would be permissible for that person to be designated as the Attorney-in-Fact for the absent Principal,

4. The Attorney-in-Fact cannot be:

  • a real estate agent with a financial interest in the transaction or any person affiliated with such real estate agent;
  • a title company providing the title insurance policy or any affiliate of such title insurance company, or any employee of either such title insurance company or any such affiliate;
  • the lender to the transaction, any affiliate of the lender, any employee of the lender, the loan originator, the employer of the loan originator, or any employee of the employer of the loan originator

An exception to the above restrictions is if the real estate agent, title company employee, or lender is a relative of the borrower. (This applies in cases where use of POA is allowed, so not in the case of a cash-out refinance.)

The bait 'n' switch continued...

Part 2 of 2

In Part 1, we looked at a scenario where a purchaser (Offer B) was attempting to switch from an “all cash” purchase to using lender financing under the GCAAR Regional Sales Contract, after the contract had been ratified. We concluded that such an act by a purchaser would be a breach of the contract.

Here we will look at how courts might view the matter and what remedies a seller faced with such a situation might have.

The key question is whether such a breach would be considered “material.” This is because if a purchaser’s breach is material, this will excuse further performance by the seller, which means that the seller can get out of the contract. 3511 13th St. Tenants’ Ass’n v. 3511 13th St., N.W. Residences, LLC, 922 A.2d 439, 435 (D.C. App. 2007) (citing cases).

The question of whether a particular breach is material has been called a “classic issue of fact” and involves an inquiry into issues such as whether the breach worked to defeat the bargained-for objective of the parties. Id. These issues are of the type that courts normally rely on juries to decide. Id.
There are no published cases in the District of Columbia (or Maryland) that deal with a switch from all cash to financing situation.

The case cited above, 3511 13th Street Tenants’ Association, involved the failure of the purchaser to tender an earnest money payment. In that case, the court refused to express an opinion on materiality of the breach, because that issue was one for the jury.

In our hypothetical, the fact that the offer was all cash was one of the key factors in causing the seller to accept the offer. While the purchaser might still be able to get to closing with lender financing, there is a good argument that the bargained-for objective of the parties has been defeated: namely, the seller’s objective of not having a transaction with the potential delay and uncertainty that comes with financing. In fact, the seller was willing to leave $5,000 on the table for that peace of mind. These factors weigh in favor of a finding that the breach was material.

This means that a seller who is on the receiving end of a bait and switch move by a purchaser should consider notifying the purchaser that such an act would be a material breach of the contract, and that if the purchaser proceeds with the financing, the seller will declare the contract to be rescinded. The seller could demand that the purchaser immediately provide a written assurance that the purchase would not be financed. If the purchaser did not comply with this demand, the seller could sell the property to someone else – possibly Offer A, if they are still around. A purchaser who wanted to stop such a sale would need to file an action in D.C. Superior Court for an injunction and specific performance. In the court case, the key issue would be the materiality of the breach.

Normally, in cases of rescission, the parties are returned to where they were before entering into the contract. See, e.g., Wright-Dean v. Garland, 779 A.2d 911, 915 (D.C. App. 2001) (case involving action for rescission). Accordingly, the purchaser may have a good argument that they should get their deposit back.

The seller’s alternative to rescission would be to go to closing and then sue the purchaser for breach of the contract. Id. Here, one could argue that the damages from the breach are $5,000, as that was the difference between Offer A and Offer B, and if it hadn’t been for the “all cash” term contained in Offer B, the seller would have accepted Offer A instead of Offer B. In the District of Columbia, claims for $5,000 or less may be brought in the Small Claims and Conciliation Branch of the Civil Division, where the process is more informal and, many times, the parties are not represented by counsel.

If you are a purchaser thinking about making an “all cash” offer and then trying to obtain financing after your offer is accepted, you should consider the possible risks before taking this course of action.

Another driver of increased closing costs - Marketing Service Agreements (MSAs)

Affiliated Business Arrangements (ABAs), once known as Controlled Business Arrangements (CBAs) are becoming a focus of the Consumer Financial Protection Bureau (CFPB).

Recent efforts by the CFPB, evidenced by enforcement actions and resulting settlements, are clear indications of the CFPB’s intent to better protect the consumer against sham ABAs. Many ABAs are nothing more than an arrangement by which title companies and mortgage lenders buy business from a referral source at the expense of the homebuyer. See here and here.

As harmful as ABAs are to the consumer, a little-known but similar arrangement between referral sources and vendors known as Marketing Service Agreements (or, MSAs), may be even more harmful. This article explains the difference between ABAs and MSAs in more detail.

Unlike an ABA, the MSA does not fall under any specific statutory authority and, as such, there is no requirement by the referring party to disclose its business relationship with a participating vendor to the consumer. Rather, a MSA is broadly covered under RESPA Section 8 that states: "No person shall receive and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding – oral or otherwise – that business incident to or part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person." Therefore, fees paid through an MSA must be for actual marketing services performed by the referral source (i.e., real estate brokerage) on behalf of the mortgage or title company as vendor. In other words, the marketing services being performed by the real estate brokerage must be commensurate with the fixed monthly or annual fee paid by the mortgage or title company.

Over the course of the last year, the folks here at Federal Title & Escrow Company have been taking inventory of its competitors who participate in MSAs and their underlying fee structures. What we have learned reveals the harm to consumers. In one case, we learned that a competing title company is paying approximately $5,000 per month to a local real estate brokerage for “marketing services.” Yet, the only so-called "marketing services" being provided are "in-office access to the brokerage's sales associates to the exclusion of other competing title companies," "encouraging sales associates to write in to the sales contract the name of the participating title company," and "allowing the participating title company to set up a kiosk of brochures within the real estate brokerage office locations."

Clearly, for $5,000 per month ($60,000 per year), a title company could hire a marketing firm to provide a whole lot more in the way of marketing its services. This is just one of many instances we have discovered in which the fee being paid is clearly excessive in relation to the marketing services being performed. The truth is that the title company is buying business from a referral source – plain and simple.

So is it really the title company paying the MSA fee to the real estate brokerage? No, it’s the consumer paying the fee since the title company is simply passing on the cost to the homebuyer. Since the real estate brokerage has a vested interest in making sure the transaction is referred to the participating title company, they have little incentive in making the homebuyer aware of his right to shop and select his own title company. As industry insiders, we know for a fact that if a homebuyer shops and selects their own title company, they will pay far less than what they will pay by using the MSA-participating title company.

The homebuyer, as consumer, is also under-served by the inherent conflict of interest created by an MSA. The MSA-participating real estate brokerage is less likely to hold its partnering title company accountable for actions of malfeasance. In other words, they are more likely to “cover” for the title company since the title company is paying a handsome monthly fee to the broker. In the alternative, we are aware of several cases in which a partnering title company, without the knowledge of the homebuyer, has insured over title defects (i.e., unreleased mortgages, etc.) so as to timely complete a closing. Such a maneuver ensures the payment of the real estate brokerage commissions without delay and further solidifies the relationship between the MSA partners.

MSAs are little more than the act of buying business from referral sources – the “marketing service” being performed is only part of the ruse. At the end of the day, the MSA causes the consumer to pay more and corrupts the integrity of client advocacy. At Federal Title, we advocate for all real estate professionals to a transaction to act independently for the benefit of the consumer and not at the expense of the consumer. We don’t buy business – we earn it.

The bait 'n' switch: From an all-cash offer to not

Part 1 of 2

Consider the following scenario: It’s a bidding war, and the seller of a property is choosing between multiple offers. It comes down to the two highest offers:

Offer A: $505,000, FINANCING of 20% down and 80% loan, $5,000 earnest money deposit, closing date 30 days, no home inspection contingency.

Offer B: $500,000, ALL CASH, $5,000 earnest money deposit, closing date 30 days, no home inspection contingency.

The seller chooses Offer B. To the seller, the fact that Offer B was all cash was the deciding factor, because of all of the uncertainties and possible delays that can come along with a buyer getting financing these days. In fact, the all cash aspect was so important that the seller was willing to take $5,000 less. 

Then a few days go by, and the listing agent gets a call from the buyer’s agent asking to schedule an appraisal of the property, because the buyer is going to be financing the purchase with a loan, despite the fact that the offer had said all cash.

Can the buyer do that under the GCAAR contract?

Actually, no, not really.

In some of the deals we have heard about recently, the buyer’s explanation is that this is permitted under the GCAAR contract because the loan would be considered "Alternate Financing" under Paragraph 12.

That paragraph provides:

Paragraph 12, Alternate Financing "Purchaser may substitute alternative financing and/or an alternative lender for Specified Financing provided: (a) Purchaser is qualified for alternative financing; (b) there is no additional expense to Seller; (c) the Settlement Date is not delayed; and (d) if Purchaser fails to settle except due to any Default by Seller, then the provisions of the DEFAULT paragraph shall apply."

So, under Paragraph 12, in order for the above explanation to fly, the loan must be substituted for "Specified Financing." The problem is that "Specified Financing" means "the loan type(s) and amount(s), if any, specified in the PRICE AND FINANCING paragraph" (emphasis added). In an all cash offer, there are no loan types and amounts specified in that paragraph, so there is no Specified Financing, and a loan cannot be substituted as "alternate" financing.

The way the GCAAR Regional Sales contract is set up is further proof that cash is not considered financing under that contract. Paragraph 3, Price and Financing, has three blanks to fill in for “Financing” information in B:

  1. First Trust
  2. Second Trust
  3. Seller Held Trust

The cash information is put on a separate line called "Down Payment" in A. 

The GCAAR Conventional Financing Addendum also does not consider cash to be "financing," because it provides for a contingency wherein the buyer delivers to the seller a "firm written commitment(s) for financing from Lender" OR "Delivering evidence to Seller that Buyer has sufficient funds available to complete Settlement without obtaining financing" (emphasis added). In other words, there is lender financing, and then there is settling without lender financing, i.e., all cash.

All of this means that a buyer who wishes to get a loan to finance a purchase after making an all cash offer needs to get the seller to agree to amend the purchase and sale agreement to allow for that. A smart buyer would include in this proposed addendum that if the financing does not go through for some reason, then the buyer will close with cash.

Of course, the seller does not have to agree to such an amendment to the contract. What other rights does a seller have? In my above example, can the seller back out of the contract with Offer B, retain the earnest money deposit from Offer B, and enter into a contract with Offer A?

In the Default paragraph of the GCAAR Regional Contract (paragraph 23), the only buyer default that is specifically listed is the buyer’s failure to complete the settlement. This might lead a buyer to think that as long as he or she can meet the settlement date in the contract using the lender financing, that he or she is okay, but, in fact, that is not the case. The buyer is in default of a term of the agreement, which says that they are purchasing the property with cash.

The question is whether this default rises to such a level that it would allow the seller to rescind (i.e., back out of) the contract. Stay tuned for Part 2 where I look at this issue and what courts have said on the subject.

The Closing Costs Calculator Company

With the exception of Federal Title & Escrow Company, nearly all major title companies write a check to real estate brokers or mortgage companies as a "Thank You" for the referral of business. 

In some cases, the payment is made through a Marketing Service Agreement (MSA) in which, ostensibly, the referring party provides marketing services on behalf of the title company.

In other cases, the payment is made through an Affiliated Business Arrangement (ABA) in which a portion of the profits from each transaction is deposited into an entity account commonly owned by both the referring party and the title company.

In either case, such arrangements are very likely nothing more than the title company buying business from a referring party which drives up the costs for the consumer.

If you are a prospective homebuyer or refinancing homeowner and are referred to a title company by your real estate agent or mortgage lender, ask them if his or her company has a MSA or ABA with the title company.

If so, you are likely paying more for title services than if you were to shop and choose your own title company.

Federal Title & Escrow Company does not participate in MSA or ABA arrangements. As a result, we can afford to be completely transparent to our customers.

This is why we offer consumers highly sophisticated online closing costs calculators with guaranteed quotes and other tools such as our new Close It!™ mobile app.

Because we have nothing to hide, we are the only title company that invests heavily in delivering the message to consumers the importance of shopping for and choosing your own title company.

So much so that some have referred to us as the "Closing Costs Calculator Company."

A win for the consumer

We'd like to applaud Wells Fargo for announcing a move toward eliminating their role in the ABA/CBA marketplace. The bank announced last week that it would discontinue 8 joint ventures, according to a report in American Banker.

We’ve repeatedly exposed the truth behind the legal kickback known as the Affiliated Business Arrangements (also known as a Controlled Business Arrangement or CBA), so it's nice to see a big player in the game is moving away from this inherently anti-consumer model. 

A spokesman for Wells Fargo cited increased regulatory pressure by the Consumer Financial Protection Bureau (CFPB) as the reason for its decision to exit the arrangements. Recently, the CFPB has stepped up its scrutiny of these ethically and legally-challenged arrangements, recognizing that consumers are footing the bill for an arrangement that, most of the time, is nothing more than a conduit for illegal payments for the referral of business.

Perhaps Wells Fargo’s honorable and pragmatic decision to stop the kickbacks will inspire other major mortgage-related players to bow out of the kickback game as well.

Get what you pay for with national 'bargain' title service providers

I've noticed a trend among homebuyers that I find concerning.

Some are opting for a national title company to handle their real estate closing as opposed to a local title company, being led to believe they can receive the same settlement services at bargain prices.

This is simply not true. It's just another example of that old adage "you get what you pay for" and there are couple flaws in this thinking that I'd like to point out.

What you get for these bargain prices is a title service provider that is unfamiliar with local customs of the subject property. The bargain title service provider is not accountable to its community for the purpose of business referrals either – because the provider is located hundreds of miles away, usually in another state.

Can a homebuyer really rely on a national settlement service provider to possess the same knowledge of the ever-changing local customs as a local title company? In some cases, such as DC Homestead Deduction, the forms and requirements have changed more than once in a single year!

What's more, our office frequently discovers failed recordings and unreleased mortgages/liens among the local land records that were the responsibility of said bargain title service provider, which leads to hardship for the new property owner(s).

Chances are the homebuyer who originally hired them may either never know of the created problem or, like many homebuyers, they will not need to title services again so why worry about repeat business.

When issues have arisen in many of these cases, our office or the property owner will make a request that requires remedial action – the response is highly delayed, if there's any response at all.

A national company doesn't have the same local market pressure to take immediate action.

It's true you may save some upfront costs since the bargain provider's rates often exclude a portion of the commission that otherwise is typically paid by an underwriter to the local title company. But I'd like to highlight a few reasons why the local title company receives this commission.

1) Time – It typically takes 2 hours to order and review title & survey (when applicable)

2) Expertise in local laws – A local title agent possesses the knowledge and know-how to clear title issues prior to closing (i.e., unreleased mortgages/liens, gaining proper signature authority from sellers of entities/estates/trusts, and proper compliance with local recording requirements and affidavit filings)

3) Expertise in local customs – A local title agent understands local/regional sales contract requirements in relation to title matters.

