Chapter 12: Closing a Sales Transaction Pt. 1

Wood-Destroying Pest (Termite) Inspection (2 of 2)

"The WDIR is issued for informational purposes and is required to reveal information concerning evidence of wood-destroying insects only. The PCO [pest control operator] must report all visible evidence of wood-destroying insects and any conditions conducive to subterranean termites. The WDIR is not a warranty as to the absence of wood-destroying insects; it is a report of the visible presence or absence of wood-destroying insects at the time of the inspection." (Bold added for emphasis)

Easements and Encroachments

An easement is a right to use another person's real property for a particular purpose. An easement is considered an encumbrance since it encumbers (burdens) a real property owner's title. The buyer's agent can help discover if easements on the property exist by asking the seller or by looking at other sources, such as a title abstract. An encroachment is a physical object intruding onto neighboring property such as a fence or structure. Encroachments are often due to a mistake regarding the boundary, which is why having a survey done is so important.

Cancellation of Seller's Liens

Any of the seller's liens that were paid at closing will be canceled. This process may take 30-60 days post-closing. Lenders are required to send a Release of Lien (sometimes called a Certificate of Satisfaction) to the seller within 30 days after the repayment of debt.

Providing Information to the Attorney and Lender

During the pre-closing process, the following information must be provided to the closing attorney as soon as possible: Copy of the sales contract with all addenda and/or amendments Contact information for all parties and Social Security numbers Contact information for buyer's lender Seller's lender information for loan payoff Copy of any survey Copies of any required inspection reports Property insurance binder

Certificate of Title

A certificate of title (also known as an opinion of title) is a document prepared by an attorney stating the attorney's opinion of the status of the title to a piece of property as of the date it is issued. For example, it may be issued after the attorney reviews the abstract of title. There's no guarantee associated with this type of title evidence, so the homeowner or lender does not have any recourse if title defects are discovered. The buyer, lender, and title insurance company will require the closing attorney to clear any title defects found. Once the title is cleared to their satisfaction, the attorney can proceed with the closing paperwork.

Disbursement of Funds

After recording of the deeds and other documents, the settlement agent disburses the funds. Funds should not be disbursed prior to verification that the closing funds used to fund disbursement are deposited in the settlement agent's trust or escrow account (or one or more forms prescribed in Chapter 45A of the General Statutes). According to the North Carolina Goods Funds Settlement Act: "A settlement agent may disburse funds from the settlement agent's trust or escrow account (to either the applicable register of deeds or directly to a private company authorized to electronically record documents with the office of the register of deeds) as necessary to record any deeds, deeds of trust, and any other documents required to be filed in connection with the closing, including excise tax (revenue stamps) and recording fees. However, the settlement agent may not disburse any other funds from its trust or escrow account until the deeds, deeds of trust, and other required loan documents have been recorded in the office of the register of deeds." The Act also specifies that the settlement agent may disburse settlement proceeds from its trust or escrow account if the deposit is in one or more forms listed in the Act.

Procedures After the Settlement Meeting

After the settlement meeting, the settlement agent or attorney has several responsibilities: Updating the title and submitting a final title opinion Recording the deed Disbursing of funds Mailing of final documents Let's go over these.

Power of Attorney

Although uncommon, if a buyer is unable to appear in person to execute the loan documents, he may designate a person to execute the legal documents in his place. This is called a power of attorney (POA). A POA must be approved by the lender in advance and the lender may limit the person who can be the POA to only immediate family members, such as a spouse or parent/child. A POA may never be a party to the transaction, such as the real estate agent or mortgage loan officer.

Unit Summary (cont.)

A property that has no access to municipal sewage treatment must have some sort of septic system for handling wastewater. The system should be inspected by a professional to determine if it is working properly and if the septic tank needs to be pumped. If the property is new construction, a soil suitability test must be performed to determine if the soil is appropriate for the drainage field. A permit is required for the system. Other inspections may be necessary or desired. These include inspections for lead-based paint, radon, asbestos, mold, well water, underground storage tanks, and formaldehyde. Any repairs the buyer wants the seller to make will be in a written request to repair that lists all of the items. The buyer and seller can negotiate how they want to remedy the repairs. The buyer and buyer's agent should physically inspect the property to discover any issues that may need to be remedied, and then perform a follow-up inspection to ensure the work was completed to the buyer's satisfaction. Other potential issues with the property that the buyer may encounter include tenants occupying the property, easements and encroachments, building permits, mechanics liens, zoning ordinances, restrictive covenants, and a homeowners association. Liens and encumbrances against a property may hinder the seller from delivering a marketable title. A title search (title examination) of public records is performed by a licensed attorney or paralegal assistant to determine ownership and the quality of the title prior to conveyance. The title search starts with the chain of title and results in the creation of an abstract of title, which is a complete historical summary of title to a piece of property. In most real estate transactions, the seller must clear the title of liens (defects) at closing by paying off the debts. Although title insurance does not generally cure defects, it does provide the best protection against unknown future claims. Many documents and forms are typically required as part of the closing process, such as the deed, appraisal, evidence of title, survey, mortgage documentation, homeowner's insurance, property inspection reports, certificates of occupancy, IRS Form 1099-S, and the settlement statement. Final tasks prior to closing are the final walk-through of the property by the buyer and agent, transfer of earnest money, review of the Closing Disclosure, and notice of guaranteed funds to close given to the buyer.

Title Examination and Clearing Title Defects (2 of 2)

A title search, also known as a title examination, of the public records is necessary to determine ownership and the quality of the title prior to conveyance. Under North Carolina law, no one other than a licensed attorney or paralegal assistant under an attorney's close supervision may perform a title examination. The title examination search involves both a direct index (also called grantor index), which lists all documents alphabetically by grantor's last name, and a reverse index (also called grantee index), which lists all documents by grantee's last name, to look for any discrepancies. The title search starts with the chain of title and results in the creation of an abstract of title, which is a complete historical summary of title to a piece of property.

Appraisal

Also during the due diligence period, the lender will hire a licensed real property appraiser, at the buyer's expense, to perform an appraisal before approving a loan on the property. The purpose of the appraisal is to determine if the estimated value of the property is consistent with the purchase price. The lender is required to provide the buyer with a copy of the appraisal.

Other Inspections (2 of 4)

Asbestos Asbestos is a fibrous material derived from a naturally occurring group of minerals. In the past, asbestos was commonly used in many building materials because of its insulating, heat-, and fire-resistant properties. Types of construction materials that may contain asbestos are cement and plastic, ceiling tiles, and insulation for pipes and ductwork. These products were often used prior to 1970. Mold Mold is a fungus that can grow anywhere and on any organic material and to grow, mold requires moisture, oxygen, and a food source. In North Carolina, mold is not listed as one of the hazardous substances on the Residential Property and Owners' Association Disclosure Statement. Thus, mold is not considered a material fact in North Carolina unless there is a large amount of mold in unusual areas. Remember, it's important for agents to avoid providing advice when disclosing mold or suspected mold.

