WHAT HAPPENS AT SETTLEMENT

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A real estate settlement is no small matter. It is the largest financial transaction most people ever undertake. The process can be exciting, overwhelming, intimidating and thrilling all at the same time!

Settlement---or closing---usually takes place at a settlement company on a date specified in the Sales Contract at a mutually agreeable time.Legally binding documents, prepared by the lender and settlement company are signed, money is disbursed and ownership of the property is transferred from the sellers to the buyers.

OVERVIEW OF THE HOME BUYING PROCESS

Beginnings

The first person who will be involved in the purchase of your new home is a real estate agent. The agent is the person who will help you choose the home which satisfies your needs and desires and fits into your budget. This person is the “Selling Agent”. The selling agent may represent you, the seller, or in some cases, neither party. When you first meet the selling agent, they should show you the State of Maryland “Agency Disclosure Form” which simply outlines the various types of agency relationships the agent can offer. If you choose to have the agent represent you as a “Buyer Agent”, you must enter into a written agreement with the agent in which the agent agrees to work for you and be responsible to you and you elect not to work with any other agent. As a Buyer Agent, the agent can give you advice regarding the transaction, and if you authorize them to do so, they can negotiate on your behalf.

If you work with a Buyer Agent and you become interested in a house listed for sale with that agent’s company, the agent will become a “Dual Agent”. As a Dual Agent, the agent no longer owes a duty just to you, but also to the seller. The agent will still be a terrific help to you in purchasing the home, but they can no longer disclose to you private information about the seller such as the seller’s willingness to sell for less. Similarly, the agent will not disclose to the seller information about you, such as your willingness to pay more for the house than you state in your initial offer.

If you engage a Buyer Agent, the agent will also have you sign the State “Dual Agency” form authorizing the agent to act as a dual agent with you on any properties listed by their company. If you choose not to engage the agent as a Buyer Agent, the agent will work with you as a “Cooperating Agent”. Cooperating agents represent the seller, but like all types of agency they have a legal obligation to treat you fairly and honestly. Like the Buyer Agent, they can show you any home that is on the market through the Multiple Listing Service, help you qualify for a loan, write the contract for that home, and provide you with numerous other services. The seller typically pays the agents’ commissions, so these services cost you nothing at all!

The selling agent will ask you some basic questions about your finances in order to help you determine the loan amount for which you may qualify and therefore the price of home you can purchase. The agent will also ask you questions about your preferences in a home, such as the number of bedrooms and bathrooms, size of yard, etc. This will help the agent narrow down the number of houses you will inspect, and enable them to show you homes that may interest you without wasting your time.

The Search

After the agent determines what kind of home you want, the agent will begin to show you houses. Remember that the agent working with you does not get paid until you settle on the house of your choice. That agent will do an enormous amount of work for you that you will never see. For instance, it can take hours to sort through all of the houses on the market to find those that may interest you and to make appointments for you to see them. Respect the work the agent does for you, and do not look at a house without that agent because they will not receive a commission on any house they do not show to you. Again, the agent can show you any house listed in the Multiple Listing Service used by the local Board of Realtors, and can also frequently show you houses that are for sale by owner.

The Contract.

Once you have found the house of your dreams, the selling agent will help you write the purchase contract. This is your offer to the seller to purchase the house for the terms stated in the contract. The selling agent will present your contract to the listing agent and seller as soon as a meeting can be arranged. The seller may accept your contract as it is written by signing at the bottom. At that time you have a RATIFIED CONTRACT.

Occasionally, the seller will counter your offer by changing some terms, for instance the price, the number of points to be paid by the seller, who will pay the transfer and recordation taxes, or even the settlement date. If this happens, the selling agent will bring that contract back to you to consider the counter offer. You can accept it, reject it, or counter the seller’s counter. Most contracts do not go back and forth too many times before being acceptable to both purchaser and seller.

Classic Settlements.

Immediately after your contract has been ratified, you should call the Classic Settlements office convenient to you to tell us to begin collecting the information necessary to conduct your settlement. Of course, if you have any questions we will be happy to answer them. We will also be happy to review your contract prior to acceptance, or meet with you at any time prior to settlement when the need arises. We have a great deal of work to do prior to your settlement, so it is important that you contact us to begin our work as soon as possible after your contract is accepted.

Loan Process.

One of the most important people you will meet during the home buying process will be your loan officer. This is the person who will take your loan application and work to get your loan approved. Like the real estate agents, the loan officer does not get paid until you settle on your home.

