Property ownership is often described as a piece of the American Dream. Whether you are a first time home buyer or a seasoned real estate investor, First Texas Title can assist you in making that dream become a reality. This page is designed to give you some basic information about the process to help you get started.
The first step in buying property is locating the property and reaching an agreement with the seller on the terms of the sale. In most situations, buyers should enter into a written agreement with the seller setting out the terms of the sale, which is commonly referred to as the "contract of sale", or just "contract" for short. In the contract, the seller agrees to sell the property and the buyer agrees to purchase the property upon the terms and conditions contained in the contract. Common terms and conditions include the sale price, closing date and location, amount of earnest money, whether or not a title insurance policy will be provided by the seller, who will pay what closing costs, who will provide a survey of the property, does the buyer have an option period or feasibility period during which inspections will be conducted, and will the buyer take possession at closing or at some other time.
If you are represented by a real estate agent, the agent will most likely prepare the contract for you using forms promulgated by the Texas Real Estate Commission. If you do not have a real estate agent, you will need to prepare a contract yourself or make other arrangements. If you need further assistance with this, we can provide you with the necessary contract forms and can assist you in filling them out.
A quick note about appraisals: many sellers and buyers ask if they should obtain an appraisal at the beginning of the process in order to validate the asking price or sales price. You are certainly welcome to obtain an appraisal if it makes you feel more comfortable, but you should be aware that, if you are obtaining a loan, their lender will most likely require that a new appraisal be obtained by the lender…and your appraisal will not be useable by them. For that reason, most sellers and buyers do not obtain a separate appraisal. If you have a real estate agent, they can typically help you determine if a sale price is reasonable based on their records of comparable sales in the area.
The Escrow & Closing Process
The closing process for a purchase begins when the contract and any earnest money is delivered to First Texas Title. The contract provides a blueprint for the closing and governs the issues that may arise as part of the closing. On refinances, the process is typically initiated when the lender submits an order for a title commitment.
The contract provides us directions on how to prepare for the closing and governs the issues that may arise as part of the closing. On refinances or loan transactions, the process is typically initiated when the lender submits an order for a title commitment.
Once a contract or order for a title commitment is received, a file is set up and assigned to one of our three closers. If you are obtaining a title insurance policy, the title to the property is examined through the Real Property Records maintained at the County Clerk’s office. This examination provides the basis for our title commitment and ultimately the title policy (to learn more about title insurance, click here).
While we are working on the title examination, you should be having your inspections of the property completed. Most buyers will have an inspection of the property done by a licensed inspector that can identify any potential issues with the property. Many buyers will also have a termite inspection done by a pest control company. Before arranging for a termite inspection, you might want to discuss this with your lender, because some lenders will require a termite inspection as a part of the loan process, and they might order it on your behalf. No matter what inspections you have completed, if your contract provides you a termination option, make sure you have your inspections completed during the option period so that you have the ability to terminate the contract or re-negotiate, depending on the outcome of the inspections.
When the title examination is complete, a title commitment will be prepared. The title commitment is our “commitment” to issue a title policy on the property following the closing. Schedule A of the title commitment identifies the current record owner of the property and the legal description of the property to be insured. Schedule B of the commitment identifies aspects or conditions concerning the property such as easements, mineral reservations and restrictions that will be excluded from coverage under the policy. Schedule C of the commitment identifies requirements that must be met at or prior to closing, such as paying off liens or resolving ownership issues.
As a buyer, you should be particularly interested in Schedule B of the title commitment, because this identifies what matters will not be covered by your title policy. For example, if Schedule B lists covenants, conditions or restrictions on the property, these are items that may restrict your ability to use the property for certain purposes. Our standard practice is to only identify the documents that potentially affect your property in Schedule B. If you desire to review the documents for yourself, you may obtain a copy of the documents from the county clerk's office, or we can provide you copies upon request.
Additionally, if the seller has an existing survey of the property or if a new survey is being obtained for you, you should closely review the survey to make sure you understand exactly what you are buying. The survey takes the legal description of the property and depicts the location of the property boundaries and the location of all improvements on the property on a plat or map. The survey should depict the location of all easements, fences, building setback lines, encroachments and overlapping improvements.
It is important that you closely review Schedule B and the survey immediately upon your receipt of them. The contract typically gives you, as the buyer, a limited amount of time to object to any problems shown in Schedule B or the survey. If you do not object (and the problem is not a major problem, such as the house being built on the wrong property), then you are typically bound to buy the property subject to the problem…and it becomes your problem instead of the seller's problem. For that reason, review the survey and Schedule B carefully!
