Unnecessary Closing Costs: Good Article by Aubrey Clark

Aubrey Clark wrote a good article on unnecessary closing costs that is available at Content for Reprint. The article discusses a number of legitimate charges that are common in most real estate transactions as well examples of the many different extraneous and unnecessary fees and charges that are regularly added on. One area that is discussed is the charges that are associated with title insurance.

It is important to shop for title insurance

Aubrey's article once again reiterates the importance of shopping for title insurance. Like we have been saying at myClosingSPACE.com she discusses the fact that in most cases consumers are pushed to use their mortgage lenders captive title insurance company. She points out that much of the time these title companies are overcharging for their service and most consumers are simply unaware of this. She states that it is important that consumers pick up the phone book and get quotes from a variety of title companies. I would like to point out that the Internet has made this research much easier but the point remains that it is important to shop for title insurance to find the best price.

Don't pay uneccessary title insurance fees

Like we have been saying consumers have a choice and they can control the closing process. Taking the time to shop for title insurance can result in significant savings. And it really does not take that much time or effort. Do a little research and find a title company who is willing to charge a fair rate and work for you. It can make the process much easier on you and your pocketbook.

Opting Out of Owners Title Insurance

US News and World Report has a good article that discusses whether it is a good idea to opt out of title insurance. For the most part the article seems to favor purchasing the owners title insurance but the story begins with a home buyer who opts out of the owners policy. He believed that since there were only two previous owners that there would not be an issue with title. As the article correctly points out that even though the house had only two owners there may be liens placed by the previous owners of the land or their heirs, builders, or contractors. Title issues can arise when they are least expected.

Owners title insurance protects you

The lenders policy protects the lender and their investment. If a title issue arises years after you closed on a house the lender will be protected up to the amount that they are still owed through your mortgage. That does not mean you are protected. The only way to protect yourself is purchase owner's title insurance too. This is another reason to shop for title insurance. Make sure you are comparing apples to apples too. Verify that the estimate you are getting covers both the lender's and owner's policy and choose the title insurance company that best represents our needs and price point. Shopping for title insurance can save you money while still protecting you from title issues in the future.

Consumers Pay Too Much at the Closing Table: Yet Another Study Supporting Change in the Title Industry

A recent study, conducted by Dr. Susan Woodward, once again showed that consumers spend too much on closing costs. This study, titled A Study of Closing Costs for FHA Mortgages, analyzed 7,500 FHA mortgages that originated in May and June of 2001. Borrowers with similar or identical credit scores, loan terms, and mortgage amounts paid disparate amounts at the closing table. Even though there were some demographic differences that stood out even consumers who have similar demographic profiles were charged differently. In the end the report found one of the most important factors was that consumers simply do not understand closing costs and do what they are told by their mortgage broker, realtor, attorney, etc. It can be an overwhelming process and most consumers just want to get it done. Many do not realize that they could save a significant amount of money if they took a bit of time to learn about title insurance and closing costs by shopping around and doing a little bit of research online.

Just Another in a series of reports

While I believe this is another good study it is just reiterating what many of the title insurance bloggers and spokespeople have been saying for a while now. Closing costs are too high because consumers are being lead by their representatives in the real estate industry who may be receiving gifts or other compensation to refer their clients to a specific title insurance company. That company in turn passes on extra costs to the consumers to pay for those gifts. The consumer does not notice because he/she is overwhelmed by the whole process and relying on their representatives to look out for their best interest.

How do we fix it?

These studies do a great job of bringing more attention to the problem but IMO they are not reaching all of the right people, the consumer. Most of the people who are reading these reports are real estate or mortgage professionals. Consumers do not pay attention to reports like this until they need to buy or refinance. That means it is up to title companies and other real estate professionals to utilize these studies to make our service more consumer friendly. If we take the time to help consumers understand the whole process, let them know that the ultimate choice of a title insurance company is up to them, and charge them honestly we can help make the industry stronger and more well respected.