When shopping for a lender, do not look only at rates or points; ask about the lender’s reputation. Remember, without the loan, you will not be able to purchase this house. You will also get to know the loan processor who will gather and organize all the information necessary for your loan to be approved. This is the person who will contact your employer to verify that you are employed and obtain your credit report, along with many other documents.

Termite Inspection.

After you have made your loan application you will need to contact a pest inspection company to order an inspection of the property for termites. This should be done approximately 30 days before settlement. You probably will never meet the inspector, but you will receive a copy of the inspection report at or before settlement.

Surveyor.

Unless you are purchasing a condominium, the lender will probably require that a current “Location Drawing” showing the location of the improvements within the boundaries of the property be provided to them prior to settlement. The house location survey is inexpensive (generally $200 - $275) but does not include setting markers on the property lines to show you definitely where your property lines lie. You can order a more complete survey, which will result in stakes being placed at the corners of your property. This type of survey costs $700 and up depending upon the size and location of the property. Prior to work being done on either type of survey, the State of Maryland requires that you sign a State survey order form which we will provide to you as soon as you place your settlement order with Classic Settlements. We will then order the survey of your choice. You will receive a copy of the survey at settlement.

Insurance.

To protect your home and possessions against disaster, and to comply with your lender’s requirements, you must purchase home owners’ casualty insurance. You should arrange for the insurance policy several weeks before settlement.

Settlement.

Settlement is the time when the money and deed are exchanged through the settlement attorney. Upon completion of settlement you will be the owner of the property!

The attorney conducting settlement will gather information from you, the people we have mentioned, and a few others and coordinate settlement. Among other things, the attorney will make sure that the terms of your loan are accurate, that all your lender’s documents are properly signed, that the seller’s loan on the property will be paid off and released, and the deed transferring the property to you is in proper form and signed. The original deed is sent to the courthouse for recording and later delivered to you, usually several months later. The last people involved in this transaction are the movers. Let’s hope they come on time.

Why So Many Forms?Relax…It’s No Big Deal!

Your agent works very hard to help you find the home of your dreams. You see only a small fraction of the time and energy put into this search. In addition to this work, the agents must now keep on top of rapidly changing and increasing government involvement in the home buying process. One result of recent government involvement has been numerous forms your agent must now present to you for your signature during the home buying process. We hope this brief outline helps you understand the forms. For a more detailed description of these forms and the home buying process, ask your agent or call your local Classic Settlements office.

Understanding Who Real Estate Agents Represent

The State requires that real estate agents present this form to you for your signature when you meet the agent. The form is information only---simply describing the three ways in which an agent can work with you. Signing the form commits you to nothing, it simply establishes that the agent showed you the form as required by the State.

Consent for Dual Agency

Dual Agency exists where the buyer and the seller are represented by agents from the same company. When this happens, the agent does not represent the buyer or seller in the same manner as they would if there were two real estate companies involved. However, because of the agent’s duty to comply with stringent rules of professional conduct, you should not be at all concerned about dual agency. Indeed, if you engage an agent as your buyer’s agent and you do not agree to dual agency, your agent cannot show you homes that are listed for sale with their company. Your signature on this State form means that you agree to dual agency and thus, your agent can show you every house that is listed for sale.

Exclusive Retainer Agreement (or buyer broker agreement)

If you choose to have the agent represent you as your buyer’s agent, the State requires that you enter into a contract with the agent establishing such a relationship. This is very similar to the listing agreement signed by sellers when they hire an agent to market their home for sale.

Notice of Buyer’s Right to Property Condition Disclosure Statement or Disclaimer Statement

Your signature on this State mandated form simply indicates that you understand that you have a right to receive the Disclosure and Disclaimer form.The State requires the seller to answer 18 questions about the condition of the property---the disclosure---or to sign a disclaimer stating that they choose not to make the disclosures. The disclosure statements are made based upon the sellers actual knowledge at the time they fill out the form. Do not read too much into a sellers refusal to answer the disclosure question because sellers, by law, regardless of whether or not they complete the disclosure form, must disclose to purchasers any material defects of which they are aware. In any event, the disclosure is not a warranty, so you are well advised to have a professional home inspector inspect the property as a condition of sale. Your signature merely means you have been shown this form.

Some Information Relative to the Sale of Real Estate

This form discloses a variety of information regarding the purchase of real estate in Montgomery County, some of which the County requires to be disclosed to you. Your signature simply shows that you have had the opportunity to review the form.