4) Shared liability for Errors & Omissions – Responsible for failures or defects of title caused by negligent title examination/review, meaning if something goes awry the title company is on the hook for the losses.

At Federal Title we're practically blue in the face from all the preaching we do about shopping for title insurance. And for the homebuyer, part of the process includes understanding exactly what services she is paying for (and just as importantly what services she is not paying for).

My parents are going to be on title with me. Can I still qualify for the DC Homestead Deduction?

If you are buying a property in DC and otherwise qualify for the Homestead Deduction, you will still qualify even if your parents, who live somewhere else, are co-owners with you.

As a benefit to homeowners living in a property as their principal residence, the DC Homestead Deduction subtracts $69,100 from the assessed value of the property before real estate taxes are calculated.

As long as you are a co-owner and will live in the property as your principal residence and will be domiciled in DC, the fact that your parents are also co-owners but are not living in the property will not matter.

You will be the applicant and will sign the form. You will need to include your parents’ names and social security numbers on the form, but they do not need to sign the form.

I just bought a property in Maryland. How do I qualify for the Homestead Tax Credit?

If you just bought a property in Maryland, there is nothing that you need to do right now to qualify for the Maryland Homestead Tax Credit.

The property taxes you pay are calculated based upon the assessed value of your property. If the assessed value goes up, your property taxes go up.

The Maryland Homestead Tax Credit operates to limit how much your property taxes can go up each year, if you live in the property as a principal residence. A homeowner pays no property tax on the amount of any increase of the assessed value that is above a cap.

The cap is the lower of 10% or the number set by your local government. Maryland’s State Department of Assessments and Taxation (SDAT) has an example of how this works on their website.

As a new purchaser of a property in Maryland, SDAT will mail you a homestead application when the new deed is recorded and their records have been updated. After you receive the application, you can mail it in, fax it in, or file electronically. Once you have filed the application, you should check the status with the SDAT Real Property Data Search page.

For additional information on the application process, see Joe’s post "MD homestead tax credit eligibility application deadline is Dec. 31."

DC makes the Homestead Deduction a little sweeter

Last week, the DC Office of Tax and Revenue increased the Homestead Deduction benefit from $67,500 to $69,100. This benefit is applied as a reduction to a property’s assessed value for the purpose of computing the annual tax liability.

The Homestead Deduction benefit is granted to those DC residents who own and occupy their property as a principal residence. For those DC property owners who qualify, the new increased benefit will reduce the annual property tax bill by $587.35.

From the DC Office of Tax & Revenue

The Homestead benefit is limited to residential property. To qualify:

  1. An application must be on file with the Office of Tax and Revenue;
  2. The property must be occupied by the owner/applicant and contain no more than five dwelling units (including the unit occupied by the owner); and
  3. The property must be the principal residence of the owner/applicant.

For more information about the DC Homestead Deduction read our Q&A article on how to qualify and our discussion on the new application form, or visit Tax & Revenue's Homestead Deduction page.

Closing costs complicated in Montgomery County, Maryland

County transfer taxes plus state transfer & recordation taxes make Montgomery County a tricky place to buy real estate

Closing costs in Montgomery County, Maryland – both in terms of the required complex calculations and the high rates – may be the most unfriendly jurisdiction to home buyers and sellers compared to all other jurisdictions in the country.

Most homebuyers and sellers can very easily determine their closing costs for government transfer taxes by simply multiplying a base factor of say 1% or .5% against their contract purchase price. However, in Montgomery County, Maryland, a multitude of factors come into play when calculating this biggest chunk of closing costs.

At the time of closing on a Montgomery County, Maryland purchase transaction, the three different taxes imposed and generally split evenly between the buyer and the seller are:

  1. County Transfer Tax
  2. State Transfer Tax
  3. State Recordation Tax

As a guide, I have identified each tax below with the respective rates and associated variables. Or if you want to make it easy on yourself, I suggest using our Quick Quote which accounts for all these factors and variables with a few easy questions.


County transfer tax

This tax is imposed at 1% of the purchase price (or total consideration) and customarily split 50/50 between buyer and seller. Thus, typically, the buyer pays .5% and the seller pays .5%.


State transfer tax

This tax is imposed at .5% of the purchase price and customarily split 50/50 between buyer and seller. Thus, typically, the buyer pays .25% and the seller pays .25%. However, if the homebuyer is a Maryland first-time homebuyer, then the buyer is exempt from paying her portion but the seller still must pay the .25%.


State recordation tax

This tax is imposed at .69% on the first $500,000 of the purchase price plus an additional .1% on the amount of purchase price exceeding $500,000. This tax is also customarily split 50/50 between the buyer and the seller.

However, if the homebuyer will be occupying the property as a principal residence, then the first $50,000 of the purchase price is exempt from this tax, which means the tax is imposed at .069% on the first $450,000 of the purchase price.

Further, an additional .69% is imposed on the loan amount of $500,000 or less (in most cases a construction loan) to the extent it exceeds the purchase price or 1% on the loan amount over $500,000.00 to the extent it exceeds the purchase price.

Closing costs... explained: 3 tips for achieving best value

If homebuyers and refinancing homeowners want to achieve the very best value on closing costs, they should follow these three simple steps:

1. Shop mortgage terms

Since most mortgage lenders today all charge about the same in origination and ancillary charges (i.e., Processing Fees, Document Preparation Fees, Appraisal and Credit Report Costs, Tax Service Fees, Flood Certification Fees, etc.), it’s best to stay focused on the interest rate compared against loan term and payment of any discount points. For example, if you are in the hunt for a 30 year fixed rate without paying “Discount Points,” then compare the interest rate offered by several different lenders.

2. Shop title company settlement fees

While your real estate agent and/or mortgage lender may recommend or refer you to their preferred title company, the title company may not be providing you, the consumer, the best value since they are likely providing a financial benefit to the referral source (i.e., the real estate broker or mortgage company). This means that since the preferred title company is sharing some of its profits with the referral source, they are either charging you higher settlement fees or, at the very least, are unable to provide you lower settlement fees compared than customarily charged in the marketplace.

Thus, it is important that you shop for the best settlement fees among other locally established title companies. A simple Google search for will allow you to compare settlement fees among other local title companies. Be sure to make an apples-to-apples comparison since some title companies charge an all-inclusive flat fee while others itemize numerous charges such as: Settlement Fee, Title Search, Title Examination, Document Preparation/Processing, Notary Fees, Courier Fees, etc.

3. Shop title insurance rates

While nearly all jurisdictions regulate title insurance, which requires title insurance underwriters to file their respective rates, there is very little difference in title insurance premiums among various underwriters. However, while you are shopping for settlement fees with local title companies, check their title insurance rates and inquire as to whether you may be entitled to a “reissue rate” discount on the title insurance premiums to be paid at closing.

Typically, if your seller has owned the property for less than 10 years and possesses an owner’s title insurance policy, you should be entitled to either a partial or full reissue rate; depending on the amount of the existing coverage.

Transfer / Recordation taxes in DC large portion of closing costs

Closing costs in DC, like other jurisdictions, include lender charges, settlement fees and title insurance premiums as well as prepaid items like lender escrow reserves, pre-paid interest and real estate tax pro-rations.

But the biggest ticket item you will find on your closing disclosure statement on the day of closing will be the District of Columbia’s transfer/recordation taxes. In DC, it is customary for the seller to pay the transfer tax and the buyer to pay the recordation tax.

For more details on transfer and recordation taxes read our guide on paying transfer / recordation taxes. To see how much these taxes and other closing costs will affect your bottom line, get a free Quick Quote for closing costs from our website.

The chart below shows how the tax increases from 1.1% to 1.45% for both parties on properties over $400,000.

Guide to DC Closing Costs (Transfer and Recordation Taxes)

Purchase/Sale Price Buyer Pays Seller Pays
$0 - $399,999 1.1% of Purchase/Sale Price 1.1% of Purchase/Sale Price
Over $400,000 1.45% of Purchase/Sale Price 1.45% of Purchase/Sale Price

DC Tax Abatement Program lowers closing costs for some

As a homebuyer, if you earn less than a certain income and the purchase price of your property is less than $464,000 you may qualify for a popular District homebuying program in which you exempt from paying recordation tax at closing and you receive an allowable credit of 1.1% from the seller, equal to the transfer tax.

This could mean a huge savings on your closing costs as a homebuyer, so it's worth the time to read up on the program. Beyond the closing table, you'll be exempt from paying real property taxes for 5 years beginning the next full tax year after filing if you qualify for the program.

To qualify for DC Tax Abatement you must provide a lot of documentation, including 2 years of income taxes and W-2s and your last two pay stubs. You must also be able to prove you are "domiciled" in the District of Columbia.

Visit our DC Tax Abatement program guide for the most up-to-date information.

Agents can define 'settlement costs' in sales contract to protect clients

A closing at Federal Title last week resulted in a dispute between the buyer and seller over the definition of "settlement costs" that could have been avoided had the GCAAR Regional Sales Contract better defined the term.

I'll get to the language in just a moment real estate agents, but first let me tell you what the dispute was all about so your clients can avoid a similar situation at the settlement table.

In this case the seller had agreed to give the buyer a credit of $20,000 toward the buyer's settlement costs as per the GCAAR Addendum of Clauses paragraph #1. The contract provision read as follows:

"In addition to any other amount(s) the Seller has agreed to pay under other provisions of this Contract, the Seller shall credit the Buyer at the time of Settlement with the sum of $20,000 toward Purchaser’s settlement costs. It is the Buyer’s responsibility to confirm with his Lender, if applicable, that the entire credit provided for herein may be utilized. If Lender prohibits the Seller from payment of any portion of this credit, then said credit shall be reduced to the amount allowed by Lender."

Specifically, the 6-month Montgomery County, MD tax bill of $3,700 was itemized as a charge to the buyer on the HUD-1 Settlement Statement. This tax bill was required to be collected and paid at the time of closing as a requirement for recording the deed with the Montgomery County, MD clerk’s office. Further, this tax bill covered future taxes to the benefit of the buyer, covering the tax period of January 1-June 30, 2013.

In most cases, a lender will not allow any prepaid items (i.e., taxes, escrows, etc.) to be counted as settlement costs against the seller credit. However, in this case the lender allowed all settlement costs, including prepaid items, to be counted against the seller credit.

The seller argued that the $3,700 tax bill was not a "settlement cost" and thus, the credit should be reduced to $16,300. The buyer, on the other hand, argued that all items appearing on the HUD-1 Settlement Statement should be defined as "settlement costs" and that definition should include the prepaid taxes in this case since the payment of the taxes was a condition of closing – the taxes had to be collected by Federal Title and paid to Montgomery County, MD clerk’s office in order to record the deed.

Since "settlement costs" are not defined in the GCAAR Regional Sales Contract, the parties languished for a good length of time over the meaning and whether prepaid taxes should count against the seller credit.

How can real estate agents protect their homebuyers?

Agents would be well-advised in representing their client’s best interest to add their own definition of the term "settlement costs" to the GCAAR Regional Sales Contract. For example, if you are acting as a buyer agent where a seller credit exists, I would recommend adding an addendum or additional provision to the contract that reads:

"The parties understand and agree that "settlement costs," as the term is used throughout this entire contract of sale, shall mean all charges itemized and charged to the buyer on the HUD-1 Settlement Statement, including, but not limited to, prepaid and pro-rated taxes, escrow reserves, and prepaid interest, and as allowed by the buyer’s lender."

Who owns the fence?

A boundary fence (also known as a division or partition fence) is that which runs along a property boundary line separating two lots or parcels and used by adjoining landowners.

While neither the District of Columbia nor Maryland have specific laws defining or regulating boundary fences, Virginia law (Va. Code Ann. §55-317) makes boundary fences an obligation of adjoining landowners.

Nonetheless, most properties in the Washington DC metro area have boundary fences.

When it comes to reviewing the location drawing (survey) at the real estate closing, the most common question I get from homebuyers is "Who owns it?"

The simple answer: She who uses it.

That is, the common law provides that, unless agreed otherwise, boundary line fences are owned by both property owners when both owners are using the fence. A fence built and used solely by the builder of the fence is owned by the builder of the fence and is not a boundary line fence at all. It only becomes a boundary line fence when both property owners use the fence.

So what does "use" of a fence mean? Well, here is where I could really make your head pop off if I were to present all the definitions of "use" as defined among and across the jurisprudential landscape. I’ll save you the pain and give it to you in its most basic form.

If you as a landowner join, connect, or "hook-up" to a fence built on the boundary by your neighbor to create some form of enclosure to your property, you are said to be "using" this fence, and thus, it becomes a "boundary line fence."

As noted above, a boundary line fence is owned by both property owners and thus, you are now a co-owner of the fence. In this instance, with the exception of local regulations, you probably owe your neighbor some money but we’ll save this discussion for later.

In most instances, adjoining landowners take ownership to their respective properties with existing fences built and "used" by prior owners. In this case, the adjoining landowners are co-owners of the boundary line fence and share the duty of maintenance.

If you have questions beyond mere ownership of a fence, you can visit various government websites for more information on building and permitting, including the Maryland municipal codes, DC's Department of Consumer & Regulatory affairs permits page and the Virginia municipal codes.

Homeowners should follow 2 golden rules when it comes to tree law

While trees provide shade and beauty to our homes, they can also wreak havoc when not properly maintained or cared for. As a homeowner, it's important to understand your responsibilities when it comes to tree care and the law.

By following these two golden rules, homeowners can maintain harmony with their neighbors.

The Self-help Rule

The Self-Help Rule permits and prohibits the following acts of a property owner:

  • May cut or prune threatening tree limbs from a neighbor’s tree only up to and vertical to the boundary line
  • Without permission, may not enter neighbor’s property to cut or prune unless the limbs threaten to cause imminent or grave harm
  • May not cut or prune the tree to the extent the act may injure the tree (i.e., kill or alter its aesthetic appearance)
  • May not cut down the tree itself

The Duty of Care vs. Act of God Rule

A tree owner may be liable for the damages caused to his neighbor’s property if the fallen tree limbs could have been reasonably anticipated and something one could protect against. That is, if the tree owner had knowledge, either by self-observance or prior notice by the damaged neighbor, of rot or decay of the tree, then the tree owner would have likely breached his Duty of Care.

A tree owner may not be liable for the damages caused to his neighbor’s property if the fallen tree limbs were caused by a heavy wind storm. That is, if the tree was healthy, then it would most likely be considered an Act of God and the tree owner would not be liable for damages.

Homeowner's guide to surface water law

What if you are suffering flooding and damage to your property from water running off from your neighbor’s property? Is your neighbor liable? Must your neighbor take action to avert the water runoff?

In the District of Columbia, the neighbor is most likely not liable. This is because the District of Columbia follows a modified version of the "Common Enemy" rule.