We are trying at myClosingSPACE

That is exactly what we have tried to do at myClosingSPACE.com. Our mission is to bring title insurance into the forefront and help consumers understand it so they can make their own decisions and save money on closing costs. Even if they do not use our service we want to make sure they are making their own choices while knowing all the facts. We will continue to push for consumer choice and attempt to provide useful information about title insurance to those consumers who are ready to buy their new home or refinance their current mortgage. There are other title companies who are doing the same thing and all of the information provided through blogs, studies such as this one, and other sources can help spread the message. Hopefully this will eventually lead to a change in the industry and put the consumer in charge. Change is difficult to achieve but with the flow of information inherent with the Internet we can continue to provide the information and hope that it reaches those who need it most, the person who is buying or refinancing their home.

Good Advice for Saving on Closing Costs but...

Kiplinger.com has a pretty good article about the proposed HUD RESPA reforms and some additional advice on how to save on closing costs even without the proposed changes. All in all they provide good advice but I wish they would have conducted a bit more research. If they had they could have presented more options for consumers to save on closing costs.

I know I am a bit biased

Yeah, I am biased but I don't believe they provided enough options related to title insurance. They mention Title Wizard and ALTA but there are other options out there. Title Wizard is for California only and ALTA is a purely informational site. It would have been nice if they would have provided some information about companies like myClosingSPACE.com who have built their business on offering the best value and service to consumers. Besides that there are great sources like Radical Title Talk, Source of Title Blog, TitleSuccess, and Title-Opoly which provide great information about title insurance for consumers.

I am glad Closing Costs are being discussed

Look, it is great that Kiplinger.com broached this subject to make consumers more aware of their options. Hopefully many do take their advice and conduct some research on their own. I just wish they were a bit more comprehensive in their research and offered more detailed information to arm consumers with greater knowledge about the options they have.

Junk Fees Redux

Here at the myClosingSPACE.com blog I have discussed the issue of Junk Fees being tacked on to title insurance & closing costs. Many consumers don't realize they are being charged extra for legitimate fees or even paying additional tacked on fees. The fact is that many do not see these fees until they actually sit down to close and in many cases they do not understand that they are being overcharged because they have not educated themselves.

That's why myClosingSPACE.com encourages consumers to learn about title insurance and shop for the company that suits their needs. One major issue to look out for is Junk Fees. It is important to make sure that you get a guaranteed quote and all fees and charges are disclosed.

Don't Let your Title Company Pile on the Junk Fees

Do your research and make sure the charges you will have to pay are legitimate and they are within the proper range based on the requirements for your state. Again, there are legitimate fees which cover the costs associated with the work done by your title company. These can be jacked up in order to extract money from unsuspecting consumers. In addition there are simply Junk Fees that get tacked on for no other reason than to extract as much from consumers as possible. Here are some examples of both.

The following are legitimate fees but make sure that you are being charged a reasonable amount of money and being overcharged.

• Insurance Premiums: Of course the premium is a legitimate fee. It is a fee to cover the title insurance premium. Some companies will pad this fee well above what the actual premium should cost. Most states set the rates but since many consumers are unaware of this they will overcharge. Look up your states guidelines and find out what the premium should be.
• Title Search Fees: The title search is a labor intensive process and is an important aspect of title insurance. It ensures that the house you are buying or refinancing does not have any liens or judgments against it. Look at the details when you get a quote or estimate and make sure you are being charged for the title search and there are not additional fees tacked on to this.
• Settlement Fees: This fee should be around $300-$400 and there may be discounts if the closing is held at the settlement company office or another select place. Again, there are fees that can be tacked on to this that are not necessary and would be considered Junk Fees.
  

The following are fees that can be tacked on simply to get as much money as possible. These can be avoided and in many cases are simply Junk fees. If any of these fees show up you should question the company who provided the estimate.

• Municipal Search Fees
• Wire Fees
• Copy Charges
• Travel Mileage for Closer
• Overnight Charges
  

We encourage consumers to shop around and get estimates from multiple title companies and make sure you get detailed breakdowns of all fees and charges. Also, make sure to find out if the estimate is guaranteed. Find the best price and choose the company you are most comfortable with. After all the final choice belongs to the consumer.

5 Real Estate Closing Disasters

Most real estate closings seem to be very smooth and easy at least to most consumers. They may have to sign too many documents but in most cases there is no drama. You go in, sign a bunch of papers, and leave with keys to your new home or a check from the sale of your home. Of course that is not always the case. Every once in a while there is a closing disaster that keeps you from completing the transaction and may even result in the transaction never happening.

myClosingSPACE.com has put together the Top 5 Closing Disasters and without further ado here they are.