Lead Paint Disclosure Forms

The State and Federal governments have mandated disclosure of information regarding health hazards related to lead based paint. The fact that you are given a form addressing these issues does not mean there is lead paint in the home. In fact, lead paint is not an issue in homes built after 1978 and seldom an issue for houses built after 1950.

RESPA Disclosure Form

The Federal Real Estate Settlement Procedures Act (RESPA) requires that brokers disclose any special business relationships they may have with any companies providing services relevant to the purchase of a home. Thus, if a broker has an interest in a mortgage company, insurance company or settlement company, they must disclose this to you in writing. Your signature on such a form simply indicates that you have been made aware of these relationships. It does not obligate you to use any of these service providers.

Residential Contract of Sale

This is the main part of the purchase contract whereby you agree to buy the house identified in the contract. Most real estate companies use the Maryland Association of Realtors contract. There is another contract called the Regional Contract that is also used in Maryland.

Montgomery County Jurisdictional Addendum

Local governments also impose themselves into your real estate transaction, so another form is needed to address local law. In addition, the form adds some provisions to the State and Regional resale contracts which makes the contracts more complete.

Addendum of Clauses

Buyers and sellers often have additional items that they want or need addressed in their particular transactions. Therefore, the Greater Capital Area Association of Realtors has drafted provisions that cover most situations you might find yourself in, most notably, the home inspection provision. This form avoids the need to “recreate the wheel” for common contingencies.

If additional forms apply in your situation your agent will explain them to you and, of course, all the Classic Settlements attorneys are available to answer any of your questions as they may arise. In fact, Classic Settlements attorneys will review your contract at no charge. All you need to do is call the most convenient Classic Settlements office

State of Maryland Residential Contract of Sale

The Contract of Sale is the document in which the buyer and seller detail the rules of the home buying game. Fortunately, just like Parker Brothers has done with the game Monopoly, the Association of Realtors has prepared “standard” rules by way of preprinted sales contracts and addenda forms. You should understand the rules before you play the game. For this reason, we will explain each of the 50 paragraphs of the sales contract used throughout the State of Maryland. We will also explain several of the mandatory disclosures and addenda which are part of most transactions. All Classic Settlements attorneys will be happy to explain or write any addenda (changes or additions to the contract) which might apply in your particular situation. Just call the most convenient Classic Settlements office.

The Contract Paragraph By Paragraph.

Time Is Of The Essence - Time is such an important factor in the contract that there is no acceptable excuse for missing any deadline. The circumstances which led to the delay or failure to meet the deadline are not relevant. The only issue that is considered is whether or not the deadline was met. Where time is not of the essence, the failure to meet a deadline is not necessarily fatal. The circumstances are reviewed, and a determination is made regarding the reason for the delay and whether time was a critical factor. In some cases, the failure to meet a deadline can be excused. Please do not be confused. The fact that time is not of the essence does not mean that you can ignore deadlines contained in the contract. It merely means that your failure to comply with a deadline may be excused. The time deadlines placed in the contract are there for a reason. You should make every effort to comply with them. The following numbered paragraphs correspond to the numbered paragraphs in the Contract:

Paragraph 1.Date of Offer - This is where you insert the date that you write the contract.

Paragraphs 2 and 3.Seller and Buyer - The seller’s and buyer’s names and addresses are written in these paragraphs.

Paragraph 4.Property – The address of the property being purchased is inserted in this paragraph.

Paragraph 5.Estate – This paragraph sets forth the type of ownership being conveyed.In virtually every transaction in the State of Maryland the first blank will be checked stating that the property is conveying in “fee simple”.This means that the house and the land convey to the buyer.In a few locations, mainly Baltimore, the ground is owned by someone other than the person purchasing the house.In these situations there will be ground rent (similar to a tax) paid to the owner of the land and the remainder of the paragraph will be completed.In the overwhelming majority of transactions that do not involve ground rent, “N/A” will be inserted in the remaining five blanks.

Paragraph 6.Purchase Price - This is where the purchase price of the home is written into the contract.

Paragraph 7.Payment Terms – This paragraph identifies the amount of money the purchaser puts into escrow at the time they sign the contract (usually held by the real estate broker or settlement attorney) to show the seller that they are serious about purchasing the house.This paragraph also states that the buyer must bring cash, wired funds, bank check or a certified check to settlement so that settlement may be completed.Thus, the buyer MAY NOT bring a personal check to settlement to complete the transaction.This is extremely important because the settlement attorney must have “good” (like CASH) funds in order to pay the Seller.