Home Inspection by Qualified Professionals (1 of 2)

Buyers should contact a home inspector immediately after the purchase agreement is accepted and signed. Many buyers, especially first-time homebuyers, ask their real estate agent to recommend a home inspector. Common practice is for real estate agents to provide a list of three inspectors with whom they have worked in the past and to let their buyers select the inspector. The reason for providing a list of inspectors is to reduce liability. If a buyer's agent recommends only one home inspector and things go wrong with the inspection (e.g., the inspector misses a critical defect and the buyer has to pay significant repair costs later on), the buyer's agent may be held liable to the buyer for damages. Even though the buyer hires the home inspector of his choice, this person should be a qualified licensed professional. The North Carolina Home Inspector Licensure Board oversees the education and licensing requirements of licensed home inspectors in the state. According to NC General Statutes Chapter 143, Article 9F, a licensed home inspector must give to each person for whom the inspector performs a home inspection for compensation a written report of the home inspection. The report must be provided by the date set in a written agreement, or if no date was specified in a written agreement, the inspector must give the person the report within three business days after the inspection was performed.

Importance of the Inspection Report

Buying a home is one of the most important decisions a person will ever make, and a potential buyer uses the inspection report to help make this decision. Based on the report, the buyer may decide to: Buy the property as is. Ask the seller to make repairs. Negotiate a price reduction based on the repairs. Walk away from the sale and cancel the contract. A typical inspection report is very detailed and can range from 30 to over 50 pages in length. For the buyer and the buyer's agent, the most important component of the report is often the summary, which identifies the major repair items and all safety hazards. A well-written summary, preferably located at the beginning of the inspection report, is invaluable to the buyer making a buying decision and to the buyer's agent writing a request to repair.

Review of Closing Disclosure

Each party receives a Closing Disclosure (settlement statement) that complies with the Truth-in-Lending Act (TILA), which is the federal law that requires disclosure of the terms of credit by a creditor to a prospective debtor. Under TILA, the creditor is responsible for providing a copy of the Closing Disclosure to the borrower three business days in advance of the closing. The settlement agent has the responsibility to provide the Closing Disclosure to the seller in advance of closing. The brokers should review the settlement statement with the seller and buyer to make sure all closing costs, transaction amounts, and other information are correct.

Report of Sale of Real Property by Nonresidents

Every individual, fiduciary, partnership, corporation or unit of government buying real property located in North Carolina from a nonresident individual, partnership, estate or trust must complete Form NC-1099NRS (Report of Sale of Real Property by Nonresidents). This form includes the seller's name, address, and social security or federal identification number; the location of the property; the date of closing; and the gross sales price of the real property and its associated tangible personal property. The buyer is required to file Form NC-1099NRS within 15 days of the closing date of the sale. The buyer's attorney typically files this form.

Evidence of Title and Deed

Evidence of title is generally in the form of title insurance that protects the policyholder against loss or damages from defects in the title. Title insurance policies are required by the lender and are optional for the buyer. Evidence of title could also be found in a title report, which is a document stating the current title status of the property. A deed is an instrument that conveys a grantor's interest, if any, in real property. At closing, the seller (the grantor) provides a new signed deed to the buyer (the grantee). To be properly executed, the grantor must deliver the deed with the intention of transferring title. Once the grantee accepts the deed, he or she holds title to the land.

Other Documentation (2 of 2)

FIRPTA Forms. The Foreign Investment in Real Property Tax Act of 1980 imposes income tax on foreign persons selling or otherwise disposing of their interest in real property. To ensure payment of this tax, the Internal Revenue Service requires buyers to withhold a specific percentage of the sales price, with some exceptions. Home Warranties. A home warranty covers the repair or replacement of specified components of the home, for example, heating and air conditioning, plumbing and electrical systems, and appliances such as stoves, refrigerators, dishwashers, washers and dryers, microwave ovens, and garbage disposals. Coverage extends for the specified period of time, often one year. Builders generally provide buyers with home warranties on newly constructed homes, the terms of which may be mandated by state law. Sellers may choose to offer home warranties to buyers as an incentive to purchase. If the seller already has a home warranty in place, the remaining period generally transfers to the new owner at closing. If the seller does not offer a home warranty, buyers may choose to purchase one themselves. Local custom, however, often dictates which party pays for a home warranty.

Flood Insurance (2 of 2)

Flood insurance must be purchased from the NFIP or from an insurer participating in the Write Your Own (WYO) Program. The WYO Program allows participating property and casualty insurance companies to write and service the Standard Flood Insurance Policy in their own names. In order to buy national flood insurance, the property must be in a community that is voluntarily participating in the NFIP. Flood insurance is designed to reduce the cost of national emergencies. When communities enforce and participate in the National Flood Insurance Program, the cost of natural disasters due to flooding is minimized. Flood insurance considers the lowest point at which a flood is likely to occur and dwellings located below that elevation point are considered to be in a flood zone. An elevation certificate is usually required by the lender if the property is located in a high-risk area.

IRS Reporting Requirement

For sales or exchanges of certain real estate, the settlement officer must report the seller's proceeds to the Internal Revenue Service using IRS Form 1099-S. Generally, this is a requirement only for title transfers involving the sale of principal residences with gross sales prices above $500,000 for sellers who are married couples, or above $250,000 for sellers who are single taxpayers. Many settlement officers choose to submit this report for every transaction.

Final Settlement Statement Review

Generally speaking, the settlement officer and the lender will collaborate to gather the data and calculations necessary to prepare the Closing Disclosure. Either the settlement officer or the lender may prepare the final Closing Disclosure, but it is the lender who is ultimately responsible for ensuring that the Closing Disclosure is available for the borrower's inspection at least three business days prior to loan consummation. The lender must also obtain proof that the borrower received the Closing Disclosure. A broker must review the statement for accuracy and completeness and notify all parties to the closing of any errors. A Closing Disclosure must be prepared for both the buyer and for the seller, although it is permissible for the buyer's Closing Disclosure to show only his information and the seller's to show only his. When the purchase does not involve any financing, the Closing Disclosure is not required but is often used for the sake of convenience. Any escrow deposits required by a lender to cover future property taxes or homeowner's insurance are required to appear on the Closing Disclosure.