1. Not Enough Money to Cover Closing Costs: Paying closing costs requires a certified check. That means that if you are short you can't whip out your check book and write a check for the difference. And what if you are short thousands of dollars? Most people don't have that much extra cash laying around especially after paying the original estimate. That's why it is important to get a guaranteed quote from your title company and work directly with them throughout the process. By working directly with your title company you will learn of any problems before you get to the closing. They will also work to take care of any problems that so you won't have to deal with surprises when you sit down to sign the documents. And with a guaranteed quote you can be assured that you will not pay any more than the quoted closing costs.
2. You Have Judgments Against You: Since your kid is going off to college you decide yo be a nice parent and buy him a car to get around. You put the car in your name. Unbeknownst to you the kid is parking the car wherever they want and racking up traffic tickets that go unpaid. Now you want to buy a home and when you site down to close you see an extra person there with their hand in your pocket. That's when you find out that your kid has racked up $6000.00 in parking tickets and they need to be paid before the closing can commence. These type of judgments can halt a closing and unless you have been in contact with your title company you may not learn about it until it is too late. If you work directly with your title company they will let you know about these issues and help you take care of them before closing so the transaction can go through without a hitch. Unfortunately, you are on your own with your kid.
3. Can't Coordinate the Closing: So you found the home of your dreams, got your mortgage, and you have scheduled the closing date. Great right? But what happens if you get there and find out the seller is in jail? If you can't coordinate the closing in a timely manner you could lose the home of your dreams. If the seller is in jail and you don't find out until you get to the closing table you may lose the opportunity to finish the transaction. If you are in direct contact with your title company you would know this before it is too late and either make arrangements to close the transaction at a later date or even withdraw your offer and look for a new house. It may be too late to do either if you don't know until the closing date.
   
4. You Find Out the Home you are Selling is Community Property: So you met your lovely wife a year after you bought your house. Your wife loved your house so instead of moving to a new home you both agreed to live at the house that is in your name. Everything is great until the day that first child arrived. Then your house became far too small and you needed a bigger house. Great, you go out and find the perfect home and someone wants to buy your home. You schedule closing on the house you are selling but it is at a time when your wife is going to be in Germany for business. No big deal since you owned the home before you met her and she was never added to the mortgage, right? Wrong, in most states when you get married the home you owned before the marriage becomes community property even if your spouse has not been officially included. So no you are at closing and the process can't be completed because your wife is not present to sign the documents. Not only do you lose the sale but now you are in jeopardy of losing the new house you want to buy. If you would have been working directly with a title company they would have been able to inform you that your wife would need to sign the documents too. The title company would be able to take care of this by having her sign the documents before the closing or set a different closing date so she could be present. Either way, direct communication with your title company would have kept your from losing the sale and losing the new home.
5. Your Lender Went Out of Business: This is a big one lately. With all of the sub-prime mortgage issues and many mortgage lenders going out of business many potential home buyers and those refinancing get to the closing table only to find out their lender went out of business and they no longer have funding. The last thing you want is to walk into your closing ready to get the keys to your new house or get a new mortgage with lower payments and walk out facing the possibility that you could lose your home. By working directly with your title company you can avoid this situation too. Since the title company is involved in the real estate business they will know about potential problems that a lender is facing and refuse to work with them. If you know this you can shop for a new lender before it is too late. Your title company may even be able to assist you in finding a qualified lender. If you know about it early you can save the deal but if you don't learn at closing it can be too late.

Buying a new home should be a great occasion and it usually is. Make sure it is a positive experience by being involved in the process and working directly with your title company. They can help you understand the ins and outs of the real estate transaction and avoid closing disasters.

Why Would I Shop for Title Insurance?

With everything that needs to be done when buying a new house or refinancing your mortgage why should consumers add to their stress by shopping for title insurance instead of letting the mortgage broker, attorney, or real estate agent do it for them? After all, they are the experts and it is one less thing that the consumer has to deal with. While it may seem that shopping for title insurance will make the process even more stressful the truth is that by taking a bit of time to find the best price for title insurance consumers can save hundreds or even thousands in closing costs. And in fact shopping for title insurance has been made fairly simple and painless as more title companies have increased their Internet presence. With a few simple searches online consumers can get multiple title insurance quotes from which they can find the title company that suits their needs.

How to Shop for Title Insurance?