If Schedule C of the title commitment has revealed a title issue that must be addressed prior to closing, or if Schedule A shows that your seller does not own the property, then your seller should be using this is the time to cure those issues. Depending on the nature of the title problem the cure could include anything from obtaining and recording correction documents or missing documents from prior transactions to probating the last will and testament of a previous owner.
Once the inspections are completed and the title requirements are resolved, the buyer, seller and/or lender can contact us to schedule a closing date and time. Several days prior to the closing, we will prepare the documents necessary to close the transaction. For cash transactions, there may only be a handful of documents necessary to close; however, when there is a loan involved, the number of documents required to close the transaction can increase significantly. Please note that, if a lender is involved, we cannot prepare any of the closing documents until we receive closing instructions and documentation from the lender. The documentation related to a loan varies greatly depending on the lender and the type of loan you are obtaining.
In every closing, one of the most important closing documents is the Settlement Statement or HUD-1 form which is prepared by First Texas Title pursuant to the instructions of the lender, the contract between the parties, invoices received for services provided (i.e. pest inspections or surveys), and the instructions of the parties or their realtors. The Settlement Statement identifies all of the costs related to the transaction and breaks down who will pay for each item. It also establishes the dollar amount which each party will receive, or pay, at the closing. On transactions involving a loan, the HUD-1 must be submitted to the lender and approved before the closing can take place.
Following HUD-1 approval, the parties and, if applicable, their realtors, will meet at the offices of First Texas Title on the day and time scheduled for the closing. Typically one hour is allotted for each closing, with the seller generally having fewer items to complete than the buyer. In transactions not involving an institutional lender, the closing will often take less than the allotted time. The closing is a time to sign all of the required documents, to make any last-minute adjustments to the documents, and to answer any final questions the parties may have. If buyers and/or sellers are unable to attend a scheduled closing, alternate arrangements can be made for the use of a power of attorney or the mailing/emailing of documents. If such arrangements are necessary, please alert First Texas Title and your lender as early as possible in the process (and at least two days before the closing) so that we may plan accordingly.
Please note that there is not time to read the documents at closing. In a typical loan package, there are over 50 documents to be signed. If you are interested in reading all of the documents, please let us know ahead of time so that we may provide you a copy of all of the documents or arrange for you to come in to read everything prior to closing. For a typical loan package, it takes about 5 hours to read all of the documents, so please allow plenty of time if that is your wish.
Additionally, please note that, if you are paying money at closing, any amount over $1,500.00 must be certified funds, such as a cashier’s or certified check or an electronic wire. This is not a particular rule of our title company, but is a regulation mandated by the Texas Department of Insurance. All checks or money orders should be made payable to First Texas Title.
Immediately following the closing, First Texas Title’s funding department will provide scans of the documents deemed by the lender to be “funding conditions”. The lender will review these documents and authorize the funding of the transaction. This process typically takes 3-4 hours after closing, but with some lenders could take several days, depending on the specific circumstances surrounding the loan. When funding authorization is received, First Texas Title will pay all invoices associated with the transaction, pay-off the seller’s lender (if necessary), release any proceeds that are payable to the buyer or seller, record all relevant documents at the appropriate courthouse and generally finalize the transaction. Proceeds can be picked up, mailed, electronically wired and, in certain cases, directly deposited into checking or savings accounts, based on instructions provided by the parties at closing. Generally it is at this point that the deal is officially closed and ownership and possession of the property is transferred from the seller to the buyer.
Within several weeks of the closing, the title policies associated with the transaction are issued and sent to the appropriate party. Additionally, the original documents are forwarded to the buyer, seller, or lender by the County Clerk’s office after they are recorded.
In a typical transaction, the buyer is charged the following fees:
*Settlement Fee - This is the fee charged by First Texas Title to close the transaction and it starts at $150 for a cash purchase. For a purchase involving a loan, the settlement fee for a buyer starts at $225. The buyer's settlement fee can increase if the transaction requires the use of a power of attorney, involves the mailing or emailing of documents to the buyer for signature, or, in the event of a purchase involving a loan, requires an extra lender/broker collateral package and/or an e-document download. The settlement fee for transactions involving manufactured homes starts at $250 for a cash transaction and $325 for a transaction involving a loan due the the additional work necessary to facilitate the transfer of the manufactured home with the Texas Department of Housing and Community Affairs.