Flood Insurance (1 of 2)

Homeowner's hazard insurance does not cover damage caused by the peril of flood. Although flood insurance isn't required in North Carolina, lenders for federal loans will require a flood insurance policy for the life of the loan if the property is located in a high-risk area. These policies can be quite expensive, depending on the location, age, and value of the property. Buyers or the agents should perform due diligence to determine if the property is located in a federally designated Special Flood Hazard Area (SFHA). They should check the FEMA Flood Map Service Center (MSC), the official public resource for flood hazard information in support of the National Flood Insurance Program (NFIP). To perform a search on the property, visit the MSC website, which provides flood maps by simply entering an address.

Homeowners Associations

Homeowners associations (HOAs) or property owner associations are generally formed as nonprofit corporations for the purpose of managing homes in a residential subdivision or planned community. Property owners in these developments must sign the homeowners association agreement and pay the required fees. Homeowners association documents include: Restrictions Bylaws Articles of Incorporation Reserve Fund Report Management company contract or name A buyer should obtain and read a copy of any restrictive covenants prior to physical inspection. A review of covenants and homeowners association documents is particularly important if the buyer is planning to add improvements, enlarge existing structures, or use the property for business purposes. Brokers should defer buyers to contact their attorney regarding legal questions about restrictive covenants and homeowners association documents.

Transfer of Earnest Money

If the broker is holding the buyer's earnest money deposit in the broker's trust or escrow account, the broker may transfer the earnest money to the settlement agent/closing attorney no more than 10 days prior to the anticipated settlement date. Disbursement of the earnest money prior to settlement for any other purpose requires written consent of the parties. Sometimes, the parties will agree to have the earnest funds retained in escrow and applied as a credit toward the brokerage fee on the settlement statement.

Property Insurance (4 of 4)

If the buyer does not comply with the lender's insurance requirements, the lender has the right to place insurance on the property to cover its interest in the event of a loss. This force-placed insurance by the lender covers only the lender's loan value in case of a covered loss to the structure. It does not provide for any contents or personal property coverage for the buyer. It also will not provide any liability protection in case of a lawsuit against the buyer.

Resolution of Repair Issues

If the buyer wants to ask the seller to make repairs, the buyer's agent will be responsible for writing a request to repair (also called a Due Diligence Repair Request) that lists all of the items the buyer wants to be repaired. Let's take a look at the language in the Offer to Purchase and Contract that addresses repair issues: "(d) Repair/Improvement Negotiations/Agreement: Buyer acknowledges and understands that unless the parties agree otherwise, THE PROPERTY IS BEING SOLD IN ITS CURRENT CONDITION. Buyer and Seller acknowledge and understand that they may, but are not required to, engage in negotiations for repairs/improvements to the Property. Buyer is advised to make any repair/improvement requests in sufficient time to allow repair/improvement negotiations to be concluded prior to the expiration of the Due Diligence Period. Any agreement that the parties may reach with respect to repairs/improvements shall be considered an obligation of the parties and is an addition to this Contract and as such, must be in writing and signed by the parties..." If the inspection reveals any repairs issues, the buyer and seller can negotiate how they want to remedy them. Agreements should be in place before the due diligence period expires, but the repairs may be completed during the diligence period or afterwards.

Home Inspection by Qualified Professionals (2 of 2)

If the inspector recommends further evaluation by a licensed professional (e.g., plumber, electrician, roofer, structural engineer, etc.), the buyers must arrange for these investigations to also be conducted during the due diligence period. If the buyers fail to schedule the inspection or request any repairs within the due diligence period, they waive their rights to the inspection and may be obligated to buy the property in its current condition.

Recent Construction

If the property is a recent construction or one that has recent additions, the buyer or buyer's representative should ensure that all proper building permits were issued or if any violations exist. Building permits, issued after the approval of the builder's initial plans, are official documents obtained from the building department that acknowledge that the proposed work meets the department's standards and grant permission for the construction to take place. Building permits also prompt government authorities to monitor projects and follow up with appropriate inspections. In addition to building permits, it's imperative to check for any mechanics liens against the property for work that was done. Mechanics liens are liens claimed by someone who has supplied labor and/or material for improvements, maintenance, or repairs on real estate and who has not been paid. The property serves as security for payment if property owners do not pay contractors, subcontractors, laborers, or materialmen (suppliers) for improvements to their property. If a property owner does not pay the bills, the holder of this lien can force the sale of the property and collect the debt from the proceeds. These are involuntary (statutory), specific liens. Because these are statutory liens, a mechanic's lien must be prepared exactly as required in the statute or it will be unenforceable.

Tenants

If the property is being leased, there are likely one or more tenants occupying the property. If this is the case, the buyer should obtain these documents: Current leases Rent schedules Lists of current expenditures Letter to be sent to current tenants to inform them of the upcoming change in ownership For real property, leases under three years are not required to be in writing. Under this circumstance, the oral lease is valid for the remainder of the agreement.

Title Examination and Clearing Title Defects (1 of 2)

In addition to mechanics liens, discussed earlier, other liens placed on the seller's property can present issues to the buyer if not remedied. North Carolina statute §105-355 provides for liens on both real property and personal property. Essentially, unpaid real or personal property taxes within a taxing jurisdiction can become liens against any and all property owned by a taxpayer within that same jurisdiction. The seller is generally expected to deliver marketable title when conveying real property, meaning the title is free and clear from undisclosed encumbrances or other defects that would expose a purchaser to litigation or impede a purchaser's ability to enjoy the property or to later sell the property easily.

Selecting the Settlement Agent

In most residential real estate transactions, the buyer chooses the settlement agent—often an attorney. This "closing" attorney may represent the buyer and the lender and should be selected soon after the Offer to Purchase and Contract (Standard Form 2-T) is signed. The buyer's broker may recommend a closing attorney as long as no referral fee is paid and no undisclosed relationship exists. However, some lenders require one from their list of "approved" attorneys. The seller may choose an attorney as well, but this is not typical in residential transactions.

Property Survey

In some transactions, either the buyer or the buyer's lender will require a survey to ensure the property description and total land area are accurate. A survey is the process of locating and measuring the boundaries of a property and identifying the improvements, encroachments, easements, and setbacks that are associated with that land. The survey will also reveal if any part of the property is in a designated flood hazard area. If the mortgage lender requires a survey, the buyer usually bears the cost of it since he has more interest in identifying potential issues before the closing, although this is certainly open to negotiation.

Pre-Closing Procedures

Introduction In this unit, we will examine all of the tasks involved in the pre-closing process—from the selection of a settlement agent to notifying the buyer of the amount of funds to close. This process entails the buyer's due diligence to secure a loan, coordinate the investigations and inspections of the property, and acquire all required documents for the closing. The settlement agent's responsibilities in the pre-closing process are also covered in detail. After completing this unit, you will be able to: Identify the necessary due diligence to be conducted during the due diligence period. Recall the process of title examination, clearing of title defects, and obtaining title insurance. List and describe documents in the closing package. Identify the final duties in preparation for the closing.