In the past shopping for title insurance would have been a difficult and time consuming task. After all, most title companies only want to work with real estate professionals and you had to seek them out in the phone book and call them on the phone. Then, if they would actually work with a consumer they would have to take your information over the phone or meet you in person to get it. From there they could make an estimate. The consumer would have to keep track of the different estimates on their own and compare prices.

With the rise of the Internet and consumer friendly sites it is easy for consumers to do a few quick searches at Google or any other search engine, find a few title companies, and request a quote. Some title companies still do not have any easy way to get an immediate quote but there are others who give consumers an instant and free title insurance quote. Once you get a few quotes (at least 5 for a good comparison) you can review them and choose the best company. Best of all with computers it easy to keep track of all these quotes.

How to Tell Which Quote is the Best?

When consumers get their title insurance quotes they will probably see a variety of different prices. While many states regulate the cost of title insurance there is no regulation on the related fees and charges and that is where most companies differ. On top of that some companies will provide a quote for both Owners and Lenders title insurance while others will only include Lenders title insurance. To be sure the comparisons are valid every quote should use the same criteria.

To get real comparisons consumers need to get the Good Faith Estimate from their lender or at least provide the real price of the home and exactly how much the loan is worth. Once they have that information they can go to each title company and get a real quote. Make sure to ask the title company if their quote is guaranteed and includes both the Owners and Lenders policies as well as all related charges. The last thing anyone wants is to find out they need to pay more when they sit down to close. Once it is verified that every quote is using the exact same criteria and represents exactly what will be charged at closing they can be compared.

How to Compare Quotes?

Now that the quotes are in the consumer’s hands they can compare the quotes. Comparing on price is easy and if that is the only consideration then consumers can simply choose the company with the best price and use them. Other consumers may want to include other factors such as service, availability (do they allow the consumer to choose where and when they want to close?), or any number of factors. Weigh the factors and make a choice based on the most important factors. And remember it is the consumer’s choice. The real estate professionals the consumer is using can offer suggestions and referrals but in the end the consumer has the right to choose their title company. If a consumer is being pressured to use a referred title company they want to ask themselves why? In many cases it is because the real estate professional is being paid by the title company for that business. And guess who pays for that illegal kickback or referral fee?

Take Control and Save Money

While it may seem daunting at first consumers who take control of the process and choose their title insurance will end up saving considerable out of pocket expenses. And the reality is it is not that difficult. A few minutes online can produce multiple quotes that could translate in savings of hundreds and even thousands at the closing table. Take control of the transaction and save money.

Shop For Title Insurance

As more and more consumers are learning about the malfeasance of some title insurance companies there is an increasing demand for more information and the ability to shop for title insurance. Here at myClosingSPACE.com we believe the tide is beginning to turn and the new model of consumer friendly title insurance is going to take over. This is a good thing for consumers and it is our hope that more consumers will educate themselves and make the effort to shop for title insurance.

We have been advocating this position since our inception but it appears that others have started to jump on board as well. Organizations like ALTA and CLTA have recently released new tools that allow consumers to learn more about title insurance and inform them that they should shop for their title company. Consumers can save a lot of money at closing if they just take the time to shop for title insurance.

The new ALTA site provides good information that consumers will find useful in learning about title insurance and how they can save money. Armed with this information consumers can then use the Internet and other sources to shop for and make an educated decision on where to get their title insurance. The new CLTA tool, Title Wizard, allows California residents to get comparison quotes from multiple title companies and choose the best price. IMO Title Wizard should be used as a starting point and after getting those quotes consumers should still use all of the resources at their disposal to find the best title insurance provider.

The old title company business model is on the outs and is being overtaken by new title companies that work for the consumer. We need to keep the pressure on and continue to educate consumers so the entire industry changes and becomes the consumer focused product it should be.

ALTA Announces New Consumer Initiative

When I opened my email this morning I was pleasantly surprised by my ALTA newsletter. The first article was an announcement that ALTA is launching a new Title Insurance Consumer Initiative. The idea is to provide more information about title insurance to consumers. As is stated in the story the impetus behind this initiative is the recent GAO Report on Title Insurance, which found that consumers were being ignored and fleeced when it came to title insurance. I am happy to see ALTA making an effort to increase consumer knowledge and power in the title insurance marketplace.