The Common Enemy rule holds that excessive rainwater is a "common enemy" impacting property at random and you are expected to take measures to protect your own property from coursing water; even if the higher ground neighbor diverted water to prevent flooding and deposited the water onto your land.

The modified version of this rule recognized in the District of Columbia provides an exception such that your neighbor may repel or deflect water to prevent flooding on his own property only to the extent that the deflection is of ordinary use. That is, your neighbor may not deflect or divert the water with the use of drainage piping, ditches, man-made channels, or extraordinary construction.

However, in the case of "extraordinary construction," a DC appellate court (see Ballard v. Ace Wrecking Company, 289 A.2d 888 (D.C. Ct. App. 1972)) ruled against the flood-damaged neighbor after the neighboring property improvements had been demolished and graded. The court stated that because the work was not unusual or extraordinary, the neighbor could not be held liable.

Marketing services agreement: A kickback by another name

While Affiliated Business Arrangements (also known as a The Legal Kickback) between settlement companies and real estate brokers have been much discussed and criticized over the years as anti-consumer, they continue to permeate the market.

Here is yet another kickback scheme – the Marketing Services Agreement (MSA), which is becoming more popular among real estate brokerages (i.e., brokers) and self-described "independent" title companies, also referred to as the broker's Preferred Partner.

Here’s how it works. Example: Acme Title Co. approaches Beta Real Estate Co. and offers to pay $20,000.00 per year to Beta for the following so-called services:

  • Acme Title Co. to be designated the exclusive preferred settlement service provider by Beta
  • Acme Title Co. logo and website link to be prominently displayed on Beta’s website
  • Acme Title Co. signage and marketing materials to be placed and distributed with Beta’s sales offices and on for sale signs
  • Acme Title Co. settlement services offer to appear on all Beta’s home listings
  • Beta grants Acme Title Co. the exclusive right to make monthly presentations to its real estate agents
  • Beta to place Acme promotional materials in all buyer packets presented by Beta to its clients

These "services" would be better described as "privileges" since the truth is that Acme Title Co. is buying exclusive access to the referral sources (i.e., Beta’s sales agents). It’s an effort to gain "face-time" with those sales agents who are in the best position to refer homebuyers to the title company.

The consumer, in this case a homebuyer, is most likely to use the title company recommended by the sales agent and may never know or realize that she has a right to shop around and choose her own title company.

At the end of the day, this is little more than a kickback from a service provider to a referral source in exchange for access. Is it legal?

Most MSAs are not administered in a legal manner. RESPA Section 8 prohibits a Broker from receiving a thing of value for a referral. Thus, if the marketing fee ($20,000 per year in this example) is based on anything other than the actual value of the marketing services performed by the Beta on behalf of Acme, then the arrangement would be in violation of federal law.

In other words, would an independent consultant value Beta’s efforts to market and promote Acme’s services at $20,000. The answer is most likely "NO."

Ideally, the Consumer Financial Protection Board (CFPB), with oversight of RESPA compliance matters and its army of nearly 1,000 employees, will better scrutinize these Marketing Services Agreements and Affiliated Business Arrangements. As its name implies, the CFPB was established to protect the consumer.

Let’s hope the CFPB follows its charter.

A title agent's response to 3rd-party 'vetting firms'

Recently an article appeared in the Washington Post by our colleague Harvey Jacobs about the influx of third-party "vetting" firms that seem to have capitalized on a jittery lending community.

For a fee, these so-called "vetters" claim they will conduct a due diligence investigation into the practices and procedures of a settlement service provider. Then they will assign a score to that settlement company as low-, medium- or high-risk.

The fee is picked up by the settlement company. In exchange, agents are promised preferential access to lenders, who use these index scores to determine if a settlement company is reputable or risky.

Speaking as an owner of an established title company, I am in support of these vetting companies spawned by the CFPB's Bulletin 2012-03. First, as Mr. Jacobs notes, we will simply pass along the costs to the consumer (yes, the consumer will pay more). Second, since we are a well established company, these new requirements will serve to heighten the barrier to marketplace entry for our prospective competitors; hence, limiting the number of competitors such that we would be able to extract an un-challenged premium from our clientele.

Now, speaking as someone advocating for the consumer and a healthier marketplace, I oppose these new requirements. These private vetting companies specifically cite the CFPB Bulletin and the Dodd-Frank Act as predicates to the requirements under their business model.

The $2 billion in title company fraud cited by a "concerned industry insider" in response to Mr. Jacobs's article occurred under current regulatory schemes which include

  1. Issuance of closing protection lenders/insured closing letters to lenders
  2. State licensing codes established in all 50 states
  3. Criminal background checks and fingerprint record requests
  4. Successful completion of state-mandated license examinations
  5. Annual continuing education requirements
  6. Appointment application requirements from the title agent's respective title underwriter
  7. Mandatory errors and omissions coverage
  8. Fidelity and surety bond coverage requirements
  9. Annual escrow audits and quality control reviews performed by the agent's respective title underwriter
  10. Unfair trade practices and other consumer protection statutes
  11. State-mandated escrow and quality control audits.

As you can see, the title industry is already one of the most heavily regulated industries and, to consider the title industry's handling of over $1 trillion in assets per year, the $2 billion in fraud previously cited pales in comparison to other industries.

You will never "regulate out" bad actors in any industry.

These new requirements are a mere act of redundancy. The quality control processes contemplated by these vetting companies are already being performed by state insurance departments and licensed title insurance underwriters.

They serve no useful purpose other than to squeeze more money out of the transaction at the expense of the consumer and at the risk of stifling competition in the marketplace.

A healthy marketplace encourages competition, and competition encourages more transparency and innovation. CFPB should immediately issue further guidance to its bulletin to address the redundancy and unnecessary nature of these budding third-party vetting companies.

When should you cancel your DC Homestead Deduction

You cannot maintain a Homestead Deduction on a non-owner occupied property. If you no longer occupy a property that currently receives the Homestead Deduction benefit, you must complete and submit this Cancellation of Homestead Benefit form.

Under the following circumstances you should likely cancel your DC Homestead Deduction if you recently:

  • moved out of the property and are now renting the property
  • purchased another property in the District of Columbia and filed for a DC Homestead Deduction on the new property.
  • declared another property you own (in DC or in another state) as your new principal residence

Don’t get caught up in the District of Columbia’s Homestead Deduction Audit Program or it could cost you dearly.

Why choosing a local title company is better

After 16 years of handling real estate closings, I could easily provide 100 examples of why a borrower, whether a homebuyer or a refinancing homeowner, should choose a local title company rather than allowing a national "out-of-town" title company to handle your real estate closing. But allow me to just give you 3 simple and basic reasons.


Settlements made harder

We're about to see some big changes regarding the delivery of HUD-1 Settlement Statements and Truth-in-Lending Disclosures, which could result in added cost and closing delays for homebuyers, if the Consumer Financial Protection Bureau's new rules go into effect as proposed.

The CFPB rule would merge the HUD-1 and TILA forms, which together total five pages, into a single five-page document known as a Closing Disclosure form. The proposed rule would also require lenders to deliver the Closing Disclosure to consumers instead of settlement companies.

Allowing this rule to go into effect will only wind up costing the consumer more while upping the chances for settlement delays, which is why I'm encouraging you to take a minute before November 6 to voice your comments to the CFPB.

How is the CFPB's proposed rule bad for the consumer?

Compared to the current HUD-1, the proposed Closing Disclosure re-categorizes and re-numbers all closing costs and prepaid items, rendering current settlement software, merge documents and disbursement coding useless while delivering very little (if any) benefit to the consumer. 

Lenders and settlement service providers already invested substantially in upgrades for software and re-training of staff about three years ago and are now being asked to do so again. 

We were told then such changes would make homebuying more transparent for the consumer, but the reality is they have only made homebuying more expensive for the consumer.

But perhaps the biggest change – with negative consequences to the consumer — is CFPB’s proposal that the Closing Disclosure be prepared and delivered by the lender instead of the settlement company, which will leave the closing process more vulnerable to delays. 

Currently, the lender sends its instructions to the settlement company and it is then the settlement company’s responsibility to prepare the final HUD-1 and deliver it to the homebuyer and all other parties to the transaction. 

Under CFPB’s option for preparation and delivery of the Closing Disclosure, here is the drill:

  1. At least 3 days prior to closing, the settlement company prepares and sends a draft Closing Disclosure to the lender.
  2. The lender manually transcribes (since there is no universal sharing of software between lenders and settlement companies) various line items from the settlement company’s draft Closing Disclosure. This will lead to the potential for numerous errors.
  3. Lender then sends transcribed Closing Disclosure to the homebuyer (not to the real estate agent or any other party) and the settlement company.
  4. The settlement company then has to transcribe the final lender numbers into its disbursement software production, check for accuracy, and check for proper escrow/disbursement balancing.
  5. On the day of closing, even the slightest change in numbers (i.e., addition of home warranty, seller credit, termite report, etc.) would require notification of the lender to re-prepare the Closing Disclosure and return to the settlement company in order to commence with the settlement. In our experience, closings will be delayed by at least 1 hour for even the slightest of change to the Closing Disclosure.

The proposed rule change will result in a more costly and potentially more frustrating homebuying experience for your client, which is why I strongly encourage you to submit a comment to the CFPB before November 6. 

Tell them we want to make real estate closings easier — not harder!

Real estate tax and escrow/reserves explained...

Homebuyers and refinancing homeowners are often confused at closing about their mortgage lender escrow/reserve requirements.

Typically if a homebuyer’s down payment amount is less than 20% or a refinancing homeowner’s equity is less than 20%, a lender will require the homebuyer to maintain a reserves account controlled by the lender for the purpose of paying homeowner’s insurance premiums and real estate taxes.

The lender has good reason to make sure homeowner’s insurance premiums are paid in since the lender is also a named insured under the policy. Equally important to the lender, real estate taxes must be paid in order to avoid a tax lien, which would become a priority lien over the lender’s mortgage lien.

For the purposes of this discussion, we'll focus on real estate taxes.

A lender will require the homebuyer to put down a deposit at the time of closing to establish the escrow/reserves account such that the lender has enough money to pay the future real estate tax bills.

Beginning with the homebuyer’s first monthly principal and interest mortgage payment, the lender will include 1/12th of the annual real estate taxes.

The escrow/reserves deposit is calculated based on the number of months before the next tax bill is due against the number of months the lender will have collected through the mortgage payments from the date of closing.

For example, if you are closing in January then your first mortgage payment will be due on March 1. Yes, that’s correct – March 1 – because the lender will collect prepaid interest from the date of closing through January 31. That makes your first payment due on March 1 because mortgage interest is paid in arrears.

Your March 1 payment will cover the interest that will have accrued in the month of February.

So if you close in the month of January and the next semi-annual (6 mos.) tax bill is due on July 15, the lender will require a real estate tax escrow/reserves deposit equal to 3 months worth of taxes.

This is because from March 1 through July 1 you will have contributed 5 months worth of real estate taxes through your mortgage payments and with 3 months already deposited into the escrow/reserves account at the time of closing, the lender will have a total of 8 months worth of real estate taxes in order to pay the 6 month tax bill.

But wait! Why does the lender have 8 months worth of taxes when they only need 6 months worth of taxes in order to pay the bill? Well, by law, the lender is allowed a 2 month cushion in order to help cover for any sudden real property tax re-assessments or other supplemental tax bills.

In order to better assist homebuyers or refinancing homeowners in calculating how many months will be required by their lender as a deposit for real estate tax escrow/reserves, I have created the following charts below for properties in District of Columbia, Maryland, Virginia and Florida.

District of Columbia  
Closing Month # of mos. in lender escrow/reserves
January 7
February 2
March 3
April 4
May 5
June 6
July 7
August 2
September 3
October 4
November 5
December 6

DC Tax Periods
1st Half 10/1-3/31 (Due 3/15 -Paid in Arrears)
2nd Half 4/1-9/30 (Due 9/15 - Paid in Arrears)

Closing Month # of mos. in lender escrow/reserves
January 3
February 4
March 5
April 6
May 7
June 3
July 4
August 5
September 6
October 7
November 1
December 2

MD Tax Periods
1st Half 7/1-12/31 (Due 9/30 - Paid in Advance)
2nd Half 1/1-6/30 (Due 12/15 -Paid in Advance)

Arlington, Virginia  
Closing Month # of mos. in lender escrow/reserves
January 7
February 2
March 3
April 4
May 5
June 6
July 7
August 2
September 3
October 4
November 5
December 6

Arlington, VA Tax Periods
1st Half 1/1-6/30 (Due 6/5 -Paid in Arrears)
2nd Half 7/1-12/31 (Due 10/5 - Paid in Arrears)

Closing Month # of mos. in lender escrow/reserves
January 5
February 6
March 7
April 8
May 9
June 10
July 11
August 12
September 13
October 2
November 3
December 4

Refis save on closing costs with Absolute Reissue Rate

If you are about to refinance your mortgage, your mortgage lender has or will soon provide you with a Good Faith Estimate (GFE) which will include, among other costs, a line item charge for title insurance.

Although you are required to pay for it, this is "lender’s" title insurance as opposed to the "owner’s" title insurance, which you likely purchased at the time of your original closing.

The lender’s title insurance premium is often the single most costly line item for refinancing homeowners. While it’s the borrower's right to choose a title company, unfortunately, thousands of borrowers are allowing their mortgage lender to choose a settlement company on their behalf.

As a result, they are sometimes paying hundreds of dollars more in title insurance and settlement fees than if they spent a few minutes online shopping among and choosing their own title company.

Some title companies require proof of an existing owner’s title insurance policy less than 10 years old in order to obtain a discount (or Reissue Rate) on the new lender’s title insurance premium, while other title companies provide an Absolute Reissue Rate.

An Absolute Reissue Rate is a discounted rate on the title insurance premium without requiring the homeowner to provide any evidence of existing owner’s title insurance coverage.

For example, Bob purchased his home more than 10 years prior to his current mortgage refinancing and Title Company A, selected by Bob’s lender, charged $1,200 for lender’s title insurance because they require – and Bob could not produce – a copy of an existing owner’s title insurance policy less than 10 years old.

In the alternative, Jane also purchased her home more than 10 years prior to her current mortgage refinancing. However, wisely, Jane compared title charges among local title companies and chose a title company that didn’t require proof of an existing owner’s title insurance policy.

Jane paid $720 compared to Bob’s $1,200 charge for lender’s title insurance.

Federal Title is one of the few title companies in the District of Columbia, Maryland, and Virginia that provides an Absolute Reissue Rate to all its customers.

Average loss on a DC title policy is $639

A recent Demotech study may reveal yet another reason for homebuyers to obtain owner’s title insurance – especially if you are buying a home in the District of Columbia.

Title insurance companies take a loss of $215 on average in Maryland and $165 in Virginia, according to the study. In the District of Columbia the average loss is $639 for every title policy issued.

