Last Update: 4/17/18
In South Florida, most residential real estate closings involve a buyer obtaining a home loan to finance the purchase. When the homeowner obtains a mortgage he or she gives the bank a lien on the property until that loan is paid in full. This mortgage also gives the lender the right to have the homeowner perform certain tasks, some of these tasks are at the discretion of the bank and some are required by law. At times, for both seller and buyer, a bank’s involvement with a residential closing can make a closing seem like a big tangled knot of frustration.
Three Common Areas Where Issues Arise For Buyers When Bank Financing is Used to Purchase Florida Residential Real Estate
1. Mortgage Documents Must Be Followed, Reviewed and Signed
The lender will have lots of requirements and documents to be read and signed before the loan can be finalized and the loan proceeds provided for closing. All of these documents can be confusing, overwhelming and downright scary for buyers (especially first time home buyers). These include documents like:
The Promissory Note
This legal document sets forth the amount of the debt (or the amount the homeowner borrowers), the time period agreed upon to pay it off, the interest rate, late fees, grace periods, and the buyer’s promise to pay the loan in full in return for the bank’s performance of loaning the buyer the money needed to purchase the property. The promissory note also requires the borrower to pay the costs for obtaining the loan.
This is the document provided to the bank by the buyer which creates the lien on the property and is used as collateral for the repayment of the Promissory Note. This is also the document that the bank uses to foreclose on the condo or house if the homeowner defaults (i.e., failing to pay the promissory note) and it requires the borrower to perform certain tasks like, keeping the property insured, paying the real estate taxes, preventing any material alterations to the property without the lenders consent and requires the repayment of the entire balance of the Promissory Note in the event the property is sold, leased, or transferred without the bank’s prior written consent.
2. Choosing the Lender: Closing Cost Comparisons and Choosing The Service Providers
When buyers apply for a conventional home mortgage, the lender is required by the Federal Real Estate Settlement Procedures Act (RESPA) to provide a Loan Estimate form within 3 days of receiving the buyer’s loan application.
Buyers don’t have to use a specific lender, and the buyer can apply for a home loan with several different mortgage lenders. Getting these closing cost estimates really helps the buyer, but it can be overwhelming because of all of the numbers that have to be compared – also, some of the numbers are just estimates and some services can be shopped for by the buyer (i.e. the closing agent, the inspection company, and the survey company). Some buyers have no prior relationship with certain types of service providers, which can make the closing process more uncomfortable for a buyer.
3. Title Work
The lender will want to have the real estate title examined, since it is the real estate that is securing the promissory note. Therefore, the bank will ask for things like title searches and title insurance policies (with the bank named as an insured party). Getting the title history examined and the title insurance policies issued can take time — and if there are any problems that pop up, closing can be delayed. Both the title search and the title insurance policy premiums are part of the closing costs in any residential transaction.
Title History: the “Title Search”
Lenders will require that the borrower / buyer pay for a title company to run a “title search” of the local real estate records held in the county clerk office to confirm that the seller has a clear title to transfer. If the seller isn’t owner of a clear title to the property, the title search will reveal it and then the lender can block funding of the mortgage until the problem is cleared.
As an added protection, the lender will also ask that its borrower, the buyer, buy an insurance policy to protect against any issues that may appear in the title.
Title insurance policies are issued with the mortgage lender as an insured party, and if any title problems claims arise during the life of the loan (for example, easement claims, claims by heirs and/or mortgages that weren’t satisfied), then the bank can file a claim on this policy. The buyer almost always buys their own title insurance policy to cover the buyer’s own interest in the real estate.
Florida Real Estate Lawyers Can Add Value
An experienced Florida real estate lawyer can add value by sharing with the buyer how most mortgage lenders and third party service providers operate, resulting in a smooth and efficient closing process. More often than not, a real estate lawyer will discover an issue that he or she is obligated to disclose to the buyer, that a title company may not feel is important to share with the buyer (i.e. prior title issues that were “papered over”, open permits, etc). Additionally, the cost of having a real estate attorney assist in a Florida home closing, in most instances, does not cost the buyer any more money than if a title company closes the transaction.
A good piece of advice when you and your family are purchasing or selling your family home in one of the biggest transactions of your life is to talk with a Florida real estate lawyer. Getting someone to review all of the paperwork isn’t as costly as most of us think it is. And, it’s always a lot cheaper than paying to fix a problem after a closing occurs. Most real estate lawyers, like Larry Tolchinsky, offer a free initial consultation (over the phone or in person, whichever you prefer) to answer your questions.
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