As part of the the consumer initiative they are launching a new consumer facing website, http://www.homeclosing101.org. This site is dedicated to providing detailed information to consumers on all aspects of the title insurance and closing process. myClosingSPACE.com has been attempting to bring this information to consumers since their inception and we are happy to see ALTA jump on board. Hopefully we can work together to educate consumers and get them to take the time to shop for their title company when they are in the market.

I am glad to see ALTA make a stand for consumers and hopefully this will go a long way in changing the market by making it more consumer focused and friendly. The new site offers some good information and hopefully consumers will be able to find it and take control of the closing process. If ALTA is successful in bringing more information and assistance to consumers we may be able to change the title industry for the benefit of consumers and consumer friendly title companies.

Title Insurance Deregulation? Sounds Good to me.

So, I have spent some time at Forbes.com today (as you may be able to tell by these last two posts) and found some interesting articles. One recent story that caught my eye discusses the possibility that New Mexico may deregulate title insurance. There are many things I agree with in the article and a something that I tend to disagree with. If you have spent some time at this blog you will see that I am an advocate for making title insurance more friendly to consumers and IMO deregulation would be a step in the right direction.

Some may say that deregulation would hurt consumers but in the case of title insurance it would actually benefit them. Here is why. Currently many states, including New Mexico, have regulations on how much title insurance should cost. This seems like a great idea until you realize that it also means that title companies are not allowed to charge LESS than the state regulated charges. So if a title company has the ability to charge less than other companies they are not allowed to do it. They must charge the mandated rate. This is not good for consumers but it is good for title companies who helped make the law. It decreases competition and creates and oligopoly where a few title insurers control the market.

According to the Forbes article a group called Think New Mexico wants to change that deregulating the industry. That would mean a title company could charge whatever they feel is necessary and let the market decide. IMO this would benefit consumers greatly by allowing them to actually have a choice in who they use for title insurance. It would actually create real competition in the title industry.

One issue I have with the article is that they recommend having lenders purchase title insurance and while on paper it sounds good I think there are potential pitfalls to this. On one hand lenders are more familiar with the process and they have the buying power to negotiate lower prices. On the other hand there is a distinct possibility that they would simply tack on extra charges that are passes on to their customers. This would create a whole new problem that still results in the consumer paying too much. Instead, consumers should be allowed to decide who they buy title insurance from. Open the market up to consumers and they will choose the best title company for them, they would know exactly what the title insurance costs, and would avoid additional charges. It would require title companies to actually be more open and work with consumers. It has worked in the mortgage industry and many other industries. With the Internet the information is available and if the industry were opened up the most consumer friendly title insurance providers would take the lead.

I will be keeping an eye on the situation in New Mexico and hope that they do move forward with deregulation. By creating transparency and competition in the title industry New Mexico could force the title industry to work for the consumer and if successful could force other states to revisit their regulations on title insurance.

The Importance Of Title Insurance: 5tjt.com

5tjt.com has a good article about title insurance and it's importance in all real estate transactions. It is fairly short but covers some of the most important details and reasons for title insurance. It also explains what a title search is and how it is done. I am always on the lookout for quality articles that help explain title insurance to consumers and this article does a great job. Please take the time to read it to learn more about title insurance and how it can protect you.

Shopping for Title Insurance: Are You Getting All the Information You Need?

Shopping for title insurance can be a very difficult endeavor. While some companies provide a detailed quote that includes everything that you will need to pay at closing (including the owner's and lender's policies). Other companies leave some additional charges out and may only include the lender's policy on their quote. Many times this means when you actually sit down to close you end up paying more than what you were told. Of course, it is probably too late to change your title company and you will be forced to cough up the extra dough to complete the closing process.

That's why it is important to verify that every quote you get includes the lender's and owner's policy along with all of the related title charges. Not only can you avoid being hit up with extra charges at closing time but you will also be able to make a more informed decision when choosing a title company. If the company is unwilling to provide you with all of the charges and fees or says that they cannot guarantee their quote includes all related charges you should move on to another company willing to do so.

We had a call yesterday from a consumer who had received a quote from us but went with another title company their attorney recommended. The quote they gave was very close to ours so the consumer took his attorney's recommendation. Well, on the call yesterday this person was inquiring whether they could buy owner's title insurance after they had already closed. He found out that the company he went with only provided the lender's policy and he was unaware of this until he sat down to close. Now the lender is protected but the homeowner is not and he is not happy about it at all.