Put another way, if the homebuyer had not obtained owner’s title insurance, these figures possibly represent the average amount of loss suffered directly by the homebuyer.

Among the three jurisdictions, title insurers of District properties suffer the highest loss per policy issued. In fact the District of Columbia has the highest loss rate in the country, which may explain why District title insurance premiums remain among the highest in the country.

On average, a DC homebuyer pays $2,800 in title insurance premiums. Of the $2,800 in premium, $639 is paid out in claims and losses suffered by the title insurance underwriter.

Below is a more detailed breakdown, by jurisdiction and title insurance underwriter, of the loss ratios:


  • First American wrote 25 percent of the policies and paid $22 million in losses (48 percent of the state total; $409 loss per policy).

  • Chicago (15 percent), Fidelity (13 percent), Old Republic (13 percent) and Stewart (13 percent) rounded out the top 5 in policies written.

  • Chicago stood out from that pack in losses paid with $10.5 million — 23 percent of the losses in the state.

  • Overall, Maryland had a $215 loss per policy.

  • 85 percent of the policies were from non-affiliated agents; nearly 10 percent came from underwriter-affiliated and 5 percent came from direct shops.

Washington, DC

  • 26,211 policies were written and split among 16 different underwriters.

  • First American led the way with 51 percent, followed by Chicago with 11 percent and Stewart with 11 percent.

  • Paid losses piled up to nearly $17 million — $639 loss per policy.

  • First American led the way there too with 65 percent of the total ($11 million, $817 loss per policy). They were followed by Chicago at 14 percent ($2.4 million, $859 loss per policy) and Stewart at 13 percent ($2.2 million, $803 loss per policy)

  • 87 percent of policies come from non-affiliated agents; 7 percent from underwriter-affiliated agents and 6 percent from direct agents.


  • 321,450 policies written statewide.

  • First American wrote 24 percent, followed by Fidelity with 21 percent, Chicago with 15 percent and Stewart with 14 percent.

  • Statewide, there were $53 million paid losses — a $165 loss per policy.

  • First American paid 41 percent of the total — $22 million, a $276 loss per policy. Fidelity (20 percent) and Chicago (13 percent) combined for 33 percent, or more than $17 million.

  • Entitle was 12th in policies written with 0.39 percent of the market but paid $2 million in losses, or 4 percent of the total — a $1,605 loss per policy.

  • 90 percent of policies were written by non-affiliated agents; 6 percent came from underwriter-affiliated agents and 5 percent from direct shops.

Owner’s title insurance: Case of forgery after infidelity

Part 6 of a series

Fraud is a common cause of title claims, and it's practically impossible to detect in many cases because there is no way for the title agent to know about the fraud until after the fact.

As we've discussed before, title insurance is about "risk elimination" of title problems arising from past events and not "risk assumption" of future events. If a title claim arises down the road, as was the case for the homebuyers in this story involving a forged power of attorney document, the owner's title insurance policy kicks in.

In 2001, Karen and Kirk purchased a home together and took title as joint tenants. In 2005, Karen moved out after learning of Kirk’s infidelity. In 2006, Kirk showed up at the closing table and presented the settlement attorney with a specific, full authority power of attorney signed by Karen and properly executed and sealed by a Notary Public.

Using the power of attorney, Kirk proceeded to sign the closing documents for his self and on behalf of Karen; including the deed and a disbursement authorization that directed all the sales proceeds be wired to his personal savings account.

At the closing, the homebuyers elected to waive owner’s title insurance coverage.

In 2011, the homebuyers were served with a lawsuit brought by Karen and her attorney claiming her interest in the property.

As it turned out, Karen’s signature on the power of attorney document presented at the 2006 closing had been forged and the Notary Public was complicit in the fraud.

As of 2012, the homebuyers have spent approximately $15,000 in attorney fees defending title to their property.

Had they elected to purchase owner’s title insurance coverage at the time of closing, they would have paid $850 and the title insurance underwriter would be paying the attorney fees to defend title.

If a homebuyer refuses to purchase an owner's title insurance policy and a title cloud arises down the road as in the story about Karen and Kirk, the homebuyer (new owners) would then be on the hook for any legal expenses. Without an owner's title insurance policy, money invested to buy the property or make improvements could also be lost.

Say good-bye to the HUD-1 Settlement Statement

The Consumer Financial Protection Bureau (CFPB), by mandate under Dodd-Frank, will soon change our world once again.

Just barely two years since the title and mortgage industry was turned upside-down with regulatory changes to the Truth-in-Lending Act (TILA) and the Real Estate Settlement Procedure Act (RESPA), the CFPB will be releasing its proposed forms and regulations next month to replace the HUD-1 Settlement Statement, Good Faith Estimate, and Truth-in-Lending Disclosure.

These new forms will be known as the Loan Estimate and Settlement Disclosure Form.

On its snazzy website, CFPB states that the current 3-page HUD-1 settlement statement is replete with "... Technical and legal jargon ... that may be more confusing than helpful. Complicated and lengthy disclosures can make it hard to answer or even ask the right questions."

So CFPB’s solution is to do away with the current 3-page HUD-1 and replace it with a lengthier and more complicated 5-page document called the Settlement Disclosure Form.

This is hardly an improvement. In our experience at the closing table, homebuyers are less likely to review lengthier disclosure forms compared to short form disclosures.

Among other things, these new CFPB forms will require lenders and settlement service providers to overhaul their existing software production systems, re-tool the lender-to-title company interfacing, and re-train staff members — which means homebuyers will end up paying more at settlement.

Currently, homebuyers pay, on average, $750 for total settlement fees in the Washington DC metro area. With little, if any, benefit to the consumer, I expect that figure to increase to approximately $1,000 with the implementation of these new CFPB forms and regulations.

The current disclosures are more than adequate. At the risk of sounding astringent, if a homebuyer can’t understand the HUD-1 Settlement Statement in its current form, then perhaps that homebuyer shouldn’t be a homebuyer.

Why does owner's title insurance get a bad rap?

Google "owner’s title insurance," and you will find scores of blogs and other publications scorning this misunderstood insurance product. Frequently, at the settlement table, we hear homebuyers opine that title insurance is a "rip-off" and not worth the cost.

Most of these comments stem from a deep misunderstanding of the product and, too often, are merely a regurgitation of the opinions that predominate the conventional wisdom.

While owner’s title insurance is optional to a homebuyer, we rarely hear homebuyers bemoan the fact that they are required to obtain homeowner’s insurance. The average owner’s title insurance premium paid by homebuyers to cover a Bethesda, MD property costs $962 as a one-time premium without a deductible, while homeowner’s insurance would cost that same homebuyer $879 annually with a $500 deductible.

In other words, over a period of ten years of homeownership, that same homebuyer/homeowner would pay $962 for owner’s title insurance but pay $8,790 for homeowner’s insurance.

Yet, rarely do we hear complaints about the required homeowner’s insurance coverage. But why?

Here are the stats that give rise to the negative chatter over owner’s title insurance...

According to the Insurance Information Institute, 6 percent of insured homes had a claim against the homeowner’s insurance policy compared to less than 1 percent of title insurance policy holders. Moreover, in 2009 the homeowner’s insurance industry paid out roughly $0.87 for every $1 in premium; whereas, the title insurance industry paid out only $0.05 for every $1 in premium.

These statistics on their face – without an understanding of title insurance as a "risk elimination" line of indemnity insurance – raise eyebrows.

Further, these statistics would lead one to assume that the title insurance industry is a far more profitable industry than the homeowner’s insurance industry when, in fact, the opposite is true. As of 2008, the top three title insurance underwriters lost money while the top three homeowner’s insurance companies were profitable.

But here is the rub...

Title insurance is not homeowner’s insurance. Title insurance is about "risk elimination" of title problems arising from past events and not "risk assumption" of future events.

According to the American Land Title Association, 25% of properties have a title defect that requires clearing and curing title prior to closing and, in most cases, this work is performed and cured without the parties to the transaction ever knowing about it.

The cost for this work is paid with title insurance premiums; both to the title agent in the form of commissions and to third-party service providers for reviewing and clearing title. Title insurance premiums also pay for the cost of maintaining accuracy of title plants and other title records.

So, in addition to paying out claims for human error or fraud by a seller or prior homeowner, the title insurance premium also covers work performed for eliminating the risk of a title defect.

Before the advent of title insurance, homebuyers hired and paid attorneys to review title, cure title, and issue an attorney’s opinion title. If the attorney erred, the homeowner could make a claim against the attorney – assuming the attorney had not since been disbarred for malpractice.

In this modern world, the homeowner has the option of purchasing owner’s title insurance for which they can rely on the title insurance underwriter (or, in the event of a defalcation or bankruptcy, it’s regulating state insurance commission) to make good on a claim.

Buying new construction? Agents, homebuyers should verify proper permitting

Too often, after closing a homebuyer is faced with faulty workmanship performed by a contractor and/or the seller. In some cases, the homebuyer finds out too late that the faulty workmanship was not even permitted.

This scenario can lead to blood-bath of expenses, including the possibility that a government inspector orders a demolition of the work for health and safety reasons.

Under the terms of the GCAAR sales contract, a seller of new construction or a newly renovated house is not contractually obligated to produce permits for the benefit of the homebuyer. Therefore, it is advisable that an agent and/or the homebuyer verify proper permitting by the seller.

The good news is that it’s easy to research. Most jurisdictions maintain on online database for permits and accompanying inspections. Below, I have listed just a few of the links for researching permits in the surrounding jurisdictions.

Owner’s title insurance: Seller fraud and HELOCs

Part 5 of a series

During our 16 years of business Federal Title has, on three separate transactions, paid out claims on owner’s title insurance policies due to a seller committing fraud by securing a home equity line of credit (HELOC) immediately prior to closing.

These claims amounted to a total of $280,000.

Here’s how it works.

A fraudulent seller recognizes that the public records are usually 2-3 months behind in indexing liens or other matters of public record. Thus, he or she applies for a home equity line of credit with a mortgage lender a few weeks prior to closing, and that loan is secured by a deed of trust (mortgage lien) against the subject property.

A title examiner for the title company completes the search prior to closing but the search does not reveal this HELOC mortgage/lien because the clerk’s office for the respective county/city has not yet indexed the HELOC for public view.

In other words, there is no way for the title examiner or the settlement company to know about the HELOC but for the seller disclosing the lien.

In the "real life" instances I cite above, each of the fraudulent sellers drew on the HELOC, took the cash, and walked away from the settlement table. Months later, after the sellers defaulted on the HELOC by failing to make the required monthly payments, the new owners received a notice of foreclosure from the HELOC mortgage lender threatening to sell the property at a foreclosure sale.

Fortunately for all of these new owners, they each obtained owner’s title insurance coverage and the HELOC was paid off and released by the title insurance company.

What if these new owners had waived owner’s title insurance coverage?

Unfortunately, without owner’s title insurance coverage, the new owners would have had no recourse except to pursue an action against the fraudulent seller. In order to save their property, the new owners would have been required to pay off the HELOC lien.

Why wouldn’t the new owners have a cause of action against the title company?

Without owner’s title insurance coverage, a title company provides no assurances of title other than the matters appearing of record up to and at the time of closing. Since this HELOC did not appear as a matter of public record up to or at the time of closing, the title company would not be liable for the seller’s fraudulent action.

Owner’s title insurance: The costly 'bond off'

Part 4 of a series

So let’s say you just sold your home. You then receive an email notice from the settlement company as follows:

"Our office has completed the title search for your upcoming closing and sale of 2525 Badtitle Lane, and we regret to inform you that the search has revealed two unexpected mortgage liens secured against the subject property. Both of these open mortgages (deeds of trust) were acquired by your seller (the prior owner).

The settlement company that handled your closing in 1995 when you purchased the property would have been responsible for paying off and filing lien releases for these two mortgages. Our office has attempted to contact that settlement company but, unfortunately, that settlement company is no longer in business.

Please produce a copy of your owner’s title insurance policy so that we may contact the title insurance underwriter to verify payoff and satisfaction of these mortgages and request that the underwriter pay the costs for curing this problem."

You begin searching your paperwork from the 1995 closing only to find that you elected to waive owner’s title insurance coverage. In other words, you don’t have an owner’s title insurance policy.

Now what?

You contact the settlement company in response to the notice and explain that you don’t have owner’s title insurance coverage. The settlement company then explains that both open mortgages must be "bonded off." That is, you have to apply for a bond with a bonding company in order to convey title to your buyer.

The bonding company charges $20.00 per thousand of the face amount of each mortgage. In this case, the first mortgage is for $115,000.00 ($2,300.00 bond cost) and the second mortgage is for $75,000.00 ($1,500.00 bond cost) for a total bond cost of $3,800.

Had you elected to purchase owner’s title insurance coverage in 1995 when you purchased the property, you would have paid $980.00 for the owner’s title insurance coverage and the title insurance underwriter would have been responsible for the bonding expense.

Instead, you now have to write a check for $3,800.00 in order to deliver insurable and marketable title to your buyer.

Owner's title insurance: Encroachment from neighboring property

Part 3 of a series

Just recently, during our underwriting review of an upcoming closing, our office discovered that the subject property — we will call it LOT 1 — was severely encroached upon by the improvements of the neighboring lot, which we will call LOT 2.

I have included an actual copy of the location drawing below for your reference.Immediately after our discovery, my office forwarded a copy of the location drawing to the buyer and the seller advising them that we could not insure title without taking special exception to the encroachment.

Because the sales contract required the seller to convey insurable title without additional risk premium or uncommon exceptions, the buyer declared the contract void and obtained a return of her earnest money deposit.

Two years ago, the seller had purchased the property for $450,000 with a down payment of $90,000 (his equity) and the title company had failed to advise him of this severe encroachment from the neighboring property.

Fortunately, the seller elected to purchase an enhanced owner’s title insurance policy which specifically covers this type of situation – the insuring provision reads: "Someone else has a legal right to, and does, refuse to perform a contract to purchase the Land, lease it or make a Mortgage loan on it because Your neighbor’s existing structures encroach onto the Land."

In laymen's terms that means if you cannot sell your house, or that you have to sell it for far less, because your neighbor's additions have seeped onto your side of the property line, then all is not lost. The enhanced owner's policy has you covered.

No doubt this insured seller will be filing a claim against his owner’s title insurance policy. And the insurer will have to pay all attorney fees for correcting the problem, as well as the actual loss suffered by the insured seller, according to the terms of the policy.In this case, the seller may have to sell the property for far less than the original sales contract, and that difference would constitute his actual loss.

Owner's title insurance: Case of clerical error

Part 2 of a series

Our most recent real-life case involved a $65,000 claim and a tax sale purchase, which occurs when a government agency auctions off properties with delinquent property tax bills.

The homebuyer almost lost $65,000 in equity because of a clerical error. A DC Superior Court judge entered the wrong date on the court order – March 15, 2009 instead of March 15, 2010 – making it appear as if the one-year statutory appeal period on the tax sale case had expired.