Restrictive Covenants (2 of 2)

Restrictive covenants may be terminated in a number of ways, including: Setting a termination date Releasing the owner from the covenant Abandoning the property Changing the circumstances of the property and/or the owner

Property Insurance (2 of 4)

Keep in mind that various scenarios could occur regarding the occupancy of a property prior to and after closing. For example, what if the seller or a tenant is still living in the property? What if the closing is delayed and the buyer must move in? No matter what the circumstance, the property must have proper insurance coverage. Not only must the buyer secure property insurance prior to closing, but the seller must have coverage up to that point and possibly beyond if the seller or tenant is occupying the property.

Chain of Title (3 of 4)

Liens against a property don't prevent its transfer, but the liens still exist. The buyer takes the property subject to the liens. This means that the buyer takes the property along with the liens, but without being personally liable. The buyer must keep paying the liens to retain the property, but only loses equity in the event of default. The creditor can't go after the new owner personally for these debts because the new owner did not assume the debts. In most real estate transactions, however, the seller must clear the title of liens (defects) at closing by paying off the debts. It is important for the lender to review the preliminary title report for undisclosed liens and encumbrances or property flipping when the report is received. This involves reviewing the report for accuracy of all details, including the seller's and borrower's names, the address of the property, sale price, and loan amount.

Loan Closing Package

One of the most important documents necessary to prepare for a real estate closing is the purchase agreement between the seller and the buyer. The terms of the purchase agreement dictate the requirements of the closing, including the necessary documents. For example, if the transaction involves the transfer of personal property from the seller to the buyer, a bill of sale may be required. While not every document is applicable for every closing, several documents or forms are typically presented and reviewed as part of the closing process: Deed Appraisal Evidence of title Survey Mortgage documentation Homeowner's insurance Property inspection reports Certificates of occupancy IRS Form 1099-S Settlement statement

Property Investigation and Inspections

Most notably, due diligence involves investigations and inspections of the property being purchased, preferably before closing. According to the Offer to Purchase and Contract (Standard Form 2-T): "Property Investigation: Buyer or Buyer's agents or representatives, at Buyer's expense, shall be entitled to conduct all desired tests, surveys, appraisals, investigations, examinations and inspections of the Property as Buyer deems appropriate, including but NOT limited to the following: (i) Inspections: Inspections to determine the condition of any improvements on the Property, the presence of unusual drainage conditions or evidence of excessive moisture adversely affecting any improvements on the Property, the presence of asbestos or existing environmental contamination, evidence of wood-destroying insects or damage therefrom, and the presence and level of radon gas on the Property." Buyers should be advised to perform their own inspections instead of relying only on the information in the Residential Property and Owners' Association Disclosure Statement.

Closing Procedures

Now that the pre-closing procedures have been completed, the closing process may begin. In this unit, we will identify the two types of closings, describe the closing procedures, identify who is involved and their roles in the closing, as well as describing the activities that occur after the settlement meeting. After completing this unit, you will be able to: Recognize closing methods and closing procedures. Identify the participants and their roles in the closing. Recall the procedures that occur after the settlement meeting.

Zoning Ordinances (2 of 2)

Of course, there are exceptions such as nonconforming uses, area and use variances, and conditional uses. A nonconforming use occurs when land use does not conform to current zoning laws, but is legally allowed because the land use was established before the new zoning laws were enacted. You may hear this referred to as being "grandfathered in." The main concern is that the property is appropriate for the buyer's planned use for it and no zoning violations exist. In addition, the buyer should be aware of the zoning of any surrounding properties. For example, a large vacant lot close to the property may be zoned for commercial use, which in turn could allow for a mall, grocery store, etc. to be built, thereby increasing traffic in the area.

Collection of Funds Due from Buyer

Once all of the closing documents are signed and the closing statement is reviewed, the buyer will provide the funds necessary to close. When buyers obtain financing to purchase the property, the lender will fund the loan by wire, transferring the loan funds to the settlement agent (often an attorney) to hold in trust until the day the deed is recorded, transferring title to the buyer. Keep in mind that no funds are disbursed to any parties at the settlement meeting.

Other Documentation (1 of 2)

Other documentation you may see at closing: Survey. In some transactions, either the buyer or the buyer's lender will require a survey to ensure the property description is accurate. A survey is the process of determining the physical size and boundaries of a property. If the mortgage lender requires a survey, the seller usually bears the cost of it, although this is certainly open to negotiation. Insurance Policies. Lenders require evidence of homeowner's insurance policies that are sufficient to replace the home or reimburse the mortgage amount in the event of a fire or other disaster. Depending on the location of the property, flood insurance may also be required. Inspections. Lenders sometimes require a pest inspection, and buyers may also require a home inspection. Other inspections that could be required by a buyer or lender include structural integrity, septic systems/soil/waterflow (referred to as percolation or perc tests), and radon gas, among others. Some municipalities may require a certificate of occupancy as evidence that the property is inhabitable in addition to property inspections. IRS Form 1099-S. For sales or exchanges of certain real estate, the settlement officer must report the seller's proceeds to the Internal Revenue Service using IRS Form 1099-S. Generally, this is a requirement only for title transfers involving the sale of principal residences with gross sales prices above $500,000 for sellers who are married couples, or above $250,000 for sellers who are single taxpayers. Many settlement officers choose to submit this report for every transaction.

Other Inspections (1 of 4)

Other inspections may be necessary or desired. We discussed environmental issues in an earlier chapter, but let's briefly touch upon them again since the buyer may want to have some tests performed to detect these issues during the due diligence period. Lead-Based Paint The North Carolina Association of REALTORS® has its own disclosure form that meets the federal disclosure requirements, the Lead-Based Paint or Lead-Based Paint Hazard Addendum. If you recall, the addendum must be given to a prospective buyer before she makes an offer. Radon Radon is a naturally occurring radioactive gas that emanates from rocks, soil, and water caused by the decay of uranium. Radon testing is commonly done as a condition of purchase. If the presence of radon is over EPA's recommended maximum level of 4.0 pCi/L (picocuries per liter of air), it is considered a material fact in North Carolina and must be disclosed.

Other Pre-Closing Matters

Other pre-closing matters involving the closing attorney are the identification of liens and the clearing of title defects. This is a necessity even though the seller, in the listing agreement, represents to his knowledge that there are no liens (e.g., income tax, real property tax, owners' associations, mechanics, laborers, or materialmen liens), judgments, or Uniform Commercial Code (UCC) fixture filings affecting the property. Let's examine some of these liens next.