Paragraph 8.Settlement - The date that you plan to settle is identified in this paragraph. This is the date the buyer pays for the property and the seller transfers the deed and possession of the property to the buyer.

Paragraph 9.Financing – This paragraph describes the financing to be obtained by the buyer.There are several choices as to the financing plan the buyer may obtain and this should be completed in coordination with your lender and your agent.This section identifies the amount of the loan, the term (number of years) of the loan, the interest rate and if there is a specific loan program (i.e. adjustable rate, FHA, VA financing) that will be sought.Feel free to call any CLASSIC SETTLEMENTS office for a more in-depth explanation.

Paragraph 10.Financing Application And Commitment - The buyer must make their loan application within an agreed upon number of days of the date of the contract.The reason for this is that the loan approval usually takes several weeks and the seller needs to know that the buyer is pursuing their loan.The paragraph also provides that the buyer must obtain a written commitment for financing within a negotiated number of days or the contract will be null and void!This means the transaction will be dead and all the money the buyer has spent toward purchasing the property will be lost unless the buyer and seller agree to extend the contract.

Paragraph 11.Alternate Financing - The buyer may obtain financing other than what is described in the financing paragraph of the contract, but obtaining that alternate financing may not impose any additional cost on the seller.

Paragraph 12.Home/Environmental Inspection – This paragraph informs the buyers that they have the right to obtain an inspection of the property by a home inspector or environmental engineer and make the contract contingent upon this inspection.In order to do this, however, an addendum to the contract must be signed by both parties.

Paragraph 13.Inclusions/Exclusions - This paragraph identifies what items in the property convey to the buyer.It is very important to go through this paragraph in detail and clearly check those items that convey with the property.If there are additional items not listed that either do or do not convey, there are blank lines provided to fill in that information.It is important to be specific in order to avoid misunderstandings.

Paragraph 14 and 15.Agriculturally Assessed Property/Forest Conservation Program - If the property has been designated for agricultural use or forest conservation prior to the transfer of the property to the buyer, the property may be subject to agricultural or forest management program transfer taxes.There are blank spaces in these paragraphs which must be filled in to determine who pays the tax, if applicable.If you are buying rural property, it is very important to check, or make a condition of the contract that the property is not currently designated for forest conservation or agricultural use.Simply call your most convenient CLASSIC SETTLEMENTS office and we will assist you in this matter.

Paragraph 16.Lead-Based Paint - This paragraph sets forth, in great detail, the Federal Lead-Based Paint Hazard Reduction Act requirements. The Seller is required to disclose to the Buyer all known information and reports regarding lead-based paint and lead-based paint hazards if the house they are selling was constructed prior to 1978. (If their house was constructed on January 1, 1978), or thereafter, the Federal Act requires no disclosure since lead paint was banned at the start of 1978. Additionally, the Seller is required to provide the Buyer with an EPA pamphlet entitled “Protect Your Family from Lead in Your Home” and a “Disclosure of Information on Lead-Based Paint and Lead-Based Paint Hazards” form. Finally, the Seller must allow the Buyer, at Buyer’s expense to conduct an inspection of the house for lead-based paint or lead-based paint hazards. If the proper disclosures, disclosure form and EPA pamphlet are not provided to the Buyer on a home that was constructed prior to 1978, the seller can expose himself to civil and criminal penalties. The final two parts of the paragraph require the seller to indicate when the house was constructed. Seller and Buyer are required to initial in the designated areas acknowledging that they read and understood the provisions of this paragraph. No enforceable contract exists unless the requirements of the Federal Act have been complied with prior to the signing of the contract.

Paragraph 17.Addenda - This paragraph identifies any addenda that are attached to the contract.For instance, if the buyer were to ask for a home inspection, the appropriate box would be checked.It also leaves a blank in which to identify additional addenda that are not listed in the check-off section.

Paragraph 18.Termite inspection - The buyer has the right to obtain an inspection by a licensed pest control company to make sure that there are no wood destroying insects in the house.If wood destroying insects or damage that has been caused by wood destroying insects is found, the seller, at their cost, must exterminate and/or repair the damage.However, if the extermination and repairs cost more that 2% of the sale price, the seller may declare the contract null and void and the transaction will terminate unless the buyer agrees to pay all costs above 2%.

Paragraph 19.Deposit - This paragraph states that the buyer’s deposit will be put in escrowas soon as the seller has ratified the contract.