In this case, there would be no one for the homebuyer to sue since a clerical error by a judge falls within the "governmental immunity" category. You are not allowed to sue a judge for a clerical error.

The homebuyer in this case elected to purchase an owner's title insurance policy for $521.

Because it appeared by the court order that the one-year statutory period for appeal had expired, the title company insured title to the homebuyer. The tax sale purchaser, after the title company had completed the closing and insured the new homebuyer, filed an appeal within the new one-year statutory period and prevailed.

The insured homebuyer was notified of the order awarding the tax sale deed to the tax sale purchaser, and in turn, filed a title insurance claim. The insured was immediately made whole by reimbursement of his purchase price and actual damages.

When presented with all the information, most of our clients elect to purchase the coverage. After all, in most cases the cost of an owner's policy is a drop in the bucket compared to the down payment the homebuyer had to save to buy the property.

In this case, the homebuyer paid $521 for an owner's title insurance policy that wound up saving him from the loss of his $65,000 down payment.

Rather than asking if an owner's title insurance policy is worth the expense and advising ways to cut corners at the closing table, why not encourage homebuyers to think of the owner's policy in a different way: What's an extra $521 at the closing table to protect the tens of thousands of dollars you saved for your down payment?

Owner’s title insurance: Is it worth the price?

Part 1 of a series

While a homebuyer is required to pay for the lender’s title insurance premium, the owner’s title insurance is optional to the homebuyer, and sometimes homebuyers who are looking to shave dollars off their closing costs consider opting out of the owner's title insurance policy.

They may feel having an owner's title insurance policy is not worth the expense.

A lot of misinformation about owner’s title insurance permeates the blogosphere and, in fact, one Washington DC metropolitan area real estate broker regularly advises homebuyers NOT to spend the extra dollars to purchase owner’s title insurance coverage.

Most of the blog entries by this broker are replete with misunderstandings of the coverage afforded to a homebuyer by the owner’s title insurance.

In an effort to combat these misunderstandings, I am offering an on-going series of “real life” examples of why owner’s title insurance is worth the price.

Borrower pays $2,000 for in-office closing?

Your refinance loan application has just been approved and your lender asks if you have a preference in selecting a title company. The borrower (name redacted) in the HUD-1 you see below answered "No" to this question and was taken for a ride – so to speak.Closing Doc

In fact, by allowing his lender to select the title company, this borrower paid $5,366.50 for title charges compared to $3,338.20 had he selected Federal Title as his title company. He overpaid by $2,028.30 simply by allowing his lender to select the title company.

This is a classic example of what routinely happens to borrowers when they defer the selection of service providers to their "trusted advisor."

In this case, TRG Settlement Services, LLP, is a national settlement service provider operating through multiple affiliations (i.e., kickback arrangements) with large national lenders. Because they share their profits with your lender, the lender has incentive to steer you to them.

By offering in-home or in-office closing services, the borrower is often persuaded to use the lender’s affiliated title company.

The question for this borrower: Was it worth over $2,000 to have a notary conduct the closing at your office? Is such convenience really worth such a price?

Standard v. Enhanced: New construction

Part 5 of a series

Too often we hear prospective homebuyers or real estate agents dismiss the need for owner’s title insurance coverage because the property is "new or in a newer development." In fact, nothing could be further from the truth since a large percentage of title claims occur on new construction properties.

Title insurance claims on new construction mostly involve cases of mechanic’s liens. A mechanic’s lien is a lien placed on the property by a contractor or sub-contractor for unpaid labor and material performed during construction.

Many times, a mechanic’s lien is filed after a homebuyer has purchased the property from the seller. In other words, a title report performed at the time of closing will not reveal the mechanic’s lien.

In this instance, a homebuyer who elects to purchase the standard (limited) owner’s title insurance coverage will be stuck with having to pay off and clear the mechanic’s lien at their own expense since mechanic’s lien coverage is not afforded under this type of owner’s policy.

However, if the homebuyer selects the enhanced owner’s title insurance coverage, there is specific affirmative coverage for a mechanic’s lien so long as the work was performed prior to the date of closing (or policy date).

If you are purchasing a property that is either new construction or recently renovated, not only should you obtain owner’s title insurance coverage but you should elect to purchase the enhanced type of coverage.

Happy birthday, REAL Credit™

This month, Federal Title & Escrow Company’s innovative REAL Credit™ will celebrate 10 years of providing substantial closing cost savings to home buyers.

Ten years ago, against the pressures of sharing our revenues with real estate firms, we bucked the trend, remained an independent settlement service provider, and decided to give the money back to the home buyer instead of the referring real estate firm. We named it the REAL Credit™.

While most of our competitors, at the expense of the home buyer, were jumping into bed with referral sources through Affiliated Business Arrangements, Federal Title got busy figuring out a way to reward the home buyer instead of the referral sources. Seems only fair – right? I mean, after all, it’s the home buyer who pays the costs, not the referring real estate firm.

The REAL Credit™ has served over 20,000 home buyers during its ten years, saving home buyers over $8 million dollars.

Let me repeat, unlike most other title companies, Federal Title has shared over $8 million of its revenue with home buyers instead of sharing that same $8 million with a referral source in exchange for the referral of business.

YES, it’s legal.

Our competition, most of who are beholden to their affiliated referral partners and, as a result, cannot compete with the costs savings realized by home buyers using the REAL Credit™, continue to spread falsehoods to real estate agents and others within the marketplace that the REAL Credit™ is somehow illegal.

It is not illegal.

The respective insurance commissions for DC, Maryland, and Virginia have all reviewed the REAL Credit™ and given it a “Thumbs UP.” Not only is it legal, it’s the right thing to do for the consumer.

Combined with Federal Title’s advanced technology and superior customer service, the REAL Credit™, after 10 years, remains the most innovative and consumer-friendly approach to improving the title insurance industry.

RESPA reforms golden opportunity for title agents to ramp up direct-to-consumer marketing efforts

There's been a push to improve consumers’ ability to shop for title services and encourage price competition since about April 2007, when the U.S. Government Accountability Office released its Report on Title Insurance.

More recently, the RESPA reforms of 2010 were intended to lend more transparency to consumers for easier price comparison among settlement service providers.

DC Homestead Deduction and G-4 visa holders

There it is – in black and white – right on the DC Homestead Application form: "Non-US citizens are generally not eligible to be considered a DC domiciliary unless they possess a valid Permanent Resident Alien Card."

That is, green card holders and U.S. citizens domiciled in the District of Columbia are eligible.

Recently, this office has received many questions from World Bank employees and other G-4 visa holders about whether they qualify for the Homestead Deduction.

According to the Homestead Deduction requirements a G-4 visa holder may be considered a DC domiciliary if he/she is eligible to convert his/her visa to permanent resident status by right.

As a G-4 visa holder, you can apply for permanent residence as a special immigrant if you are retiring and

1) have resided in the U.S. for at least 3.5 years before you adjust status; and
2) have served with your organization for at least 15 years.

Title insurance premiums: Who’s getting paid? (Part 2)

Initially we looked at how title agents receive the majority of the title insurance premium as commission because take the hit should a title insurance claim arise down the road. In addition to title agents receiving a commission from the title insurance premiums, it is a little talked about fact that real estate brokers receive the bulk of title insurance premium commissions for the referral of business to a title company.

Such an arrangement is known as an "Affiliated Business Arrangements" or "ABA.

Through an ABA, a real estate agent refers her homebuyer to the affiliated title company. The title company, in exchange for the real estate agent referring the deal, shares upwards of 50 percent of the title insurance premium commission. On the average District of Columbia transaction, this means that the real estate broker is earning approximately $1,100 from the title insurance premium paid by its homebuyer.

On its face, the arrangement is nothing short of an old-fashioned kickback arrangement. However, thanks to a strong lobby by national real estate associations, federal regulations provide a specific exemption making it a "legal kickback" which allows real estate brokers to profit on the backs of their homebuyers (whom they often represent through buyer/broker agency agreements).

It is the homebuyer’s legal right to choose her own title company and, the ABA kickback arrangement, is yet another reason why it’s important for the homebuyer (the consumer) to shop for a title company.

By choosing an independent title company (i.e., a title company that does not kickback money to the real estate broker), the homebuyer is much more likely to pay less for settlement services. An independent title company tends to be more competitive on settlement fees simply because they don’t have to share their revenue with the referral source.

If a real estate agent refers you, the homebuyer, to a title company you should ask the agent the following questions: "Is this title company affiliated with your brokerage?" or "Does this title company share its profits with your brokerage?" If the answer to either question is "Yes," then I would strongly encourage the homebuyer to shop around and compare pricing against an independent (un-affiliated) title company.

A very quick Google search for a comparison quote will likely result in saving a lot of dough.

Looking for an independent title company? Federal Title & Escrow Company is independent of any affiliations and does not share its revenues with referral sources. Instead, we pass along substantial savings to the homebuyer.

Get a quote and compare our pricing with the title company referred by your real estate agent.

Title insurance premiums: Who's getting paid?

The cost of title insurance continues to increase. In just the last five years, due to a massive influx of title claims relating to the nation’s housing crisis, title insurance premiums have increased in Maryland, the District of Columbia and Virginia by an average of 15 percent.

The larger premiums, reflected on the HUD-1 Settlement Statement, have become more eye-popping to the homebuyer and, as a result, they have become the subject of much discussion of closing costs in the news.

Let’s talk about who is pocketing those premiums and why? It’s no secret that a title agent or settlement company keeps anywhere from 70 percent to 85 percent of the premium as a commission with the balance paid over to the underwriter (i.e., First American, Chicago Title, Stewart Title, Fidelity National, et. al.).

Critics, in the name of consumer protection, argue that the underwriter’s willingness to pay such high commission splits and retain so little is proof that the title insurance industry is over-priced.

The underwriter is willing to pay over the majority of the title insurance premium as a commission to the agent because it’s the agent who handles nearly all of the title underwriting duties in addition to taking on most of the liability. That is, the title agent is charged with the duties of ordering and reviewing title, certifying real property taxes and issuing the title commitments and policies to the respective homebuyers and lenders.

More importantly, the agency agreement between the title agent and the underwriter shifts the liability for errors and omissions to the title agent. In other words, except for governmental recording errors or matters adverse to title not appearing as a matter of public record, it is the title agent or settlement company that ultimately pays for the title insurance claim.

Looking at this from another perspective, if not for title insurance, the homebuyer would pay an amount comparable to the cost of the title insurance premium in the form an Attorney’s Opinion/Title Guaranty Letter and/or higher settlement fees in order to account for the liability resting with the title agent.

So, to those critics of title insurance, I would agree that title insurance is pricey but not "over-priced" compared to other alternatives. After all, if there are alternative products to title insurance that are superior in terms of both affordability and quality, then I believe such products will be borne out by the marketplace.

Deed transfers among joint tenants... explained

Each week this office receives several inquiries from homeowners seeking to transfer title to their property.

The scenarios include transferring title between spouses, between ex-spouses, between and among family members, transferring title to a revocable trust, transferring title to a LLC or corporation, and the list goes on. Their two main questions are:

  1. Who do I hire to prepare and record the deed and transfer forms?
  2. How much will it cost me?

The first question is simple since you should hire a licensed real estate attorney or a local title company to handle a title transfer.

The second question is not simple and, in fact, can be very complicated when determining such things as “no consideration” vs. “consideration” transfers.

In this series of blogs on title transfers, the attorneys here at Federal Title will attempt to address the most common – and some of the not-so-common – title transfer scenarios.

Scenario 1: Joint tenants, unmarried

Seemed like a match made in heaven – first semester property law class Sam had Sue at "Hello." Following three years of law school, the love birds both landed big law firm jobs in DC.

Now seemed like the perfect time to live together and why not just buy a condo together; after all, it would be cheaper than renting. They buy a condo together as joint tenants and lived happily until, two years later, a break up ensued.

Sue wants out of the relationship and simply wants to gift her ownership and whatever down payment she originally contributed to Sam. In other words, she wants to transfer her ownership interest to Sam, receiving no consideration.

This is one of the most common scenarios we encounter. In DC, such a transfer is subject to transfer and recordation tax. If Sue and Sam were married or otherwise related as siblings or parent/child, then this transaction would be, according to DC law, exempt from the transfer and recordation tax.

Because they are unrelated, the tax will be imposed as follows using an assessed value assumption of $500,000.00 for the condo unit:

Cost of Deed Preparation and Recording Fee $500.00 (approx.)
Cost of Transfer/Recordation Tax $5,500.00 (based on Sue’s 50% interest or $250,000)
Cost of Getting Rid of Sam PRICELESS

In the next segment, we will take a look at deed transfers in Washington, D.C. as they relate to a Limited Liability Company, or LLC.

A reminder for homebuyers: Shop title companies

Recently, I stumbled upon a posting by a Washington DC-based real estate agent proclaiming that homebuyers need not shop for title insurance since title insurance rates are uniform.

While it’s mostly true that title insurance rates in DC, Maryland, and Virginia are the same, the settlement fees charged by title companies are not.

In fact, a recent study comparing the settlement fees charged by title companies in vary by as much as $1,180; disproving the notion that homebuyers shouldn’t bother shopping for title services.

With a simple Google search using “closing costs “ or “title insurance” in DC, Maryland, or Virginia, a homebuyer will find several title companies willing to provide an online guaranteed quote for title services.

Most of these title companies (a.k.a, settlement service providers) promoting transparency by offering an online guaranteed closing costs quote are independent title companies; meaning that they are not owned by or affiliated with a real estate brokerage.

In other words, the independent title company is often willing and able to offer better pricing to the homebuyer since they don’t share their revenue with a referral source.

My best advice to a prospective homebuyer: Shop for a title company just like you shop for your mortgage – It’s your right to choose a title company.

Standard v. Enhanced: Mechanic’s liens

Part 4 of a series

As a homebuyer, you have the choice in the type of owner’s title insurance coverage.

Throughout this series of comparing the two types of coverage (Standard Coverage vs. Enhanced Coverage) you have observed that the primary difference relates to matters affecting your title post-policy date and pre-policy date.

That is, the standard owner’s title insurance coverage mostly covers only matters that occur prior to the date the policy was issued, whereas, the enhanced owner’s title insurance coverage protects you against matters arising prior to the date of the policy, as well as, matters arising after the date the policy has been issued.

In the case of mechanic’s liens, the homebuyer is covered only up to the policy date when he or she elects to purchase the standard owner’s title insurance coverage. The homebuyer who purchases the enhanced owner’s title insurance coverage is not only covered for mechanic’s liens arising prior to the policy date but is also covered for mechanic’s liens arising after the policy date so long as the labor and material was furnished before the policy date.

You might be asking, "What is a mechanic’s lien?"

A mechanic’s lien is a claim filed by a contractor or sub-contractor for labor and material performed on the subject property which, by operation of law, constitutes a lien against title.