Buyer's Loan (2 of 3)

Pre-qualification is the process of a lender or a mortgage broker pre-determining how much a potential homebuyer might be eligible to borrow, but it does not guarantee approval. Pre-approval, on the other hand, is the process by which a lender determines if a potential borrower can obtain financing through the lender, and for what amount of money. Typically, this results in the lender providing the homebuyer with a pre-approval letter, which is proof that the lender is ready, willing, and able to issue a loan. Having pre-approval is a powerful negotiation tool in getting an offer accepted by a seller and is often a requirement of contract acceptance.

Buyer's Due Diligence Process (1 of 2)

Prior to settlement, the buyer's due diligence in the acquisition of all required documents for closing is a must. During the due diligence period, the buyer is responsible for investigating the property and the transaction contemplated by the contract. The purchase contract will state the due diligence period, which begins on the effective date through 5:00 p.m. on the date indicated in the contract. Let's break this down by taking a look at key parts of the Offer to Purchase and Contract (Standard Form 2-T), starting with the definition of effective date: (g) "Effective Date": The date that: (1) the last one of Buyer and Seller has signed or initialed this offer or the final counteroffer, if any, and (2) such signing or initialing is communicated to the party making the offer or counteroffer, as the case may be.

Disbursement of Brokerage Commission

Prior to the closing, the listing broker submits a commission statement to the settlement officer. As mentioned previously, the Goods Funds Settlement Act clearly specifies that any earned commission is paid to the broker after the recordation of the deed and deed of trust. The broker is then responsible for distributing the commission to their licensees. In some areas, the listing broker pays any cooperating brokerages as per their agreement. In other areas, the settlement officer will cut a check to each participating brokerage.

Septic and Sewer System (1 of 2)

Properties that do not have access to municipal sewage treatment systems must have some sort of septic system for handling wastewater. Since septic systems require quite a bit of land, they are generally not suitable for dense suburban lots or urban lots. A typical household sewage treatment system consists of the following: House Sewer. The pipeline connecting the house and drain and the septic tank. Septic Tank. Untreated household wastes (sewage) flows into a buried septic tank where heavy solids settle to the bottom and lighter solids, fats, and greases partially decompose and rise to the surface and form a layer of scum. The solids that have settled to the bottom are attacked by bacteria and form sludge. Septic tanks do not remove bacteria and, therefore, what is discharged cannot be considered safe. Distribution Box. Distributes the flow from the septic tank evenly to a drainage field (leach bed) such as an absorption field or seepage pit. Drainage Field. An absorption field is a system of narrow trenches partially filled with a bed of washed gravel or crushed stone into which perforated or open joint pipe is placed. The discharge from the septic tank is distributed through these pipes into the trenches and surrounding soil. A seepage pit is a covered pit through which the discharge from the septic tank infiltrates into the surrounding soil.

Property Insurance (1 of 4)

Property insurance is coverage that indemnifies a person with an interest in the property for a loss caused to the property by a covered peril. Standard homeowner's insurance policies require the insured to carry an amount sufficient to cover the cost to replace the structure as the minimum amount of insurance on the property. Homeowner's insurance will most likely have a deductible amount that the borrower must first pay in the event of any loss. The lender has guidelines for the maximum deductible amount also. Before the due diligence period expires, the borrower should explore the insurability and cost for the property insurance. He is free to select a home insurance company of his choice, but the company must meet the lender requirements. It is a good idea to provide the new homeowner, especially a first-time buyer, with the lender requirements for property insurance early in the loan process so there will be no confusion at closing. New homeowners may also receive a discount for insuring their automobiles and other articles with the hazard insurance provider.

Property Insurance (3 of 4)

Providing funds to a borrower to purchase a home carries with it a great deal of financial risk for the lender, who is said to have an insurable interest in the property. Lenders, therefore, generally require a mortgage clause to be added to the buyer's property policy to cover the lender's interest in the preservation and reconstruction of the property after a loss. To protect that collateral, lenders normally require homeowner's hazard insurance. This is a policy that covers loss or damage to the home or property in the event of a fire or other disaster such as a tornado, snow, and hail. Lenders generally: Require the policy to be sufficient to replace the home or reimburse the mortgage amount with the lender being named on the actual policy. Have the right to place insurance on the property to cover its interest (the loan value) in the event of a loss if the customer does not comply with the lender's insurance requirements. Require buyers to pay the first year's insurance premium in full prior to closing. Incorporate the annual insurance cost (along with current property taxes) into an escrow account.

Restrictive Covenants (1 of 2)

Restrictive covenants, also known as deed restrictions, are limitations placed in a deed by a private grantor that restrict the way the land may be used, improved, or maintained. Restrictive covenants: Can affect specific deeds or an entire neighborhood. Run with the land only if they touch and concern the land. Must relate to the use, maintenance, or improvement of the real property. Must be recorded to be enforceable against third parties. Are unenforceable if they violate law. Once a covenant is in the chain of title in the public records, future buyers take title subject to the restriction, even if it is not stated in the deed. A covenant may impede the buyer's planned use of the property, so it's important to learn of any early on.

Other Concerns

Roads and Streets Buyers should be aware if the road or street for the property is public or private. Public roadways are maintained by municipalities and funded with tax dollars, whereas private roadways must be maintained through means determined by private owners or homeowners associations, which is paid by property owners directly or through the HOA. Schools Buyers should also investigate the school assignments for the property location to determine whether the school's system and financial state are good.

Septic and Sewer System (2 of 2)

Septic systems should be inspected regularly by a professional to determine if they are working properly and if the septic tank needs to be pumped. The buyer of a property that contains a septic system will want to check when the system was last inspected, and if it was not done within the past year or so, insist that it be inspected before purchasing the property. If the property is new construction in an area that has no connectivity to a municipal sewage system, the buyer will need to have a soil suitability testperformed to determine if the soil is appropriate for the drainage field. The system must be adequate for the size of the property, and one determining factor is the number of bedrooms in the house. A permit is required for the system, so this is another inspection that should take place during the due diligence period.

Mortgage Documentation

Since buyers generally do not have ready cash on hand to purchase property, most real estate transactions require some sort of financing, which involves multiple documents: The financing instrument, typically a promissory note, is a written promise to repay the money owed. The lender brings the note to closing, and the borrower signs it. The security instrument, usually a deed of trust or mortgage, provides security for the debt by creating a voluntary lien against the property. The buyer is required to sign this and give it to the lender as security for repayment of the note. If the seller still has a mortgage on the property, the buyer's lender typically brings a check in the payoff amount made out to the seller's mortgagee or to the title company or closing agent, who in turn writes checks to all of the parties to the transaction as appropriate. Once the seller's lender is paid, the lender issues a mortgage release document, referred to as a satisfaction of mortgage or discharge of mortgage, which should be recorded as evidence that the lien has been released.