To avoid this situation it is paramount that you verify that you are getting all of the fees the title company is charging and that it includes the lender's and owner's policy. That way you can make an informed decision and get exactly what you expect when ypou sit down to close.

Title Insurance Quote Tool

myClosingSPACE.com has developed a new title insurance quote tool that can be placed on any site allowing users to get a free title insurance quote from myClosingSPACE.com. The new tool is easy to add to any site, only requiring one line of code.
I have added it to the My Closing Space blog so you can give it try. The tool is on the left side here. If you want to add it to your site please contact mpilatowski@myclosingspace.com.

Closing Costs and Documents

Understanding all of the paperwork and fees in the real estate closing process can be a daunitng task. Today's post offers a complete breakdown of the paperwork and fees in real estate closings. I am doing this because we want consumers to be fully informed about what to expect when they close on their home. I also want consumers to be aware if they are being overcharged or being charged "junk fees". Please review the checklist of paperwork and fees below to help steer you through the closing process maze.

Fees Imposed by the Lender

• Administrative Fee - Covers underwriting and document preparation. Some lenders bulk the two together as an "administrative fee".
• Appraisal Fee - A fee charged by a professional appraiser to determine if the home bing purchased is actually worth the price.
• Credit Report - Charges by the lender to determine a home buyer's credit worthiness. (Sometimes charged by the broker.)
• Flood Certification Fee - The lender will require a flood certificate to see if the house is in a flood zone.
• Funding/Wiring Fee - The price for wiring the loan money to whoever is conducting the closing.
• Hazard Insurance - Also known as homeowners insurance. Lenders will require that you have a hazard insurance policy in effect at settlement. This policy protects against physical damage to the house by fire, wind, vandalism, and other causes.
• Interest - Lenders require you pay the interest due on your mortgage from the closing date to through the first day of the following month.
• Loan Discount - Refers to the points you pay to buy down your interest rat
• Underwriting Fee - A fee charged by lenders to determine the risk of doing business with a potential home buyer.

Fees Imposed by the Broker

• Application Fee - Covers the initial cost of processing your loan application.
• Document Preparation Fee - The cost of preparing documents related to the mortgage and closing.
• Loan Origination Fee - % of your purchase price, an "up front" point as compensation to the broker.
• Mortgage Broker Fee - Typically between !% and 5% of the loan amount. This is the broker's commission.

Fees Imposed by the Title Agent & Settlement Attorneys

• Abstract or Title Search - The fee charged to send an investigator to the courthouse to research the history of the property being purchased.
• Attorney's Fee - If an attorney performs the closing, this fee will be charged.
• Courier Fee - Imposed when a courier service is required to transport documents.
• Notary Fee - Title Agents must get certain paperwork notarized. This fee covers the notary charges.
• Release of Lien (Satisfaction) - A fee charged for getting the county to change the records from a previous homeowner to the new purcvhaser.
• Title Administrative Fee - Sometimes the document preparation and courier fees are grouped together as a "Title Administrative Fee".
• Title Examination - The fee title agents charge to analyze the results of a title search.
• Title Insurance - The total cost of title insurance (fees determined by state).
• Title Insurance Binder - A fee that promises to provide title coverage once the sale is finalized.

Fees Imposed by the Government

• Recording Fees - This is what the county clerk charges to record your purchase of the property.
• Tax Stamps - A tax when a property changes hands. The fee is based on the purchase price.

Real Estate Closing Paperwork

• Good Faith Estimate - Estimate of charges you are likely to incur at your loan closing. This document must be given to the borrower within three days after submitting a mortgage loan application,
• HUD-1 or Settlement Statement - The Real Estate Settlement Procedures Act (RESPA) requires the lender to give you a copy of the HUD-1 prior to going to closing if you request it. This is the final statement of closing costs and will show you all of the fees you are expected to pay at your loan closing.
• Monthly Payment Letter - This document reveals the break down of your monthly payment into principal, interest, taxes, insurance, and any other monthly escrows.
• Mortgage - This document puts a lien on the house as security for the loan.
• Name Affidavit - This document is certifying that you are who you say you are.
• Note - Legal document that obligates the borrower to repay the mortgage at a specified interest rate for a specified period of time.
• Proration Agreement - These describe how you and the seller are dividing up the costs of the house for the month in which it is being bought.
• Title Document Preparation - The cost for preparing all of the paperwork.
• Truth in Lending Statement (TIL) (Regulation Z) - This paper will disclose the interest rate, annual percentage rate, amount financed, and the total cost of the loan over it's life. These are important numbers to check and double check before signing.
• Warranty Deed - This document should include the names of the buyer, the seller, and a description of the property. Often this deed also guarantees that the seller has the right to sell the property. With the signatures of the seller and buyer, this piece of paper transfers the title of the property.
  