For example, let’s say a seller was a builder and prior to the sale of the property, the seller failed to pay the contractor’s final bill. In turn, the contractor cannot pay his sub-contractors. As a result, the contractor and/or the sub-contractors file a mechanic’s lien after the seller has already sold and settled the property.

The new homebuyer is now stuck with having to pay the sub-contractors in order to clear his or her title to the property. However, if the homebuyer had elected to purchase the enhanced owner’s title insurance coverage, the homebuyer would simply make a claim with the title insurance company to pay the sub-contractors.

In another example, the sales contract required the seller to perform pest inspection treatment and damage repair. Prior to closing, the seller hired ABC Pest Control to perform the required treatment and repairs and promptly issued a check for the payment of those services.

At closing, the seller provided the homebuyer with evidence of payment and an invoice from ABC Pest Control marked “Paid.” Following closing, ABC Pest Control filed a mechanic’s lien as a result of the seller’s bounced check and the seller’s subsequent refusal to make good on the check. In this case, the homebuyer purchased the enhanced coverage and the title insurance company paid ABC Pest Control on the claim.

Had the homebuyer purchased the standard coverage, the homebuyer would have been required to pay ABC Pest Control in order to establish clear title.

Standard v. Enhanced: Building permits

Part 3 of a series

So you’ve just completed the purchase and closing on your new “fixer-upper” home. Now it’s time to hire an architect and spend countless hours planning for a new addition to the family room.

You submit an application for your building permit. After a few weeks, your permit is denied based on a prior violation of landscaping rules established by the homeowner’s association.

As it turns out, your seller had constructed the $50,000 Arcadia-style garden in your backyard, complete with granite cascade and espalier fruit trees – and in violation of your homeowner’s association rules.

You are now faced with the expensive prospect of removing the fine landscaping to become compliant so that you can obtain your building permit. Or, you must decide to hire an attorney to argue your case to the homeowner’s association.

Few homebuyers in this situation would think about the possibility of their owner’s title insurance policy covering this sort of matter.

For the homebuyer who selected the enhanced owner’s title insurance coverage, the title insurance company will cover the homebuyer for loss.

Unfortunately, for the homebuyer who chose the standard title insurance coverage, the problem will remain that of the homebuyer without coverage for his or her loss.

Simplifying homebuyer closing costs in Maryland

How much will I need for closing costs? You hear this question from your homebuyers a lot, right?

Below I have provided a quick reference for calculating closing costs in Maryland. With the exception of lender origination charges or discount points, the factors include all closing costs such as settlement fees, owner’s and lender’s title insurance, and transfer/recordation taxes (assuming a 50/50 split between buyer and seller).

This will provide a close estimate if you are on the go without online access to exact closing costs using Federal Title’s Quick Quote tool.

Montgomery County, MD

To use this chart, multiply your purchase price by the appropriate closing costs factor. (Example: For a $375,000 purchase in Montgomery County by a First-time homebuyer, expressed as $375,000 x 0.0155 = $5,812.50)

Purchase Price — in $1,000s Closing Costs Factor
Repeat Buyer
Closing Costs Factor
First-time Homebuyer
Estimated Closing Costs
$100-199 0.0209 0.0184  
$200-299 0.0191 0.0166  
$300-399 0.0180 0.0155  
$400-499 0.0174 0.0149  
$500-599 0.0172 0.0147  
$600-699 0.0170 0.0145  
$700-799 0.0169 0.0144  
$800-899 0.0168 0.0143  
$900-999 0.0167 0.0142  
$1.000-1.099 0.0166 0.0141  
$1.100-1.199 0.0165 0.0140  
$1.200-1.299 0.0164 0.0139  
$1.300-1.399 0.0164 0.0139  
$1.400-1.499 0.0163 0.0138  

Prince George's County, MD

To use this chart, multiply your purchase price by the appropriate closing costs factor. (Example: For a $375,000 purchase in Prince George's County by a First-time homebuyer, expressed as $375,000 x 0.0170 = $6,375.00)

Purchase Price — in $1,000s Closing Costs Factor
Repeat Buyer
Closing Costs Factor
First-time Homebuyer
Estimated Closing Costs
$100-199 0.0228 0.0203  
$200-299 0.0207 0.0182  
$300-399 0.0195 0.0170  
$400-499 0.0188 0.0163  
$500-599 0.0183 0.0158  
$600-699 0.0177 0.0154  
$700-799 0.0176 0.0151  
$800-899 0.0173 0.0148  
$900-999 0.0171 0.0146  
$1.000-1.099 0.0169 0.0145  
$1.100-1.199 0.0168 0.0143  
$1.200-1.299 0.0166 0.0142  
$1.300-1.399 0.0165 0.0140  
$1.400-1.499 0.0164 0.0139  

Standard v. Enhanced: Real estate taxes

Part 2 of a series

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.

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.

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 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.

REAL™ Credit O.K.'d by D.C. government

REAL™ Credit O.K.'d by D.C. government

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

Federal Title’s REAL Credit™ is perfectly legal since it is awarded to a homebuyer only when a homebuyer or the homebuyer’s agent orders settlement services through the online order system.

DISB approved Federal Title’s REAL Credit™ on the basis that it:

  • 1) improves the efficiency of the settlement transaction;
  • (2) does not rebate any of the title insurance premium; and
  • (3) is awarded to a homebuyer exclusive of whether the homebuyer elects to purchase owner’s title insurance coverage

Federal Title’s proprietary online order & workflow system allow for a more efficient, transparent and error-free closing. In regards to ordering settlement services, scheduling and notification, the online system:

  • (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

What's not allowed

Essentially, a title company may not offer a discount or credit unless it provides a "reasonable basis" for doing so. In other words, a title company may not rebate, or provide a credit against, any cost of the title insurance premium or provide a credit to a homebuyer which is contingent on the purchase of owner’s title insurance.

According to our contact at the DISB, who is tasked with aggressively monitoring title insurance activities and enforcing D.C. Law, the following are examples of discounts or practices that would be prohibited:

  • 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.

Standard v. Enhanced: Land survey matters

Standard v. Enhanced: Land survey matters
Part 1 of a series

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.

Title insurance Q&A

What will standard title insurance cost?

Standard Owner’s Title Insurance premium is based on your purchase price. Enter your purchase price and answer a few other questions here to obtain an instant quote for the cost of both standard and enhanced owner’s title insurance.

What would enhanced insurance cost?

Enhanced Owner’s Title Insurance premium is based on your purchase price. Enter your purchase price and answer a few other questions here to obtain an instant quote for the cost of both standard and enhanced owner’s title insurance.

How many claims do you see made against title insurance policies each year, or what percentage would you say?

Matters arising post-settlement covered by the terms of an owner’s title insurance policy occur in approximately 5% of all transactions that we close. Poor record-keeping by local government represents a good portion of these matters which results in such matters as unpaid taxes (tax liens) (i.e., prior years’ taxes not properly reported by the governmental authority). Other common matters include non-terminated lines of credit and previously unreleased deeds of trust (mortgages) of prior owners, mis-indexed judgments/liens against prior owners, unpaid condo/HOA dues, seller fraud (e.g., imposter spouses, acquiring/drawing on/of lines of credit immediately prior to closing), and forgeries/unauthorized deed transfers in the chain of title.

What percentage of your clients buy enhanced vs. standard?

It’s approximately 50/50 for enhanced v. standard.

What percentage of your clients waive/decline owner’s title insurance coverage?

Less than 1% of homebuyers decline owner’s title insurance coverage.

I've read the descriptions of the two types of insurance on your website and I'm still trying to determine if it's worth it for me to buy owner's title insurance. Am I insuring against the possibility of losing my home or against the legal fees I might have to pay to get the title cleared? Do you have more details/ fine print on the two policies than what is on the website?

You are insuring against the potential of both (title failure and legal fees to defend title).

Reissue rates... explained

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:

Reissue rate discount Total NO reissue rate discount Total
Policy coverage for first $400,000 $1,397.50    
Reissue rate discount (40%) ($559.00)    
Policy coverage for first $400,000 w/ reissue rate discount $838.50    
Policy coverage for remaining $100,000 $370.00    
Policy coverage for$500,000 with reissue rate discount $1,208.50 Policy coverage for $500,000 without reissue rate discount $1,712.50

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:

Purchase Price
(New coverage amount)
Average Reissue Rate Savings
(District of Columbia)
Average Reissue Rate
Savings (Maryland)
$300,000 $373.00 $266.00
$400,000 $546.00 $390.00
$500,000 $705.00 $503.00
$600,000 $864.00 $616.00
$700,000 $998.00 $712.00
$800,000 $1,132.00 $807.00
$900,000 $1,265.00 $903.00
$1 million $1,400.00 $998.00

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.

Purchase Price
(New coverage amount)
REAL Credit™ savings
(District of Columbia)
Average reissue rate
$300,000 $700.00 $373.00
$400,000 $900.00 $546.00
$500,000 $1,000.00 $705.00
$600,000 $1,100.00 $864.00
$700,000 $1,100.00 $998.00
$800,000 $1,100.00 $1,132.00
$900,000 $1,100.00 $1,262.00
$1 million $1,100.00 $1,400.00

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.

Purchase Price
(New coverage amount)
REAL Credit™ savings
Average reissue rate
$300,000 $500.00 $266.00
$400,000 $600.00 $390.00
$500,000 $800.00 $503.00
$600,000 $800.00 $616.00
$700,000 $900.00 $712.00
$800,000 $900.00 $807.00
$900,000 $900.00 $903.00
$1 million $900.00 $998.00

Transfer taxes, real property taxes... Explained

"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

Jurisdiction Transfer taxes Property taxes Total
District of
$7,250.00 $36,405.50 $43,655.50
$4,052.50 $55,560.00 $59,612.50
$2,999.70 $49,800.00 $52,799.70


Updated 21 March 2016 | Information is reliable but not guaranteed

As you can see, the total amount of transfer tax plus property taxes paid over 10 years is significantly 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, still with 20 percent down:

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

Jurisdiction Transfer taxes Property taxes Total
District of
$3,300.00 $19,405.50 $22,705.50
$2,362.50 $33,336.00 $35,698.50
$1,999.82 $29,880.00 $31,879.82


Updated 21 March 2016 | Information is reliable but not guaranteed

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

Jurisdiction Transfer taxes Property taxes Total
District of
$10,150.00 $53,405.50 $63,555.50
$6,052.50 $77,784.00 $83,836.50
$4,999.58 $69,720.00 $74,719.58


Updated 21 March 2016 | Information is reliable but not guaranteed

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 $464,000 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.

Visit our DC Tax Abatement program guide for the most up-to-date information.

Maryland first-time homebuyer state transfer tax exemption: Denied!

If you are purchasing a home in Maryland as a “first-time homebuyer,” and you intend to take title in the name of your revocable trust, or another type of entity, you can forget about realizing the benefit of the Maryland First-Time Homebuyer State Transfer Tax Exemption.

That’s because the Maryland State Transfer Office will only honor the exemption to individuals; specifically, all individuals taking title to the property must be “First-Time Homebuyers” in Maryland in order to qualify for the exemption.

Now the truth is that most mortgage lenders discourage homebuyers from taking title in the name of a trust or other legal entity with the purchase of a residential, owner-occupied, property.

However, in some cases, a homebuyer may be counseled by their attorney to seek an exception from the mortgage lender and to vest title in the name of a revocable trust – a common estate planning vehicle.

In Maryland, for first-time homebuyers, this advice will cost the homebuyer the benefit of the state transfer tax exemption; an amount equal to 0.025% of the purchase price.

Affliliated business arrangements = Bad business

In the vein of “Affiliated Business Arrangements = Bad Business,” I bring to you yet more evidence of the same. In an effort to maintain their government-sanctioned kickbacks, proponents (i.e., RESPRO, et. al.) of Affiliated Business Arrangements (ABAs) made a specious claim in a recent meeting with the Federal Reserve Board.

The proponents used two Harris Interactive consumer surveys (2002 and 2008) to claim that homebuyers were more satisfied with the ABA settlement service providers.

  • The 2008 study revealed that homebuyers who used “one-stop shopping” in their latest real estate transaction were more satisfied with their home buying experience compared to those who used services of multiple providers.

  • The 2002 study used by the proponents revealed that 64% of homebuyers who used “one-stop shopping” programs had a better overall experience with their home purchase transaction.

RESPRO cites Federal Title website

First, it’s dishonest to call the arrangements “one-stop shopping” since it only means that the real estate broker or mortgage lender will take care of ordering settlement services on behalf of the homebuyer - and, mostly unbeknownst to the homebuyer, receive a kickback from the settlement company for the referral.

Most homebuyers are completely unaware that they may shop for and select their own settlement company. The proponents of ABAs exploit this lack of consumer knowledge and their supposed fine-print “disclosures” do little to enlighten the homebuyer to this important and costly component to the transaction.

Naturally, without knowing that they could shop and save on settlement services, a homebuyer is going to be more satisfied with their trusted advisor taking care of the finer details of ordering settlement services on their behalf.

Along comes a recent survey from the Ohio Association of Independent Title Agents (OAITA). According to this survey, conducted from 2009 through 2010, when homebuyers are made fully aware of ABAs, they become uncomfortable and prefer a title company or title agent to be a third party (i.e., independent) to the transaction.

First, to the delight of our ABA proponents, 77% of respondents did not independently select their settlement company. When made fully aware of the ABA relationships, 50% of respondents said they prefer a title company that does not share profits with a referral source compared to 6% of respondents saying they prefer a title agent that shares profits with a referral source.

Further, 58% of respondents said they believe that ABAs are a conflict of interest. The OAITA stands in stark contrast to the Harris Interactive surveys used by ABA proponents only because homebuyers, as respondents, were clearly informed of the financial benefit gained by the referral source.

Consumers must be informed in order to make sound financial decisions. While ABAs are very profit-friendly to its participants, ABAs are simply not consumer-friendly. Let’s all hope that the Federal Reserve Board retreats from its complicity in bad business.

5 quick tips for home sellers

[Editor's note: Fannie Mae recently issued new restrictions on use of Power of Attorney. Please read this article and contact our office with any questions.]

If you must use Power of Attorney, please contact our office.

You have just selected an agent to list your house for sale. Now what? Here are five tips that will save you from some common problems experienced by many sellers.

1. Set your expectations early by knowing your proceeds of sale. While a seasoned real estate agent will guide you to a realistic expectation for your net sale proceeds, many sellers are faced with the surprise of unexpected county/state transfer taxes, withholdings, real estate tax pro-rations, higher mortgage payoff amounts, etc. Here is an excellent resource to accurately determine your net proceeds: Sales Proceeds Calculator

2. Check the local online tax records to confirm that your sales contract clearly identifies the proper legal references (i.e., Lot(s) and Square(s)) as well as ownership. For DC properties, check DC Real Property Tax Search; for MD properties, check MD Real Property Tax Search; for VA properties, check VA Real Property Tax Search.