Buyer's Loan (3 of 3)

So why is the buyer's pre-approval of financing so important before he signs the Offer to Purchase and Contract? If the buyer isunable to get financing (or other funds) to purchase the property and the due diligence period expires, he would be in breach of contract. This means the buyer would have to surrender his earnest money to the seller as liquidated damages. According to the contract: "In the event of material breach of this Contract by Buyer, Seller shall be entitled to any Earnest Money Deposit. The payment of any Earnest Money Deposit and any Due Diligence Fee to Seller (without regard to their respective amounts, including zero) together shall serve as liquidated damages ("Liquidated Damages") and as Seller's sole and exclusive remedy for such breach..." Of course, the buyer and seller could negotiate an extension to the contract to have more time for the buyer's financing, but the seller has no obligation to agree to that arrangement. In some cases, the seller may not want to take the risk of having to start the selling process over if the buyer fails to get financing, or the seller may have another potential buyer who has been pre-approved waiting in the wings. Given these potential circumstances, the agent should advise buyers to get pre-approval before looking at properties or as early as possible.

Unit Summary

Soon after the Offer to Purchase and Contract (Standard Form 2-T) is signed, the settlement agent is chosen, usually an attorney selected by the buyer. Some lenders require an attorney from their list of "approved" attorneys. The sellers may choose an attorney, but that is not typical in residential transactions. The closing attorney will require much information and documentation to proceed with the pre-closing process. The buyer must complete many tasks during the due diligence period that is stated in the purchase contract, which begins on the effective date through 5:00 p.m. on the date indicated in the contract. Therefore, the buyer is advised to consult with the buyer's lender prior to signing the offer to assure that the due diligence period allows sufficient time for the appraisal and other information from the lender so the buyer can decide whether to proceed with or terminate the transaction. The buyer should have loan pre-approval before signing the purchase contract. This is in case the buyer is unable to secure a loan to purchase the property. If this occurs and the due diligence period specified in the contract expires, the buyer would be in breach of contract and have to surrender his earnest money as liquidated damages to the seller if no extension of the contract is granted. The lender will order an appraisal to determine if the estimated value of the property is consistent with the purchase price. The lender may also want a survey that measures the boundaries of a property and identifying the improvements, encroachments, easements, and setbacks that are associated with that land. In addition, the lender normally requires homeowner's hazard insurance to cover loss or damage to the home or property in the event of a fire or other disaster such as a tornado, snow, and hail. If the property is located in a federally designated Special Flood Hazard Area (SFHA), the lender will require flood insurance. The lender will also require an elevation certificate if the property is located in a high-risk area. Another due diligence task the buyer is responsible for is the inspection of the property. Although the buyer hires the home inspector, North Carolina requires that the individual be licensed in the state and to provide the buyer with a written report of the home inspection. The report must be provided by the date set in the written agreement, or if no date is specified, provided within three business days after the inspection. A well-written summary is invaluable to the buyer making a buying decision and to the buyer's agent writing a request to repair. The home inspector may recommend further evaluation by other licensed professionals, such as a plumber or electrician. The buyer of the property will likely be required to obtain, pay for, and provide a pest inspection report to the lender. This inspection for wood-destroying pests must be performed by a person licensed by the Structural Pest Control Division (or a person who works for someone who is licensed), who will issue a Wood-Destroying Insect Information Report (WDIR) to the buyer. The WDIR is not a warranty as to the absence of wood-destroying insects; it is a report of the visible presence or absence of wood-destroying insects at the time of the inspection."

Physical Inspection by the Buyer and Agent

Soon after the contract is signed, the buyer, along with the buyer's agent, should perform a physical inspection of the property to discover any possible issues that may need to be remedied before the due diligence period expires. As well, a follow-up inspectionshould be done to ensure all work has been completed to the buyer's satisfaction. Next, we'll look at other potential issues involved in the property. A broker working with a buyer is expected to recognize "red flag" situations and to assist the buyer in checking into such situations.

Buyer's Loan (1 of 3)

The Offer to Purchase and Contract also advises buyers to consult with their lender before signing the offer to allow adequate time for the lender to approve the loan: "NOTE: Buyer's obligation to purchase the Property is not contingent on obtaining a Loan. Therefore, Buyer is advised to consult with Buyer's lender prior to signing this offer to assure that the Due Diligence Period allows sufficient time for the appraisal to be completed and for Buyer's lender to provide Buyer sufficient information to decide whether to proceed with or terminate the transaction." Earlier in the course, we discussed the importance of the buyer to be pre-qualified or pre-approved for home financing. Let's briefly revisit those concepts.

Chain of Title (2 of 4)

The abstract, chain of title, and any pertinent documents are examined by the title company to identify any encumbrances, which are non-possessory interests in real property that encumber (or burden) a real property owner's title. To review, common encumbrances include: Easements. An easement is a right to use another person's real property for a particular purpose. An easement creates limited rights for the easement holder related to the land surface, its airspace, or subsurface. An easement that grants access to property is commonly referred to as a right of way (ROW) and is typically transferred to the new owner. Liens. A lien is not only a financial interest in property; it is also a financial encumbrance. Liens are typically security for a debt that gives the creditor, or lien holder, the right to foreclose on the debtor's property if the debt is not paid. In foreclosure, the property is generally sold and the lien holder collects the amount of the debt from the proceeds of the foreclosure sale. A mortgage is a voluntary lien. Involuntary liens include tax liens, mechanic's liens (placed by someone hired to build or improve property), and judgment liens (attached through court action).

Chain of Title (4 of 4)

The amount of property taxes for the property will be disclosed on the report as well as any homeowner association and property assessments that may be required to be paid. A review of the legal description of the property is essential to verify the property type. If the legal description describes the property as "Lot 1234", then the property is owned in fee simple. If the legal description uses the word "Unit 1234" to describe the property, then the property is most likely a condominium. The financing options are different for each of these property types. A continuation, or continuance, is used to bring down the title report from its preliminary issuance to the current date of closing to account for any new defects or clouds.

Wood-Destroying Pest (Termite) Inspection (1 of 2)

The buyer of the property will likely be required to obtain, pay for, and provide a pest inspection report to the lender. If pests are found, the buyer and seller may negotiate who pays for the extermination and any property damages caused by the insects. The Structural Pest Control and Pesticides Division of the North Carolina Department of Agriculture and Consumer Services offers this information: "The Official North Carolina Wood-Destroying Insect Information Report (Form No. WDIR 100), adopted by the Structural Pest Control Committee, is used for reporting the presence or absence of wood-destroying insects in structures for sale. To issue this report, an individual must be licensed by the North Carolina Department of Agriculture and Consumer Services, Structural Pest Control Division or work for someone who is licensed to perform structural pest control work. It is the only form which is legal for this purpose and is issued on almost every residential structure sold. Therefore, it is especially important that home-buyers, lenders and other interested individuals understand the scope and limitations of this form."