Paragraph 20.Deed and Title - This paragraph reminds the seller that he must deliver clear title to the property to the buyer.

Paragraph 21.Condition of Property and Possession - The buyer has the right to inspect the property before the date of settlement to make sure that the house is free and clear of trash and debris, broom clean and that it is in substantially the same condition as it was on the date the

Contract was written.In addition, the buyer will check to make sure that all the electrical, heating, air conditioning, plumbing, and other mechanical systems, appliances and smoke detectors are in working condition.THIS DOES NOT MEAN THESE ITEMS MUST WORK PERFECTLY, but simply that they perform the function for which they were intended.If there are any deficiencies found during this inspection, CLASSIC SETTLEMENTS will help buyers and sellers resolve the dispute.Resolving such problems is one of the many reasons a professional settlement company like CLASSIC SETTLEMENTS should be chosen to conduct the closing!

Paragraph 22.Adjustments - Recurring costs related to the property such as water service, property taxes and home owner’s association fees are prorated to the day of settlement so that the sellers pay for the days that they own the property.

Paragraph 23.Settlement Costs - This paragraph clearly states that the buyer pays all the closing costs in the transaction.The only exception is in situations where the buyer is obtaining a FHA or VA Loan.In those instances, the seller may have to pay certain fees that the government does not allow the purchaser to pay.

Paragraph 24.Transfer Charges - Unless the buyer and seller agree otherwise in an addendum, the transfer taxes will be paid half by the buyer and half by the seller.The transfer taxes vary from county to county.If the buyer is a first time homebuyer, this paragraph is modified by an addendum to the contract.

Paragraph 25.Broker Liability - Here the buyer and seller confirm that they are not relying on any statements made by any of the agents regarding the condition of the property.If you are relying on any statements made by either of the agents, make sure that you put those statements in writing and make them part of the contract.

Paragraph 26.Broker’s Fee - This paragraph provides that the fee agreed to between the seller and the broker or the buyer and the broker is to be paid from the funds at settlement.

Paragraphs 27 and 28.Seller and Buyer Responsibility – These paragraphs state that the buyers must not misrepresent their financial situation to the seller or lender and that the seller will not allow the mortgage to go to default, file bankruptcy or allow anything else to happen that would hinder their ability to complete settlement.

Paragraph 29.Homeowner’s Association - This paragraph states that the property is not subject to the provisions of a home owner’s association unless a home owner’s association addendum is attached to the contract.

Paragraph 30.Ground Rent - This paragraph explains what may occur if ground rent is not paid on time.

Paragraph 31.Sale/Settlement or Lease of Other Real Estate - Unless the buyer and seller agree otherwise, in writing, the contract is not contingent upon the sale or lease of any other property.Thus, if the buyer must sell their current home in order to have money to purchase a new one, an addendum to that effect must be written, agreed to and signed by the buyers and sellers.

Paragraph 32.Leases - The seller agrees not to negotiate any new leases for the property or extend any existing leases beyond the date of settlement.

Paragraph 33.Default - This paragraph explains the remedies available to buyers and sellers in the event of a default.

Paragraph 34.Mediation of Disputes - All claims or disputes between buyers and sellers must be brought to mediation before initiating an action in any court.The mediator will attempt to facilitate the resolution of the dispute, but has no authority to make an award or impose a resolution of the dispute or claim on the parties.

Paragraph 35.Attorney’s Fees – This paragraph states that if a legal action develops out of the transaction, the party that loses the action will pay the attorney’s fees and costs of the winning party.

Paragraph 36.Buyer’s Right to Select Settlement Service Provider - The buyer is advised in this paragraph that they have the right to select the settlement company of their choice.

Paragraph 37.Limited Warranty - This paragraph advises the buyer that if a home warranty is being offered by the seller, it may be a limited warranty.

Paragraph 38.Property Insurance Brochure - This paragraph notifies buyers of the availability of an informational brochure regarding insurance coverage.

Paragraph 39.Guaranty Fund - If either the buyers or sellers feel the real estate agent or broker has acted unethically or fraudulently, they may make a claim against the State of Maryland Real Estate Guarantee Fund.

Paragraph 40.Single Family Disclosure Notice – This paragraph informs the buyers that they have a right to receive a Disclosure or Disclaimer statement regarding property condition from the sellers.

Paragraph 41.Maryland Non-Resident Seller - If the property has not been the principal residence of a seller who is not a resident of Maryland, 6% of the total payment to the seller must be sent to the State Comptroller for possible capital gain.

