In order to help you through your real estate transaction, we have developed a list of “frequently asked questions”. Our responses are based upon title and closing practice in Washtenaw and Livingston Counties, which may differ from practices in other parts of the country.
If you have a specific question, please submit it in the “Contact Us” section and we will endeavor to give you a response within 24 hours.
Note: Per our lawyers, we must make the following disclaimers:
1) Liberty Title may not practice law, so any response to your question should not be viewed as legal advice.
2) Responses are based upon the information submitted to us, so we disclaim any liability arising from your failure to advise us of all the facts/circumstances surrounding your question.
Remember — real estate transactions are major events and you should always consult with your attorney and tax adviser before entering into any binding agreements.
1) What are “closing costs”?
“Closing Costs” is a catch-all term that refers to the costs and expenses involved in closing a real estate transaction. These costs are determined by the contracts between the parties, applicable laws and local customs. The following explanation of “closing costs” is based upon our sample Real Estate Purchase Contract (see the Forms section for a downloadable copy), Washtenaw County custom, and assumes typical mortgage closing expenses.
2) What is a “tax proration”?
The tax proration is an allocation of the property taxes between the Seller and Purchaser that is determined by their contract. It is not required, but it is customary. In Washtenaw/Livingston Counties the most commonly used proration is the “due date in advance” method. This treats the property tax bill like a newspaper or magazine subscription — when you pay your tax bill on December 1 it is treated as buying government services for the period starting on December 1 and ending on November 30 of the following year. So in a transaction closing on February 1, the Purchaser will reimburse the Seller 10/12ths of the previous December’s tax bill. This is because the Purchaser will occupy the property for 10 months of the 12-month period that started the previous December 1.
3) How long before we can close?
The time it takes to get to a closing of a real estate transaction is largely determined by the contract between the parties and the time needed to get lender approval if a mortgage is involved. In a typical residential transaction, most contingencies (other than financing and sale of the Purchaser’s residence) can be removed within two weeks. Financing should be resolved within 30-45 days.
4) How long will my closing last?
Closing a transaction should not be an ordeal. We typically budget one hour for a residential resale and 30-45 minutes for a refinance.
5) Do I need an attorney?
Probably. Buying/Selling a home is a major event with significant financial and tax considerations. A good Real Estate Attorney
will be able to give you critical advice about appropriate contingency clauses, title restrictions and tax consequences of your transaction. (We’ve highlighted Real Estate
because you want an attorney who is experienced and current in this area.) The person who wrote your will or handled a “slip and fall” case is probably not the right person to advise you on real estate! Finding an attorney should not be difficult. Ask for recommendations from Realtors, an experienced loan officer or a title company. You can also call the Washtenaw County Bar Association referral line at (734) 996-3229
6) What is escrow?
Escrow is one of those phrases the professionals use to mystify consumers. It is a fluid term with several meanings. The most common are:
- A generic term for the entire closing process
- An agreement to hold funds/documents until certain events have occurred (e.g. we will hold funds “in escrow” until the Seller removes the junk car from the backyard.)
- an agreement to hold deposit for a specific use (e.g. we will “escrow” $150/month for payment of future taxes.)
Don’t let your eyes glaze over when people start throwing around the word “escrow” — look them straight in the eye and ask them what they mean.
7) How much earnest money should we collect?
This is a tough question and the answer varies from case to case, as the “earnest money” serves several purposes:
- Showing the buyer is serious
- A lever to make the Buyer perform
- A form of liquidated damages to compensate the Seller should the Buyer fail to perform
In the Ann Arbor area, earnest money deposits range from 1% to 4% of the sale price. The deposit is either held by the Buyer’s Realtor or the title company. Interest is not usually paid on the deposit, as the costs of setting up and administrating an interest bearing account usually exceed the interest generated (e.g. $5,000 will earn approximately $20 in interest over a 90 day period). A key point on “earnest money” is unless both parties agree to release the money, the party holding the money will usually decline to disburse. They do not want to be caught in a squabble between Buyer and Seller. Instead, they will usually deposit the money in court and allow the judge to decide who gets the money. WARNING: Both the Ann Arbor Area Board of Realtors sales contract and the Purchase Agreement on this site provide that if a contingency is not removed, the contract becomes voidable – that is, either party can back out without any consequences! So if you do not carefully monitor the removal of contingencies, the Buyer can withdraw and get his/her earnest money back.
8) Why do I record my deed? Is it my title?
Deeds are recorded to provide notice to the world that you own your property. Recording a deed at the Register of Deeds imparts “constructive notice” to the world that you own your property-everyone in the world is deemed by law to know of your interest. If you fail to record your Deed, only those people who have actual notice of your interest in the property know of your ownership. The deed is merely evidence of your ownership of the property- it is not a “title” like a car title. It is of critical importance that the deed be placed on record.
9) What are the requirements for recording my deed?
Michigan has fairly strict requirements for recording documents at the Register of Deeds Office. The principal requirements are:
- Documents must be at least 8 1/2″ by 11″ and no larger than 8 1/2″ by 14″
- There must be a 2 1/2″ margin at the top and a 1/2″ margin at the sides
- The document must be black ink on white paper (signatures can be in blue ink in Washtenaw County but nothing else!)
- The minimum paper weight must be 20lbs. (No thermal fax paper!)
- The document must be legible with at least 10pt. type face
- The document must be signed in front of a Notary Public
You must also pay recording fees of $9.00 for the first page and $2.00 for each additional page (e.g. a three page document costs $13.00).
10) What are “transfer taxes”?
Michigan levies two transfer taxes on the sale or other transfer of real estate. A county transfer tax of $1.10 per $1,000 has been levied for many years. A state transfer tax of $7.50 per $1,000 was levied starting in 1995. There are numerous exemptions from these taxes, most relating to sales where no monetary value is attributed to the transaction or where the transaction is between family members or current co-owners of the property.
Questions to Ask a Title Agent in Southeast Michigan
Here are some Key Questions when Selecting a Title / Settlement Agent:
1. Beginning inquiry. If a company tells you that CFPB Compliance is not urgent or important, be very concerned as it is YOU who will be penalized!
2. NPPI. Non-public personal information. How is the service provider protecting information on a typical loan closing file? Where is this information traveling? Will it be downloaded on personal computers or smart phones for out of office closings? What are their storage procedures? Clean desk policy?
3. Escrow Management. How are funds managed? Wiring procedures, segregation of duties and the use of positive pay? Technology protections?
4. Insurance. Have you reviewed the company’s E & O and Fidelity Bond? Is it enough coverage? Is it appropriate coverage for a title company?
5. New construction. Is the title company strictly following the Michigan construction lien law to protect the consumer and financial institution against loss?
6. Licensing. If you are sending a loan package to an out of state company: are they licensed to do business in the State of Michigan? Are they familiar with Michigan law?
7. Consumer Complaints. Does the title company have an appropriate Consumer Complaint Procedure in compliance with CFPB guidelines?
8. Affiliated Agents. If the company insuring your transaction is owned by a Realtor/Broker, Law Firm or other Lender, will your client’s NPPI be properly protected? Are they concerned about your compliance? Are they concerned about the consumer?
9. Attorneys. If the agency does not have legal counsel on staff, are they current on consumer protection laws and CFPB positions?