*Recording Fee for Deed - Taylor County charges $26 for the first page of a document and $4 for each additional page. The deed is typically 2 to 3 pages long.
*If you are getting a loan, the majority of your fees will be loan fees . Loan fees vary greatly depending upon the lender and the type of loan being obtained. Be sure to check with your lender for a complete list of fees associated with your loan.
NOTE: All fees are subject to change and can vary significantly due to the facts and circumstances of each specific situation.
Title insurance is a contract of indemnity between the insured and the title insurance company. Title insurance represents the judgment of the title company as to the insurability of the title and may, in the event title is challenged, provide certain remedies for the insured. Title insurance is not a representation or warranty as to title.
A policy of title insurance is based upon our examination of the public records that effect real property. In the event a title policy is expected to be issued, First Texas Title will issue a commitment for title insurance outlining the findings of the public records examination. There are two basic types of title insurance policies: the Owner Policy of Title Insurance and the Loan Policy of Title Insurance. The Owner Policy insures the owner of the property against certain risks and typically provides coverage in the amount of the sales price or the value of the property and any improvements located on the property. The Loan Policy insures that the lender’s lien is valid against the property and typically provides coverage in the amount of the loan.
Why do I need title insurance?
Title insurance offers two distinct types of protection for your residential or business property. First, the basis of title insurance is an examination of the public records. In our title examination, we will identify all kinds of information about the property to be purchased, including the existence of any potential defect in the title. Defects can range from a lien against the property held by a lender or a governmental agency to a competing claim of ownership of the property. A recent study by the American Land Title Association revealed that in 36% of all real estate transactions a problem or defect in the title was discovered through the title examination process. The research and corrective work of First Texas Title can dramatically reduce the likelihood an insured will suffer a loss due to a title problem. The second type of protection comes after the sale, when title insurance can offer coverage for certain defects in the title that may arise and were not identified and addressed by the title company.
Who underwrites title insurance?
First Texas Title is an exclusive agent of First American Title Company. First American Title Company is a division of The First American Corporation, a Fortune 500 Company and the global leader in the provision of real estate and business information services. Learn more about The First American Corporation by clicking here.
How much does title insurance cost?
Title insurance premiums are based upon the purchase price of the property. Title insurance premiums are paid one time and an Owner’s Policy covers the insured named in the policy as long as they own the property. A Loan Policy also covers the insured named in the policy as well as the assignee or transferee of the insured in certain situations.
Structuring the Transaction
There are many ways a transaction can be structured between a buyer and a seller. First Texas Title and Bradshaw, McCall & Westbrook, PLLC can work with you to identify the best way to proceed with your transaction. Each type of transaction has specific risks and potential problems, so be sure to consult with an attorney prior to entering into a contract if you have any questions. Some of the most common ways of transferring real estate are:
Most often the simplest way to buy and sell property is in a cash transaction. In such a transaction, the buyer simply brings the total consideration, which is the purchase price adjusted for any closing costs, prorations or other items, to the closing and the seller receives the amount payable to them, which is the purchase price adjusted for any closing costs, prorations, pay-offs or other items. In conducting cash transactions, First Texas Title requires the receipt of certified funds, typically electronic wires or cashier’s or certified checks, and pays out the proceeds to the seller either as a check or an electronic wire. Assuming the buyer and seller both attend the closing at the same time, cash transactions can typically be funded at the closing, with the seller leaving with any proceeds and the buyer walking away with possession of the property.
Traditional Loan Transactions
Traditional Loan Transactions involve third party lenders such as banks or mortgage companies. While there are numerous types of loan programs offered by lenders, all such transactions share the same basic structure. When a buyer is obtaining a loan, the loan proceeds are delivered to First Texas Title, either by check or electronic wire, and the buyer brings their portion of the total consideration to the closing. The buyer’s portion is generally composed of the buyer’s down-payment and the difference between the loan amount and the total consideration required to close. Any amount over $1,500.00 must be certified funds, such as a cashier’s or certified check or an electronic wire. All of the documents related to the loan are then signed at closing and forwarded electronically to the lender for review. Once funding is authorized (a process which can range anywhere from several hours to several days depending upon the lender and the specific circumstances of the loan), First Texas Title will pay the proceeds that are due to the seller by check or electronic wire.