Paragraph 42.Internal Revenue Service Filing – The transaction must be reported to the IRS so that the IRS will have a record of it.This merely involves the seller signing a 1099 form at settlement.

Paragraph 43.Chesapeake and Atlantic Coastal Bays Critical Area - This paragraph advises the buyer that all or a portion of the property may be part of the Chesapeake and Atlantic Coastal Bays critical area and may be further restricted by additional zoning regulations.

Paragraph 44.Wetlands Notice – This paragraph states that if any part of the property is located in a designated wetlands area, use of the land may be restricted by the U.S. Army Corps of Engineers.Fortunately, this is not an issue for most of the State of Maryland, but may be a problem in the Chesapeake Bay and Atlantic Coast regions of the State.

Paragraph 45.Forest Conservation Notice - The state wants to encourage property owners to retain the existing status of their property in agriculture or forests, and therefore gives substantial property tax reduction to those owners.If the property is sold, a tax may be imposed to recapture some of those reductions.

Paragraph 46.Foreign Investment Taxes (FIRPTA) - If the seller is a foreign person and the price of the property is over $300,000 federal taxes must be held from the proceeds of the sale.

Paragraph 47.Criminal Activity and Sexual Offenders – This paragraph advises the buyer of their right to ascertain the presence of a registered sexual offender within the vicinity of the property.

Paragraph 48.Military Installations – This paragraph advises buyers that the property may be located near a military installation.

Paragraph 49.Notice to the Parties – This paragraph sets forth---in great detail---the fact that the agents, brokers or any employees of the broker have not made any representations to the buyers or sellers regarding the condition of the property.The reason for this is that the agents and brokers are not property inspectors or environmental engineers.

Paragraph 50.Non-Assignability – The contract may not be assigned to another person or entity.Therefore, if a buyer places a property under contract, they may not sell the contract to another person without the approval of the seller.

Paragraph 51.Paragraph Headings – This is a standard paragraph which says that the paragraph headings are simply for the convenience of the parties and do not limit the coverage of the paragraph.

Paragraph 52. Computation of Days. - This paragraph provides a definition of “days” for the purpose of calculating when performance must occur.

Paragraph 53.Entire Agreement - Another standard provision that states that buyers and sellers state that they have read the agreement and that it is their entire agreement regarding the sale of the property.Once the contract is signed by all the parties, it can only be changed by written agreement of all the parties.

Paragraph 54. Electronic Delivery - Yet another standard provision that stating that any notices to be given by one party to the other may be done by fax or email.

Settlement

Settlement is where the money and deed change hands - you pay the seller and the seller gives you the keys and deeds the property to you. You will then be the owner of the property!!!

Who Attends Settlement?

An attorney from Papagjika and Associates, General Counsel will be there, of course. It is our job to collect the funds, have the papers signed and filed at the courthouse, disburse the funds, issue the title policy, and resolve whatever issues arise at settlement.The real estate agents involved in the transaction will generally be in attendance and, of course, you and the sellers will be there to execute the documents.

How Long Will Settlement Take?

If all goes well, settlement will be completed in about 1 hour.

What Do You Do at Settlement?

First, make sure that you bring certified funds or a bank check for the balance of your down payment and closing costs. You should also bring your checkbook as there may be minor variations between your good faith statement and your actual costs. We will then go through all the settlement documents with you, explaining their purpose. You will sign all the documents, give us your check and receive the keys to your new home. You will also need to bring proof of identification---either a passport or driver’s license.

Explanation of Settlement Documents

Unless you are assuming a loan, or paying cash, you will be signing many documents at settlement. Here we will briefly describe some of the forms you are likely to be signing.

Settlement Sheet

The first document you will see at settlement will be the settlement statement, often called the HUD 1. This form details all the charges and credits to the purchaser and seller. The review of this document begins on page two with an analysis of settlement charges, which is totaled on page two and carried forward to page one. The purchaser’s figures are on the left-hand side of the page, the seller’s on the right.

Lender Charges

At the top of page 2, on lines 801-815, are lender’s charges. They begin with loan origination and discount fees on lines 801 & 802. These are also called “points”. The appraisal and credit report fees will typically be paid by the purchaser directly to the lender at time of application and will be marked “P.O.C.” or “Paid Outside of Closing” on the settlement sheet.