Settlement Meeting Procedures

The buyer's agent may be tasked with getting all of the necessary people together in the same place at the same time. Settlement meetings are typically not done on a Saturday, Sunday, or holiday. Often Fridays and the end of month are busy days for the title agency and best avoided if possible. Begin with the attorneys, as they are often the most difficult to schedule, and then work from there to set up a day and time for everyone to meet. If all of the necessary documentation has been collected, a settlement meeting should not take more than an hour. The key with scheduling any settlement, regardless of how it is conducted, is that it must take place by the settlement date stated in the purchase agreement or within a reasonable amount of time if no date is specified. There is no standard for where a settlement meeting is to be conducted. The settlement meeting is generally held at the office of the participating attorney, lending institution, or broker.

Chain of Title (1 of 4)

The chain of title is a clear and unbroken chronological record of the ownership of a specific piece of property. Tracing the chain of title simply means tracing the successive conveyances of title, starting with the current deed and going back a suitable number of years. Each owner is linked to the previous owner and the subsequent owner through deeds, forming a chain of title as disclosed in the public records. Lenders require a 24-month chain of title to appear on the preliminary title report. This provides the ownership of the property and dates of ownership. A gap or flaw in the chain of title creates uncertainty, which is referred to as a cloud on the title. A cloud on the title could be something simple. For example, Sue Jones buys a house; she gets married and is now Sue Smith. When she sells the house, the grantor's name on the deed is Sue Smith. This creates an ambiguity in the title. If a marketable title cannot be produced, a closing may have to be postponed.

Escrow Closing Method

The escrow closing method is handled by a neutral third party, typically an escrow agent who may be an attorney, and not usually attended by the buyer and seller. All documents and funds are delivered to the escrow agent. The escrow agent handles all of the details of the closing including the disbursement of documents and funds. Under a doctrine known as the relation back doctrine, when the seller delivers the deed to the escrow agent, it is considered to have been delivered to the buyer. The escrow agent is responsible for performing closing procedures as detailed in the purchase contract, or in a separate set of escrow instructions signed by both the buyer and seller. The same agent usually performs duties for both the buyer and seller since there's no conflict of interest when procedures are followed as prescribed. The escrow closing method is seldom used in North Carolina.

Closing Methods

The final step in a real estate transaction is the closing. In North Carolina, two types of closing methods are used: Escrow closing method Settlement meeting method Let's review these next.

Notification to Buyer of Guaranteed Funds to Close

The last matter to handle in the pre-closing process is notifying the buyer of the amount of funds to bring to closing. The closing attorney or the broker will provide that information to the buyer. The "guaranteed funds" must be in the form of a certified check, official bank check, wire transfer, or funds drawn on a trust account. Cash and personal checks are unacceptable as buyer funds to close.

Preparing for Closing

The mechanics of closing are the responsibility of either an escrow/title/settlement agent or an attorney. Usually, in North Carolina, the buyer's attorney is the settlement agent responsible for closing, but a settlement agent could be the lender's in-house escrow department, an independent escrow company, or a title insurance company. With a sales transaction, the settlement agent simultaneously follows the instructions of both the borrower and seller, as per the sales contract, agreement, or a separate set of escrow instructions (a copy of the sales contract or escrow instructions must be provided to the settlement agent, the title company, and the lender). The settlement agent: Gathers all necessary documents. Calculates the various prorations, adjustments, and fees charged to each party. Compares the Loan Estimate of closing costs to the Closing Disclosure to verify the proper tolerance with disclosed fees. (The Loan Estimate, the Closing Disclosure, and tolerances will be explained in detail later in the course.) The broker cannot give legal advice or otherwise attempt to practice law unless the broker is also a licensed attorney.

Parties Attending the Settlement Meeting (2 of 2)

The parties attending the settlement meeting may include: Buyer(s) Seller(s) Settlement agent, always Representative of the lender, rarely Listing real estate broker Selling real estate broker Brokers should attend the settlement meeting as part of their fiduciary duties to their clients; however, a broker whose real estate license is not on active status (for any reason) should not attend because they would be performing brokerage activity without a license.

Title Insurance (1 of 2)

The preliminary title report not only provides information about encumbrances, legal descriptions, and other items but is the document that informs the homeowner and the lender of the items that will be covered by title insurance and the items that will be exempt from coverage. A settlement agent arranges for title insurance, which provides the best protection against unknown future claims. Specifically, title insurance protects: Lenders (and sometimes property owners) against loss due to disputes over ownership of a property and defects in the title not found in the search of the public record. Lenders and property owners from claimants not listed in the insurance policy, including defects in the public record such as forged documents, improper deeds, undisclosed heirs, errors in a property's legal description, and other mistakes.

Recording the Deed and Deed of Trust

The settlement agent then records the deed and the deed of trust, and other loan documents required to be recorded for closing. Recording these documents makes their existence clear to third parties as part of the public record and ensures against lost documents. In addition to the elements required to create a valid deed, these elements generally need to be present in order to record the deed: A public official, such as a notary public, must serve as a legal witness to the grantor's acknowledging signature. A certificate of the address of grantee ensures that tax authorities are informed as to where to send tax bills. In North Carolina, there should be evidence of an excise tax (i.e., real estate transfer tax), which may be in the form of a tax stamp. Deeds are not required to be recorded to be valid; an unrecorded deed may, in fact, be valid, but it does not protect the grantee against challenges. Similarly, recording an invalid deed does not make it valid. Once the necessary documents have been recorded, loan funds may then be disbursed to the proper parties, according to the sales contract or escrow instructions. This includes the brokers' commissions.

Parties Attending the Settlement Meeting (1 of 2)

The settlement agent—sometimes called a settlement officer, a closing officer, an escrow agent, or a title agent—is generally the person responsible for conducting settlement proceedings. He or she may prepare the settlement statement, which involves documenting the costs associated with the transaction and calculating the division of credits and debits between the buyer and the seller. The settlement officer is also the one who will collect and disburse all funds to the appropriate parties. A settlement officer is most commonly: An attorney or paralegal under attorney supervision, A representative from the lender or title company, or A title agent. Real estate brokers must be extremely cautious to NOT perform any functions that fall under the practice of law, and therefore, are discouraged from performing in the role of a settlement agent.