3. Locate your Owner's Title Insurance Policy and send a copy to the title company that is handling your closing as soon as possible. This will help avoid potential closing delays by allowing the title company to compare the policy against the most current public records for any title discrepancies.

4. If you are selling a single family home, locate a copy of your location survey/drawing (i.e., plat) and be sure to present a copy along with the listing materials to prospective buyers. Buyers will then be fully informed of the lot size and any existing structure or fence encroachments. If you have built additions or altered the footprint of any structures, it’s advisable to obtain a new location survey to be presented to prospective buyers. For a few hundred dollars well-spent, any local title company can order and obtain a new survey on your behalf.

5. Make yourself available to sign the closing documents. Many sellers seek to appoint friends or family members to sign the documents on their behalf through the use of a Power of Attorney. If you cannot attend the closing, most title companies will accommodate your schedule by allowing you to sign your seller documents in advance of the closing date. (Use of a Power of Attorney is ill-advised.)

HUD releases helpful homebuyer videos

Remember the kid in school that tried to copy off of everyone else? As an adult, I don’t find it as annoying – in fact, I view it as a testament to what we do here at Federal Title.

Federal Title was the first in the title industry to produce videos for homebuyers explaining the closing process and closing costs. Soon after we released these videos, a few other competitors jumped in the video market.

Now, the U.S. Department of Housing and Urban Development (HUD) jumped in by releasing three instructional videos for prospective homebuyers. HUD’s videos mainly focus on the homebuying process and shopping for a mortgage.

The videos are each about 11 minutes long and narrated by Teresa Payne of HUD and might be the best cure for insomnia I’ve seen in a while. However, the videos are full of very useful information and if a prospective homebuyer would watch each of these videos, we would probably have a lot less questions at the closing table.

All in all, the videos are a justifiable expense of taxpayer dollars and may just result in fewer regulations by HUD in the future – now that consumers are better-armed with information. The videos can be found on HUD's YouTube channel.

Title company fees matter

Most reputable title companies now maintain robust websites with a disclosure of their title charges/fees, making it simple for prospective homebuyers to compare title company fees and select their title company.

According to a recent analysis, less than 10 percent of homebuyers and refinancing homeowners chose to select their own title company – despite the fact that it was their legal right to choose a title company. Instead, the overwhelming majority of those homebuyers and refinancing homeowners deferred to their real estate agent or mortgage lender to choose the title company on their behalf.


Because most homebuyers do not realize the potential cost-savings associated with selecting their own title company. They do not realize that a simple online search for comparing costs among local title companies could save a thousand dollars or more.

In fact, many real estate agents and mortgage lenders are not aware of this simple fact. It is incorrectly assumed that all title company charges are equal.

My “Best Friends” advice is as follows:

  • Choose a title company yourself – don’t leave the task to others.

  • Choose a title company that clearly discloses their title fees and title insurance rates on their website.

  • Choose a title company that is independent – not a title company affiliated and sharing profits with your real estate agent’s brokerage or your mortgage lender’s company.

  • Choose a title company that has been in business for at least 10 years.

  • Choose a title company that conducts closings by licensed real estate attorneys – not notaries or settlement agents.

  • Choose a title company with positive user reviews. Check out Yelp, or Google for starters.

Follow my “Best Friends” advice and you will end up at the closing table of a reputable title company AND pay less.

D.C. foreclosure moratorium surprises title industry

Last week, the DC City Council enacted "Saving DC Homes from Foreclosure Emergency Amendment Act of 2010" (the "Act"). The Act will be effective for 90 days but may be extended by permanent legislation.

The Act was a surprise to the title insurance industry, as there was no advance notice provided by the Council prior to its enactment. As a result, the title insurance industry is attempting to digest the new requirements and provide guidance to its respective title agents.

The most concerning aspect of the Act as seen by the title insurance industry is that even strict compliance with the Act does not guarantee that the foreclosure sale is properly conducted in other particulars.

As such, purchasers of foreclosed properties may experience serious delays in closings or, at worst, may not proceed at all since title may not be insurable.

In effect, the Act operates as a moratorium on foreclosures of owner-occupied residential property. Of course the Act is intended to protect DC homeowners as it imposes a rigorous compliance standard for owner-occupied residential property foreclosures.

In short, the Act enhances the existing law by requiring lenders to send a notice of default to homeowners prior to sending the foreclosure notice, and by requiring notice of the right to mediation between lenders and homeowners before a foreclosure sale is commenced.

Additionally, the Act requires lenders to obtain and record a Mediation Certificate, to demonstrate compliance with the mediation provisions of the Act, prior to initiating a foreclosure of owner-occupied residential property. A pending foreclosure of owner-occupied residential property commenced prior to the time the Act became effective will not be in compliance with the Act, and under the provisions of the Act, will be void.

Foreclosure sales which are completed prior to the effective date of the Act should not be subject to the provisions of the Act.

Assumption advantage on the FHA loan

In addition to a low interest rate and a reduced required down payment, the FHA loan offers today’s homebuyers another little-noticed advantage over the conventional/conforming loans.

Unlike most conventional loans, FHA loans are assumable which means that when the FHA borrower sells his house in the future, a prospective buyer may assume his loan.

Think about it. Pardon the pun but let’s “assume” that in 2010, Happy Homebuyer takes a 30-year fixed-rate FHA loan at 4.25 percent. In 2013, Happy decides to put is house on the market when the average 30-year fixed-rate loan is at 8 percent.

Unlike other sellers with un-assumable conventional loans, Happy has the luxury of marketing the sale of his property with the offer of a 4.25 percent assumable FHA loan.

As interest rates rise over the next few years, homeowners, like Happy, with an FHA loan will have a distinct marketing advantage. However, there will be a limited window of opportunity for those sellers since the “assumability” advantage is dependent on the principal balance of the FHA loan, the interest rates and the value of the property at the time of sale.

In other words, over a longer period of time, the paid-down principal balance on the loan and the appreciation of the property will reduce the lower rate advantage to a future buyer. This is because the buyers will be required to make a larger down payment to qualify for the assumed FHA loan and, as a result, those buyers may be better off seeking their own financing instead of assuming the FHA loan.

I suspect that we will see a good number of FHA assumption transactions over the next three to six years “assuming” those FHA borrowers take advantage of the assumability feature.

Maryland's new Power of Attorney law requires new form

[Editor's note: Fannie Mae recently issued new restrictions on use of Power of Attorney. Please read this article and contact our office with any questions.]

If you must use Power of Attorney, please contact our office.

By now, most of us in the business sphere of residential real estate have become comfortably numb to additional laws and regulations. Starting with last year’s revisions to the Truth-in-Lending Act (TILA) to this year’s Real Estate Settlement Procedures Act (RESPA) reforms, many of us, despite the impact on our business operations, have hardly noticed many of the new legal reforms imposed by state governments.

The most recent reform impacting Maryland residential real estate transactions comes to us compliments of the Maryland General Assembly.

Effective October 1, 2010, individuals utilizing a power of attorney (POA) in order to consummate a real estate transaction should use the new Maryland Statutory Form Limited Power of Attorney; or a form that "substantially" conforms to the statutory form.

Prior to this new law, an individual could use any specific power of attorney form that was acceptable to a title insurance underwriter.

The new statutory form not only requires the principal (i.e., the person granting the authority) to acknowledge before a notary public but also for the form to be attested and signed by two or more adult witnesses in the presence of the principal and in the presence of each other (one of the witnesses may be the notary). In addition, the new law allows the agent (a.k.a., the Attorney-in-Fact) to execute a certification form to certify the validity of the power of attorney and agent’s authority.

A title company must record the executed and notarized certification along with the POA form.

Because of the many associated pitfalls, one should always try to avoid the use of a POA. In those cases when it’s absolutely necessary for a buyer or seller of real estate to use a POA, be very attentive to the legal requirements so as to avoid a closing delay. Federal Title’s website provides more detailed information and instructions for using POAs along with the specific forms required in DC, MD, and VA.

Consumer costs increase with RESPA reform

As is often the case with newly implemented “consumer protection” regulations, the consumer ends up paying more. Today’s mortgage borrowers can expect to pay more as a result of this past year’s RESPA reform, according to a recent study by Bankrate Inc.

Estimated fees charged directly by lenders increased by 22.8 percent, while fees charged by other service providers (i.e., title companies) increased 47.2 percent, according to the study that was conducted in 49 states.

Now it is true that the Bankrate study only examined estimates provided by lenders and not what the consumer actually paid at the closing table. In other words, it may be the case that lenders are now over-estimating closing costs in order to avoid the penalties associated with the new Good Faith Estimate (GFE) tolerance limitations.

Assuming this is the case, what is the benefit to the consumer? I suppose one could argue that the consumer is spared the “Day of Closing Surprise” element but, on the other hand, the consumer may be discouraged from refinancing or buying due to estimated costs that are purposefully inflated.

Putting aside the Bankrate study, I can personally attest that title charges have in fact increased in Maryland, Virginia and the District of Columbia. The additional burdens placed on title companies by the new RESPA reforms include such things as quicker turn-around times for title work and prompt delivery of preliminary HUD-1 Settlement Statements to lenders.

These time-sensitive functions and requirements have increased the amount of work-flow product and resulted in a cost increase. Looking across the spectrum of Washington, D.C. area title companies and comparing today’s closing fees with those closing fees charged prior to RESPA reform, you will find an approximate 20 percent increase in title charges.

Is the increase in closing costs to the consumer worth the added protection provided by the RESPA reform?

Master condo insurance policy vs. HO-6 insurance policy

Until recently, lenders did not require condominium purchasers (borrowers) to obtain property insurance coverage beyond that provided in the condominium association’s master policy. That all changed last year due to new condominium lending guidelines imposed by Fannie Mae (FNMA) and FHA, which now require purchasers to obtain H0-6 insurance policies.

In general, the condominium master insurance policy only covers "from studs out;" it does not cover "wall in." For example, the master policy would cover such things as the roof, exterior, common areas, and elevators. It does not cover such things as flooring, wall coverings, and other improvements made within the unit. Nor does it cover the unit owner’s personal belongings or protect the unit owner against personal liability occurring within the unit.

A H0-6 "walls in" coverage policy covers such things as personal liability, losses under master policy deductibles, personal property and improvements/upgrades to unit. The good news for borrowers is that the coverage is inexpensive and comes with low deductibles.

Again, under the new lending guidelines, unless the master policy provides the same interior unit coverage, Fannie Mae and FHA now require the borrower to obtain a H0-6 "walls in" coverage policy. The policy must offer coverage for no less than 20% of the condominium unit’s appraised value.

New requirements for DC's Homestead Deduction

In this season of the World Cup, I’m sure most of us would consider it unfair to move the goal posts while the ball is in the air. Well, according to a recent announcement from the Homestead Unit within the DC Office of Tax and Revenue, moving the goal posts on homebuyers is a perfectly acceptable practice when it comes to qualifying for the DC Homestead Deduction.

As most of you know, the DC Homestead Deduction exempts the first $67,500 of assessed value from the tax rate, providing the homeowner a $573.75 annual savings on their real property tax bill. In order to qualify, the homeowner must be domiciled in the District of Columbia and submit the application with supporting documentation.

For years, Federal Title has provided homebuyers the complimentary service of filing the Homestead Deduction as an accommodation and without additional charge. In the past, without “supporting documentation,” our office has had the homebuyer complete the form and we physically file the form with the Office of Tax and Revenue.

New "supporting documentation" requirement now causing tremendous angst for homebuyers & title companies alike

To apply for the Homestead Deduction, you must:

  1. Be domiciled in the District of Columbia;*
  2. Answer all the questions in PART I, PART II and PART III;
  3. Sign and date the application in PART IV; and,
  4. Send this application with supporting documents (copy of DC Driver’s license, DC voter registration card, DC Income tax, etc.) to the Office of Tax and Revenue.

* Generally, you must meet the following four criteria to make the District your domicile:

  1. You must be living in the District;
  2. You must intend to make your home in the District for an indefinite period of time;
  3. You must completely abandon your previous domicile; and
  4. You must be physically present in the District at the time you intend to change your domicile to the District. Once you meet these four criteria, you should also do the following:
  1. Get a drivers’ license from the District;
  2. Register your car(s) in the District;
  3. Register to vote in the District; and
  4. Pay District income taxes.

Now, according to Thanh-Thuy “Twee” Nguyen, manager of the Homestead Unit, in order to qualify, the homebuyer will now be required to provide the following:

  1. Copy of DC driver’s license
  2. DC voter registration card
  3. Copy of first 2 pages of DC income tax return

And what if the homebuyer is a new arrival to DC?

Well, according to Ms. Nguyen, the homebuyer will have 30 days from settlement date to 1) register to vote; 2) obtain a DC driver’s license; 3) register his/her car in DC; and 4) file with his/her employer a new DC Form D-4 (Employee Withholding Allowance Certificate).

Federal Title will continue to file the Homestead Deduction form on behalf of the homebuyer at the time of closing. However, the homebuyer will be responsible for providing the new required documentation to our office prior to or at the time of closing so that Federal Title may file and qualify the homebuyer for the benefits.

Should the homebuyer be a new arrival to DC, then the homebuyer must provide the respective required documentation to our office within 30 days of closing so that Federal Title may properly submit application to the Homestead Unit.

What homebuyers don't know: The cost of ignorance

Given that homebuyers are confronted with monumental tasks in the home-buying process, it should be expected that many of the finer details are entrusted to their real estate agent or mortgage lender.

After a lengthy home search, contract offers and negotiation, gathering financial information for loan application, and making moving arrangements, the average homebuyer has had their fill.

Unfortunately, the choice of a settlement or title company is not high on a homebuyer’s priority list, and the homebuyer often defers to their real estate agent or mortgage lender to make this choice for them.

Deferring this choice to others, may be the costliest decision in the real estate transaction.

First and foremost, homebuyers should understand that it is their choice to pick the title & settlement company. In a recent cost-comparison survey among Washington, D.C. area title & settlement companies, the results showed a $1,342 difference in title charges between the lowest and highest quotes of nine competing title & settlement companies.

The survey was conducted by Veris Consulting, Inc., a Reston, Va. consulting firm. Veris requested quotes from each of the nine competing companies based on a $600,000 purchase price for a District of Columbia single-family home, and each quote was based on enhanced title insurance coverage.

Putting this into perspective, the $1,342 saved in title charges would pay for a good portion of the homebuyer’s moving costs.

It has been conventional wisdom, even among real estate professionals, that all title & settlement companies are veritably the same when it comes to fees and title insurance costs. This recent survey by Veris proves otherwise.

While it is true that price alone should not be the final determining factor when selecting a settlement service provider, it takes little effort to tap online resources for quality of service reviews.