On lines 808-815, you will find additional lender charges, which include document preparation fees and tax service fees (a fee to set up a service to pay your property tax bill). The purchaser pays these fees except when the loan is FHA or VA, in which case, the seller must pay these charges.

Next, at lines 900 to 905, are charges that the lender requires to be paid in advance. Most variable here is line 901, interim interest. You will pay interest to your lender on your loan from the day of settlement through the last day of that month.

In certain situations, where your down payment is less than 20%, mortgage insurance (MIP or PMI) will be collected and displayed on line 902. Ask your lender if this is a requirement for your loan.

Escrows

In lines 1000 to 1008 we will be collecting funds to be held in escrow by your lender to be used to pay insurance premiums, real estate tax bills and sometimes annual PMI. Hazard and PMI escrows are generally collected for two months. The number of months of real estate taxes escrowed will vary depending on your settlement date.

Settlement Fees

The 1100 lines are fees for services directly related to the settlement itself. The abstract or title search (line 1102) is the fee charged by the person who searched the court records to confirm that your seller owns clear title to the property. Our fee is found on line 1101 and includes the title examination, standard documentation preparation, notary fees, coordinating and conducting the settlement. The title insurance, line 1108, is the total of the premiums paid for lender’s coverage and owner’s coverage. These are one-time premiums that cover the lender until your loan is paid off and cover you for as long as you own the property.

Governmental Charges

The governmental charges are shown in the 1200 numbered lines. First, the cost to record the documents (line 1201). Next, you will see the transfer taxes. See the section entitled “Governmental Recording Charges” earlier in this guide to determine the appropriate tax rates.

Additional Charges

At the bottom of the page, you will see lines for other fees to be paid in connection with your purchase. First, on line 1301, is the fee for the survey. Line 1302 covers the termite inspection. Other charges you might see here are courier/overnight fees. Your lender will most likely require that the documents be returned to them within 24 hours of settlement. Other charges you might see here would be the homeowner’s association or condo fees for the next billing period. At line 1400 you will see the total of the charges on that page.

THIS IS NOT THE AMOUNT YOU WILL BE PAYING AT SETTLEMENT!

That figure on line 303 at the bottom of page one.

Gross Amount Due

The figure from line 1400 is carried over to page one where you will find it on line 103. It is added to the sales price found on line 101 and adjustments for items paid by the sellers in advance. These might include the taxes, which have already been paid by the seller, and such fees as homeowner’s association or condo fees, which will have been paid through the billing period.

Line 120 is the total cost of the property including all expenses.

Credits to Purchasers

Lines 200-220 include the deposit you already paid (line 201), the amount of your new loan (line 202) and any other credits due to you. You might see credits for taxes, homeowner’s fees or other fees that are due but that the seller has not yet paid. Here you will also see any credit that was agreed to in the contract.

These credits will be totaled on line 220, and then subtracted from the gross amount shown on line 120, to produce “The Bottom Line” on line 303-the amount you will be paying at settlement to complete the purchase of your new home.

After signing the settlement sheet, you will review and sign numerous documents. Here we will discuss some of the forms seen in most settlements.

Title Insurance Form

Title insurance protects against defects in the title which could cost you thousands of dollars or even the loss of your home. The lender will require that you purchase title insurance to protect their loan and you may purchase insurance to protect your interests. It is a onetime fee which is very low in cost for the broad amount of coverage it provides.

Acknowledgment and Receipt of Settlement Statement

This form is your written acknowledgment that you have seen a copy of the settlement statement, it has been explained to you and that, to the best of your knowledge, it accurately reflects the terms of the contract of sale that you signed.The seller states that there are no liens on the property to be paid off other than those listed on the settlement statement and that he has done nothing that might create a lien on the property. The seller also states that there are smoke detectors in the home.Both parties agree that they understand that the attorney is not responsible for paying the utility bills and that all figures are subject to final audit. Since everyone makes mistakes at times, both parties agree to cooperate in correcting any mistakes that have been made by any of the many players in the transaction.

Flood Insurance

The great majority of properties in the State are not in a designated flood hazard area. However, in order to protect itself, the lender will require a statement that you understand that if the Federal Government ever determines that your new home is in a flood hazard area, you will be required to purchase flood insurance. This is as much for your protection as for the lender.

Name Affidavit

Most of us have credit in different variations of our names. This document certifies that the variations of your name that they have listed on the credit report or other documents used in processing your loan are you.

Signature Affidavit

Some lenders want you to sign a piece of paper stating that this is your legal signature and that you agree to be bound by documents with this signature.