5 Ways to Save on Closing Costs

1) Educate Yourself: Knowledge is power. If you go into a real estate transaction armed with the proper knowledge you will know what fees are legitimate and what fees are just tacked on to pad the pockets of the Title Company or closing agent. Some junk fees include document prep fee, processing fee, fax fee, etc. Research closing costs online and learn what the standard fees are and be on the look out for lenders or title agents trying to tack on extra fees. Being armed with the proper information can help you save a considerable amount of out of pocket expense.

2) Shop Around: The Internet has made it easy to comparison shop for just about everything and most people take advantage of it. Title Insurance and closing services are no different. You have the right to shop around to find the best price and service. Many people think that they have to use the title company recommended by their real estate agent or mortgage broker. Many agents and brokers imply that their clients have to use the company they recommend because they are being compensated for the referral. Get a Good Faith Estimate from the company your broker or agent refers and go out and get a few more from other title companies. Ask questions and try to get as much information as you can. Choose the title company that offers the best price AND with whom you are comfortable.

3) Avoid No Closing Cost Schemes: Mortgages offering no closing costs seem like a great way to save money on the surface. When you look a little deeper you may find that these programs will end up costing you much more in the long run. Most of these No Closing Cost loans simply tack on points to your interest rate. This means that you end up paying a larger monthly payment on your mortgage. Depending on how long you stay in the mortgage this higher rate can cost you thousands more than traditional up front closing costs. If you plan on holding the mortgage for more than a couple of years you will end up paying more in the end. One way that lenders can offer No Closing Cost loans is through a YSP (Yield Spread Premium), which is essentially a fee that brokers are paid for bringing in a mortgage at higher interest rate. Basically the broker gets a rebate from the lender for charging a higher interest rate on a loan. This is just one version of the No Closing Cost loan and there are many more that look great at first blush but tend to be much less attractive when looked at much more closely.

4) Negotiate Fees: Many fees associated with closing costs are regulated by the state. Items such as the title insurance premium are going to be the same no matter what because the state sets the rate. There are many associated fees that are not as closely regulated and you will see varying prices from each company. This is where you can negotiate. Some title companies will charge exactly what they are charged for municipal searches, recording fees, etc. This is where comparison shopping can help. Get a detailed breakdown of all of the fees charged and negotiate with the title company you choose to get the lowest fees you can for these services. If a company refuses to give you a detailed break down or refuses to negotiate with you drop them from your list and find a different company. There are plenty of title companies out there who are willing to work with you on your terms.

5) Negotiate With Seller: It may be a good idea to ask the seller to pay for part or all of the closing costs. Of course, this option depends on the motivation of the seller and the state of the housing market. If you are in a hot sellers market and the seller has a number of potential buyers they will probably not agree to help with closing costs. If you are in a buyers market or working with a seller who needs to get the home sold ASAP they are going to more willing to help with closing costs so they can get the deal done. You will need to work this out with the lender as well. Talk to your real estate agent and ask whether it is worth a shot. A good agent will negotiate this option for you. It never hurts to ask and with the market slowing down in many areas there are more sellers who want to get out of their mortgage and therefore more willing to do whatever it takes including paying all or part of the closing costs.

Is RESPA Obsolete?

U.S. HUD Representative Mark D. Shroder examines the efficacy of the disclosure strategy of the Real Estate Settlement Procedures Act (RESPA) in a recent article. The PDF of the Article is available here. One of the biggest problems with RESPA is not necessarily the regulations themselves but the limited enforcement and insignificant penalties for offenders. The article used a small number of FHA loans so it is not really fully representative but IMO it offers some good insight on some of the problems with RESPA enforcement.
My opinion after reading the article is that RESPA may not be obsolete but the way it is enforced is. The government needs to implement a stronger enforcement strategy that actually seeks out offenders and has the ability to levy heavy fines or even jail time for offenders. Right now the fines have not been raised since 1974 and are like pocket change to the big title insurers. RESPA needs teeth and with the recent release of the GAO Report on Title Insurance it is the perfect time to revisit the issue.