Owner Carry/seller Financing Transaction
In an Owner Carry/seller Financing Transaction, the seller of the property takes the place of a traditional lender and instead of receiving the full amount of the proceeds due to the seller under the transaction receives a note or promise to pay from the buyer. sellers in Owner Carry/seller Financing transactions often also receive at least some portion of the proceeds in cash paid by the buyer as a down payment. The terms of the note in an Owner Carry/seller Financing transaction can vary greatly, depending on whatever terms are negotiated between the buyer and seller. In addition to the note, a buyer will sign a deed of trust giving the seller the right to foreclose on the property in the event the buyer defaults under the loan. This gives a seller in an Owner Carry/seller Financing transaction the same type of security a traditional lender has in an ordinary loan transaction. Texas has enacted several laws which could potentially impact the seller in an Owner Carry/seller Financing transaction, so be sure to consult an attorney prior to finalizing such a sale.
Some types of loans are assumable, meaning the borrower under a loan can sell the property by having another buyer “assume” the existing loan by stepping into the shoes of the borrower and taking over the payments. Typically a loan is assumable only with the approval of the lender and the qualification of the new buyer. If an assumption takes place without the approval of the lender, the parties risk having the original lender call the note and demand payment of the entire amount owed pursuant to what is called a “due on sale clause”. A due on sale clause is a common condition in most loan documents and simply states that if the property is transferred without the approval of the lender, the lender has the right to make the entire amount of the loan due and payable. Failure to pay in such a situation can result in a foreclosure. The buyer’s assumption of the existing loan is often secured by a deed of trust to secure assumption, which gives the seller the ability to foreclose, often just before the original lender, in the event the buyer stops making the required payments. Assumptions most typically occur in situations where the seller (the borrower under the original loan) does not have much equity in the property or where the buyer is able to pay the seller cash for whatever equity the seller has in the property.
Wraparound Transactions arise in situations similar to assumptions where a seller has an existing loan and wants to sell the property without paying off the existing loan. The difference is that in a Wraparound transaction, the buyer signs a note payable to the seller and makes payments under that note and the seller turns around and makes payments back to its lender. Because of this, a Wraparound is most typically used in situations where the seller has at least some equity in the property and the buyer is unable to pay cash to compensate the seller for that equity. Because of this, the equity, plus the amount still owed under the original loan, are typically lumped together into a note from the buyer to the seller. Wraparound transactions involve a deed from the seller to the buyer, a note promising to pay a certain amount to the seller and a deed of trust to the seller giving them the right to foreclose in the event the buyer stops making payments. The buyer also receives certain protections in a Wraparound transaction because the documents expressly give the buyer the right to start making payments to the original lender in the event the seller stops making such payments. There are many risks to a Wraparound transaction. First, although the buyer has the right to start making payments to the original lender in the event the seller stops making such payments, as a practical matter, the buyer may not be aware that the seller has stopped making such payments until it is too late. Additionally, a Wraparound transaction can also trigger the “due on sale clause” which allows the original lender to declare the entire amount owed under a note due and payable in the event the property is transferred without the permission of the lender.
The law firm of Bradshaw, McCall & Westbrook, PLLC and its attorneys represents only First Texas Title Company, LLC in all aspects of the closing of real estate transactions and preparing documentation for real estate transactions. Bradshaw, McCall & Westbrook, PLLC, William W. Bradshaw, Andrew K. McCall, and Chris Westbrook are prohibited from acting as attorneys for or giving legal advice to the buyer, borrower, seller, or lender in such transactions. The buyer, borrower, seller, and lender in any real estate transaction are advised to have their own attorneys review and give advice regarding any aspect of such transactions.
With regard to the preparation of documents for a closing, Bradshaw, McCall & Westbrook, PLLC is retained solely to (i) prepare all or part of the documents required by a contract of sale by and between the buyer, borrower, and seller and/or any lending arrangement by and between the borrower and its lender; and/or (ii) in some cases, prepare a contract of sale in accordance with the instructions of the parties in a format acceptable to First Texas Title Company, LLC and its underwriter. Additionally, in the closing of real estate transactions, First Texas Title Company, LLC is engaged solely to (i) provide notary services; (ii) close the transaction; and, if applicable, (iii) issue owner and/or loan title insurance policies in connection with the transaction. Bradshaw, McCall & Westbrook, PLLC, First Texas Title Company, LLC, and all of the individual attorneys and employees of each will not negotiate any agreements between the buyer, borrower, or seller or the borrower and its lender and will not render legal advice to the buyer, borrower, seller, or lender.
Any fees payable to Bradshaw, McCall & Westbrook, PLLC and/or First Texas Title in connection with a closing are for the provision of the above-identified services only and shall be set forth on the applicable closing statement.