Tax Authorization

Some lenders have you sign written instructions to the local real estate taxing authority authorizing them to send the tax bill directly to the lender.

Loan Application

At settlement, you may be asked to sign a typed copy of the loan application form the loan officer filled out when you applied for the loan.

Termite Inspection

You will be asked to sign the termite inspection report acknowledging whether or not infestation from wood-boring insects exists on the property.

Loan Approval Letter

You might get this letter prior to settlement. It is the letter from the lender telling you that your loan has been approved on certain terms. The loan amount, interest rate, and the loan term will all be included.

W-9

This is an IRS form giving your social security number and new mailing address. You fill this out so that at tax time you can deduct the interest you pay to the lender from your Federal taxes.

First Payment Letter

Some lenders will give you a statement at settlement showing the amount of the monthly principal and interest payment due on the loan along with the tax escrow, the hazard insurance escrow, and any other escrows (MIP, PMI) that the lender will be holding. This will be your monthly payment.

Truth-in-Lending Statement

This form is very confusing. It basically tells you what yield the lender will be receiving on the loan and how much interest you will pay over the term of the loan.

Note

This is your IOU stating your personal obligation to repay the lender the principal amount you have borrowed, at the stated interest rate, in a certain time period.

Deed of Trust

This is the document that is filed at the courthouse to establish the lender’s lien on the property. This document, generally several pages long, also tells you that the lender will be holding escrows for payment of taxes and insurance, and that if you do not make payments, the lender will foreclose on the property. This is the famous “If you pay you stay, if you don’t, you won’t” document. Again, this is a standard document.

Deed

Last, but not least, the Deed will be signed and the property will be yours!

Glossary

·Addenda - Attachments to a contract or other form that adds to the terms of that contract or form.

·Assumption - Taking over another’s responsibilities - taking over the seller’s obligation to pay a loan.

·Contract - A written agreement setting forth terms of agreement between two or more people.

·Deed - A document signed by the seller transferring the title of the property to the purchaser.

·Deed of Trust - A document which gives a lender security that the loan it secures will be paid. If the loan is not paid the lender will have the right to foreclose on the borrower and become the owner of the property (your house) for which the loan was given.

·Lien - A document filed in the courthouse which states that certain monies must be paid to the person who placed the lien on the property before clear title can be transferred to another person.

·Listing - An agreement between an owner of property and a real estate broker whereby the broker agrees to market the property for sale and the seller agrees to pay the broker a fee or commission when the property is sold.

·Master Plan - The local government’s plan for building in a certain area. It would tell you where any new roads or other construction is planned.

·MLS (Multiple Listing Service) - A system by which all real estate agents that belong to a local board of realtors can show all the properties listed in the system to prospective purchasers regardless of which company’s sign is in front of the property.

·Note - An I.O.U. - a written promise to pay a certain amount of money, at a certain time, or in a certain number of payments at a certain interest rate.

·Types of Ownership - There are four types of ownership. They are:

A.Sole Ownership - Only one person owns the property.

B.Tenants in Common - Two or more persons have a divided ownership in the property. The percentage of ownership need not be equal, each party has a right to sell their interest, and upon the death of any of the owners, that owner’s interest in the property goes to whomever they designate in their will.

C.Joint Tenants - Ownership taken by two or more persons at the same time with an undivided right to possession. If one owner dies, their interest automatically goes to the remaining owners.

D.Tenants by Entirety - Owners are husband and wife and each own the entire property. If one dies, the other automatically gets the property and neither husband nor wife can sell their interest to the property without the other.

Why Settle At Classic Settlements?

EXPERIENCE - When it is time for your real estate settlement, you need to turn to someone who not only understands the legal and financial technicalities, but the human elements as well.We at Classic Settlements and the attorneys of Papagjika & Associates, General Counsel, have many years of experience providing real estate settlement services and dealing with the legal and practical issues that occur in real estate transactions. Virtually any situation that may arise in your real estate transaction has been previously addressed by us in our practice. Therefore, you can feel comfortable that if any problems come up in your transaction, they will be dealt with professionally and efficiently. Our staff includes professionals with experience in aspects of the real estate profession beyond real estate settlements. We have persons with experience as lenders, appraisers, insurance agents, real estate agents and title abstractors working in various aspects of our business. This wealth and breadth of experience means that our attorneys can not only handle the technical and legal ends of your settlement, but we can assist with solving the practical situations that may arise during the home buying process as well – these are generally the most frequent and the most troubling problems.