Good article on Closing Costs on the Personal Finance Advice Blog

The Personal Finance Advice blog offers a good breakdown of typical closing costs in real estate transactions. This is an excellent resource that can be used in conjunction with the links I provided in my previous post about closing processes and fees. The Internet is providing an excellent opportunity for consumers to learn about real estate transactions and take control of the process. I will continue to provide information and resources that I feel is useful in empowering consumers in all aspects of the real estate and mortgage process.

Closing Process and Fees

One of the biggest reasons for this blog is to help consumers understand the closing process so they know what to expect when they close and help them avoid being taken advantage of. Most consumers are fairly familiar with realtors and mortgage lenders but have little knowledge of the closing process. Part of the reason is they simply leave it up to the real estate professionals to take care of everything. This works well for traditional title and closing companies but not so well for consumers.

It's time for consumers to learn more about the closing process and begin to take control of their closing costs. myClosingSPACE is attempting to change the title industry by putting control in the hands of consumers. Not only are they offering consumer oriented pricing and service but they are attempting to educate consumers about the processes and fees associated with real estate transactions. One way they are doing this is with their myClosingUniversity.

This new section provides detailed information on the various processes and fees in a typical real estate transaction. There are two different sections, one for refinance and one section is for the purchase process. Each section has links to different pages that lay out the associated fees and what they cover for every aspect of the real estate transaction. This covers realtor, attorney, lender, title company, and what is needed when it is time to close.

Consumers, this is a good place to start your education on the closing process. There may be a need to get further clarification and you may have some more specific questions but you will get a decent top level understanding of the closing process there. If you are going to make a big investment like a house you should know everything that will go into it and closing is a big part of the real estate process. Start educating yourself at myClosingSPACE as well as the many other great resources online and you can be on your way to taking control of the real estate transaction.

Will Title Companies Embrace or Ignore the GAO Report

OK. I have discussed the GAO Report on Title Insurance here and there have been discussions on most of the prominent title industry blogs including Radical Title Talk. The GAO report outlines the problems with the way title insurance works and offers some insight into how it should be cleaned up. There are a few industry insiders spreading the word and trying to force a change but the question that still remains is whether the majority of title companies are willing to completely change their business models to comply with the recommendations in the report?

I believe that there are some title companies that will do so but I fear that there are still too many who will ignore the report and continue fleecing the consumer in their quest for the almighty dollar. For these companies change will on occur when consumers force it either through lawsuits or political action. It seems like every other month there is a new class action suit against a title company that is involved in illegal kickbacks or shady ABA's. These companies know the risks yet they continue to engage in these activities because they know that in most cases they will get away with it. The regulatory agencies policing them are not proactive and will usually only step in when enough consumers make complaints. If the government agencies are not willing or able to take control of this situation themselves it is up to the legitimate title companies and consumers to force them to.

It is important that the good title agents and title companies take the lead in getting the information out to consumers. Let them know they have a choice in title insurance and that they can take on an important role in changing the industry to benefit themselves. Talk to people you know who are not in the industry and point them to the report, educate them on how title insurance works, and help them understand that they can make a difference. Title insurance companies have flown under the radar for far too long and with the GAO report it is time to bring the industry into the public eye. Change can come from within and there are many who are doing just that but the bad actors will not change so it is up to the good title agents and consumers to step up force change.

Leading the Charge for Title Insurance Changes: Steve Poizner

Steve Poizner is the California Insurance Commissioner and has been one of the toughest critics of the title insurance industry. He has taken a very visible role in the fight to force title insurers to change and become more responsive to consumer needs. His latest salvo in the fight is his response to the recent GAO Report on Title Insurance.
Mr. Poizner agrees with their findings and he is using his power to push title insurers to respond in a way that will benefit consumers. Click here to see Mr. Poizner's response to the report.
I agree with Mr. Poizner and I hope to see leaders in other states take the same position and began forcing a change in the title industry. Consumers pay for title insurance and they should understand what they are paying for and have a real choice in the process.