Why the large cost differential in title charges among the nine competing title & settlement companies? Given that the services provided are virtually identical and the quotes requested and received by Veris were all based on current and thus, equivalent, market conditions, it begs the question posed above.

By more carefully examining the Veris survey, the answer primarily lives within the ownership and relationship between respective title & settlement companies and area real estate brokers.

That is, with one exception, the four most expensive companies in the survey participate in “legal kickbacks,” otherwise known as Affiliated Business Arrangements (ABAs).

This means that the participating title & settlement company shares its profits with real estate brokers. As a result, the participating company accepts slimmer, per transaction, profit margins in exchange for a higher volume of referral business. Because of the slimmer, per transaction, profit margin, the participating company has little to offer the homebuyer from the standpoint of cost savings.

The survey also revealed that the five least expensive companies were all independent. That is, these companies do not participate in the “legal kickback” arrangements and thus, had the flexibility to share some of their profits with the homebuyer in the form of savings instead of sharing their profits with potential referral sources.

Thoughts in the wake of RESPA reform

Within three months after my youngest son was hatched, he effectively communicated that he was to be a bit “different” than my first son. Let’s just say my hopes for a simplified version of my first son were dashed early.

Similarly, since the January 1, 2010 hatching of HUD’s RESPA regulations, and after conducting about 350 real estate closings, my hope for simplification and more transparency in the real estate settlement process has waned.

The new RESPA regulations require, among other things, a newly designed HUD-1 Settlement Statement and force lenders to provide a tolerance-limited Good Faith Estimate (GFE). The intent of the changes was to simplify the process by delivering more transparency and consistency.

This, according to HUD, would allow homebuyers to more effectively and comparatively shop for services. Additionally, as a result of delivering more transparency and consistency, the new rules would help to avoid closing cost surprises on the day of settlement.

Let me start with the good. The new rules have marginally achieved more transparency.

Homebuyers are now armed with more knowledge about such things as how much the mortgage broker is earning and how much the title agent is receiving as a title insurance commission.

The new rules have also, by forcing lenders to use the same GFE form, provided consistency for apples-to-apples comparison shopping of mortgage products. Before, each lender offered its own version of a GFE that made it more difficult to effectively shop.

Another plus with the new rules is more of a by-product. While settlement service providers were largely left unscathed by the new disclosure requirements, they have been forced to be more transparent by the lenders.

Since the lenders are subject to penalties for not providing inaccurate transfer taxes and, in some cases, for inaccurate settlement fees and title insurance premiums, the lenders have demanded accurate quotes for title charges from title companies.

In other words, in order to incorporate accurate title charges for the GFE, lenders are demanding more immediate and accurate costs from title companies.

Naturally, most title companies wish to remain in good graces with a potential referral source. As a result, this has motivated many title companies to make available online guaranteed quotes for both lenders and homebuyers.

Now, I offer the not-so-good stuff. The new rules have not achieved the intended result of avoiding settlement day closing costs surprises.

In my 15 years of experience at the closing table, the most common cost surprise is the result of under – estimated real estate taxes – in the form of pro-rated amounts between the buyer/seller, escrow reserves held by lender and tax bill due-dates coinciding with the date of closing.

Unfortunately, the new rules did not address this most common closing cost surprise culprit. While the new rules do apply a no-tolerance standard in the GFE for transfer taxes, they do not address real estate taxes.

A similar limited tolerance standard for required real estate taxes would have gone a long way in avoiding the infamous settlement surprise.

The new GFE does not provide a “funds required at closing” line item for the homebuyer. In other words, after adding up all closing costs and pre-paid items, it would have been very simple and helpful to factor in the sales price and loan amount to the equation.

The calculation would have informed the homebuyer of the amount he or she needed to bring to the closing table.

Finally, in the not-so-good-stuff category, I have to say that not much has been simplified with the new rules. Yes, a few extra line items from the old HUD-1 have disappeared and combined into one line item on the new version.

Weigh that single simplification against the added paperwork produced by the new rules, and we'll call it what it is: a minor improvement at best.

The next time HUD hatches new rules in an attempt to simplify this process, I hope real estate taxes weigh in during the incubation stage.

First-time homebuyer tax credit clarification

Since November of 2009, when Congress extended the First-time Homebuyer Credit, I have conducted a few hundred real estate closings and have heard a lot of misinformation being shared among real estate agents, mortgage lenders and homebuyers.

The most common misunderstanding relates to the timeline for qualification.

Under the law, as extended, a homebuyer must have ratified a sales contract for a principal residence on or before April 30, 2010 AND must complete the real estate closing by June 30, 2010. This means the ratified contract must be dated on or before April 30, 2010 and the signed HUD-1 Settlement Statement must be dated on or before June 30, 2010.

Make him (or her) an REO offer he (or she) can't refuse

A Real Estate Owned (REO) property is a property held by a mortgage lender or bank due to an unsuccessful foreclosure auction. In other words, the prior owner defaulted on the loan; the lender instituted a foreclosure proceeding; the foreclosure auction resulted in no successful third-party bids; and, thus, the property reverted back to the lender (bank).

As a settlement attorney, I have been involved in hundreds of REO closings. I have been a witness to what makes for a successful REO offer and closing. I have also been a witness to the most common mistakes made when making an REO offer. Here I offer a list of DOs and DON’Ts for a buyer’s agent when making an REO offer:

1. Set expectations for yourself and your buyer
2. Make your offer successful
3. Protect your client

Set expectations for yourself and your buyer

  • Remember, you are dealing with a bank. If you make an offer on a Friday afternoon, don’t expect an answer over the weekend. After all, banks are closed on the weekends. In fact, you should not expect an answer for several days.
  • Most banks outsource their REO properties to asset managers. Asset managers are salaried and work 9-to-5, Monday through Friday.
  • Remember the benefit of the bargain is risk and that risk will be shifted to your buyer when negotiating on REO property.
  • REO listing agents often times have “Instructions for Writing an Offer.” You should obtain these instructions if available and make sure all the information is complete. Make the listing agent’s job easy.
  • Don’t expect the REO listing agent to communicate until after you’ve submitted an offer.

Make your offer successful

  • Include not only a pre-approval letter from your mortgage lender but also include “proof/verification of funds” that clearly demonstrate you have the minimum 10% down payment liquid (i.e., “in the bank”). Try to avoid FHA financing in your offer. You can always change your financing option later if the need arises.
  • If it appears competitive, take preemptive action and write the contract “AS-IS” since the bank will almost always counter “AS-IS” anyway. I invite you to review the attached contract addendum. This addendum is representative of most addenda required by banks on REO properties.
  • You can write in an inspection contingency but know that the bank will rarely agree to make repairs. Your inspection contingency will be general; meaning your only option would be to void the contract.
  • Do not ask for any repairs. “AS-IS” means “AS-IS” on a REO property.
  • The bank wants to see 1%-3% for the good faith deposit.
  • Try to avoid asking for closing costs credits. Remember the bank is interested in net pricing.
  • Email the offer to the REO listing agent and request a confirmation of receipt. The listing agent is often required to upload offers and related documents to the asset manager’s website. Make the listing agent’s job easy.

Protect your client

  • Again, know the bank will strictly adhere to the “AS-IS” provision. This means that the water and utilities could be shut off and your buyer could be denied the ability to conduct a thorough inspection.
  • Don’t let the REO asset manager force you to use their preferred title provider. A preferred title provider may insure over such things as unreleased trusts or other title defects in order to move the asset more expeditiously on behalf of their client (the bank).
  • Write in REAL projected date of closing. Allow at least 45 days in the current market environment.
  • Write in that seller will be responsible for paying ALL outstanding and delinquent condo/HOA dues; not just those allowed by law pursuant to a foreclosure sale. The bank will probably counter but sometimes they will accept it.
  • Write in a home warranty to be paid by the seller. The bank will probably counter but sometimes they will agree.
  • Write in 100% of all transfer/recordation taxes to be paid by seller. Again, the bank will likely counter but I have seen the seller accept these terms.
  • Order title work from the settlement company as soon as your offer has been accepted. The sooner you can get a title report – the better. Many REO properties have serious title issues which can take a lot of time to clear.

Why aren't more title companies transparent?

On average, title charges (i.e., settlement or closing fee, title insurance) comprise 70 percent of the total variable closing costs. Since title charges do vary significantly from title company-to-title company in DC, MD, VA, and FL, it is very important for a home buyer to comparison shop.

Ever wonder why most title companies force you to make contact with them in order to get a quote for title charges? Seriously, with today's technology, why won't your title company allow you to anonymously get a customized quote for their services so you can do some comparison shopping? Why do you have to contact them and wait for them to call or email you back with a quote?

Where is the demand from consumers on title companies? After all, mortgage lenders are soon to be required by law to provide a Good Faith Estimate (GFE) that is subject to a "no tolerance" increase for originiation and lender costs. Shouldn't similar demands be placed on title companies?

Most title companies hope that the referring party sends the contract and/or title order and doesn't encourage the consumer to comparison shop for title services. In this instance, the consumer is a captive audience and will be charged accordingly. When the referring party does encourage the consumer to shop, most title companies force the consumer to call them or email them before they will provide a quote for services.

They want to "feel you out" over the phone or via email to determine how hard you are shopping. If they sense a "hard" shopper, the price goes down; if they sense a "soft" shopper, the price may go up. In other words, their title charges are not consistent across the board and vary depending on how hard they have to try.

Further, there is a belief among these same title companies that if they can just get you on the phone or make direct contact with you, they can "reel you in" and sell you on their service (even if the company's charges are above market). If you are like me, you really don't want to talk with anyone and have to haggle. Just give me your price so I can compare against others!

Whether you are a "hard" shopper or a "soft" shopper, the charges are consistent and available online 24/7 on Federal Title's website. You don't have to talk to us! We are so confident of our service and pricing, that we allow consumers to obtain, ANONYMOUSLY, a guaranteed quote for services using our QuickQuote feature. Give it a try and you will see that Federal Title & Escrow Company is the most transparent and consumer-friendly title company in the market

*Accurately defined, "variable closing costs" are those non-recurring costs for which you can shop. Examples of variable closing costs include lender charges (i.e., appraisal fee, underwriting fee, tax service fee, flood certification, document preparation fee); title company charges (i.e., settlement or closing fee, title insurance premium); or ancillary services (i.e., location survey, property inspection, termite report, home warranty). Items such as transfer taxes, recordation taxes, stamp tax, prepaid interest and escrow/reserves for taxes/insurance are not considered "closing costs" because these items do not vary among service providers and cannot be "shopped."

Power of Attorney pitfalls

[Editor's note: Fannie Mae recently issued new restrictions on use of Power of Attorney. Please read this article and contact our office with any questions.]

If you must use Power of Attorney, please contact our office

In my 18 years as a settlement attorney, I can point to an improper Power of Attorney (POA) form as one of the most common causes of a delayed closing.

You have no doubt encountered clients who are too busy or physically unable to make it to closing. You’ve heard "My mom gave me Power of Attorney," "I gave my husband Power of Attorney," "Grandma is in the nursing home – I have Power of Attorney."

Simple enough – right? Wrong.

So often, clients find POA documents online or stationary stores. We are frequently presented with general "checklist" POA forms and clients are dismayed to learn that we cannot accept them for the purpose of insuring title.

When it comes to conveying or encumbering real property by Power of Attorney, make sure your client has the proper legal authority well before the closing date. Many states specifically address, by statute, the use of Power of Attorney and impose very specific requirements.

Title insurance underwriters go beyond the state’s statutory requirements with even stricter guidelines for Power of Attorney usage. I think it’s helpful to first understand the definition of an "attorney."


A person legally appointed by another to act as his or her agent in the transaction.

It’s also important to understand the two specific parties in the Power of Attorney.

1. The PRINCIPAL is the person granting another the power to act in their stead; the one who signs the POA document.

2. The ATTORNEY-IN-FACT is the receiver of the power from the Principal.

In order to satisfy most title insurers, a POA form to be used for the purpose of conveying or encumbering real property must meet the following requirements:


The document needs to have been executed by the Principal within a year of the transaction at which it is being used. While exceptions are made on a case-by-case basis, it is rare that a title insurance underwriter will accept an aging POA because of risk of fraud or marketability issues.


The document must grant the Attorney-in-Fact the powers required to effect the transaction and should recite the specifics of that transaction (i.e., property address, convey or encumber). A document giving the Attorney-in-Fact the ability to “handle real estate transactions” is too vague and too general.


The document must state that the Power of Attorney will not terminate upon the disability of the Principal. It is not acceptable for the document to be entitled “Durable Power of Attorney” and not recite the above durability language specifically with the text.


The document must be an original. A copy of the POA is not acceptable. The POA must be recorded with the clerk’s office and the clerk requires original documents to be recorded. To be absolutely certain that your client’s Power of Attorney is acceptable, please forward to our office for review prior to closing. If you would like to have sample POA forms recommended by our office, please feel free to contact us and we will gladly provide those forms.

What Does 'If Required' Mean?

The GCAAR Regional Sales Contract makes only one reference to the survey and is found in paragraph 19 as follows: "The title report and survey, if required, will be ordered promptly. ..."

Note the key phrase "IF REQUIRED." What does that mean?

IF REQUIRED means if required by the purchaser's lender. Nearly all mortgage lender underwriting will require the title insurer to issue a lender's title insurance commitment without exception to survey matters. In other words, a lender will not accept a title insurance policy without coverage for survey matters.

'As Is' Means As Is for Termites

". . . All clauses in this Contract pertaining to Property condition, termites or compliance with city, state or county regulations are hereby deleted from this Contract. . . ."  - AS-IS para. #3, Addendum of Clauses, GCAAR Regional Sales Contract

Yes, it means what it says. Read it, live it, and breathe it when you set out to present your next "As-Is" sales contract.

  • It means that if the purchaser discovers infestation and structural damage resulting from wood destroying insects - tough luck - purchaser pays for the treatment and repairs.
  • It means para.#16 of the Regional Sales Contract, "Termite Inspection" is DELETED - POOF! GONE!

Caveat: A seller cannot hang his/her hat on the "As-Is" clause if the seller intentionally or negligently misrepresented a material condition or fact; or if the seller fraudulently concealed a material condition or fact; or if the seller made a false promise of a character likely to influence, persuade, or induce.

  • Ways to save at closing

    Title charges are the largest chunk of closing costs and can vary by hundreds of dollars.

    Learn more

  • What are closing costs?

    The real estate closing process involves loan steps, legal steps and title steps.

    Learn more

  • What's title insurance?

    Insure your legal ownership just like you'd insure the building, but for lots cheaper.

    Learn more

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Our blog contains general information only, not intended to be relied upon as, nor a substitute for, specific professional advice. Rate tables and figures that appear on our blog are deemed reliable but not guaranteed. For current rates & policies, refer to our Quick Quote and Consumer Guide. We accept no responsibility for loss occasioned to any purpose acting on or refraining from action as a result of any material on our blog.