Review and Signing of Documents

The settlement meeting involves the reviewing and signing of documents (sometimes referred to as "passing papers") and the deed and money are transferred. This meeting is typically conducted by the closing attorney or an assistant and subject to the instructions of the lender and the details in the purchase contract. Let's review the following language that's is included in the Offer to Purchase and Contract regarding this: "Settlement": The proper execution and delivery to the closing attorney of all documents necessary to complete the transaction contemplated by this Contract, including the deed, settlement statement, deed of trust and other loan or conveyance documents, and the closing attorney's receipt of all funds necessary to complete such transaction." At the settlement table, the buyer receives the package of closing documents, some of which must be signed before a notary. The borrower signs the promissory note, deed of trust, and various accompanying documents. The seller reviews the closing statement, executes the deed, and delivers the keys to the property. (Only the seller is required to sign the deed that grants property to the buyer.) Oftentimes, sellers do not attend the portion of the meeting where the buyers sign their paperwork.

Settlement Meeting Method

The settlement meeting method, also called a "round table" closing, is one which the parties usually attend a meeting with the settlement agent. This is the most frequently used closing method in North Carolina, so we will mostly focus on that method in this chapter. For this meeting, the buyer typically selects and pays the attorney/settlement agent. In North Carolina, the buyer and the lender are typically represented by the same closing attorney, or the attorney's representative. The closing attorney is responsible for conducting the entire closing process. The seller may or may not choose to be represented by an attorney. Other non-attorney parties, such as a paralegal or an assistant may be involved with the preparation of documents and coordinating the closing. This "nonlawyer assistant" must be under the direct supervision of the closing attorney. In North Carolina, a nonlawyer acting under the direct supervision of an attorney: May conduct the settlement meeting without the attorney being physically present, but the attorney must be available for legal questions. May identify documents to be signed, show parties where to sign, and write checks disbursing proceeds. Must ask the supervising attorney to address any legal concerns.

Definitions of Settlement, Settlement Meeting, and Closing

The terms settlement and closing are sometimes used interchangeably; however, under North Carolina law and the provisions of the Offer to Purchase and Contract (Standard Form 2-T), these terms have different meanings. Let's begin this unit with some definitions from North Carolina General Statute 45A-3: "Closing" means the time agreed upon by the purchaser, seller, and lender (if applicable) when the execution and delivery of the documents necessary to consummate the transaction contemplated by the parties to the contract occurs, and includes a loan closing. "Settlement" means the time when the settlement agent has received the duly executed deed, deed of trust or mortgage, and other loan documents and funds required to carry out the terms of the contracts between the parties. "Settlement agent" means the person or persons responsible for conducting the settlement and disbursement of the settlement proceeds, and includes any individual, corporation, partnership, or other entity conducting the settlement and disbursement of the closing funds. "Settlement meeting" occurs when the parties to the transactions meet to review, execute, and exchange the required legal documents. In the Offer to Purchase and Contract, settlement is defined as the execution and delivery to the closing attorney of all documents (e.g., deed, settlement statement, and deed of trust) necessary to complete the transaction and the closing attorney's receipt of all funds. Closing is the date of recordation of the deed and the deed of trust, if any. The following legal steps to transfer title to property from the seller to the buyer must be completed before the deed can be recorded: Settlement (defined above) Completion of a satisfactory title update Closing attorney's authorization to disburse funds Closing does not occur at the same time as settlement—as settlement always occurs before closing—and closing and the settlement meeting may occur on different days.

Final Walk-Through

There should always be a final walk-through of the property prior to closing, and buyer's agents should accompany their clients on this. It gives the buyer one last chance to ensure that any issues discovered by the property inspector were resolved, that nothing to be included in the sale was removed, that the property has not been damaged since the last inspection, etc. Licensees generally attend the final walk-through with their buyers—usually on the day of closing or within 48 hours of closing. Even though licensees are rarely responsible for actually conducting the closing, a licensee is fulfilling the obligations of care and accountability by ensuring the closing transaction follows the terms as outlined in the written purchase agreement.

Title Insurance (2 of 2)

Title insurance does not generally cure defects, although a title company could potentially purchase the property and fix the problem. More commonly, it simply insures against losses (up to the coverage amount specified in the policy) due to title defects other than those specifically excluded. It may require the title company to go to court, if necessary, and defend its policyholder against any claim against the ownership of the land. Once a title insurance company has issued a title insurance policy, the property is considered to have insurable title. The title insurance policy, generally paid for with a one-time premium, may have different insured parties, such as the homeowner and the lender.

Other Inspections (4 of 4)

Underground Storage Tanks Some residential properties may have an underground storage tank (UST) that is used to store substances such as petroleum, heating oil, gasoline, chemicals, pesticides, solvents, and hazardous waste. See the Underground Storage Tank Section on the North Carolina Environmental Quality website for information on USTs. Formaldehyde Formaldehyde (methanal) is a colorless, flammable gas at room temperature and has a strong odor. Urea-formaldehyde is a clear chemical produced from urea and formaldehyde that is used in the production of building materials and home products such as particleboard (often used in furniture), some fiberboard, plywood paneling, carpeting, ceiling tiles, some paint, and foam insulation, which is referred to as urea-formaldehyde foam insulation (UFFI). The product was banned for residential use in 1982.

Updating the Title

Updating the title occurs after the settlement agent verifies the available funds. This involves another title search to ensure the title is still clean (no recent recordings) since the prior title search. A review of the same records used in the initial title search is completed. The attorney will draw up a "final" title opinion stating the deed recording information.

Buyer's Due Diligence Process (2 of 2)

We also see that the buyer is warned about the importance of conducting due diligence during the due diligence period: "WARNING: BUYER IS STRONGLY ENCOURAGED TO CONDUCT DUE DILIGENCE DURING THE DUE DILIGENCE PERIOD. If Buyer is not satisfied with the results or progress of Buyer's Due Diligence, Buyer should terminate this Contract, PRIOR TO THE EXPIRATION OF THE DUE DILIGENCE PERIOD, unless Buyer can obtain a written extension from Seller. SELLER IS NOT OBLIGATED TO GRANT AN EXTENSION. Although Buyer may continue to investigate the Property following the expiration of the Due Diligence Period, Buyer's failure to deliver a Termination Notice to Seller prior to the expiration of the Due Diligence Period will constitute a waiver by Buyer of any right to terminate this Contract based on any matter relating to Buyer's Due Diligence. Provided however, following the Due Diligence Period, Buyer may still exercise a right to terminate if Seller fails to materially comply with any of Seller's obligations under Paragraph 8 of this Contract or for any other reason permitted under the terms of this Contract or North Carolina law."

Other Inspections (3 of 4)

Well Water Well water may be contaminated with lead, nitrate, nitrite, coliform, E. coli, and other harmful pollutants or pathogens. A number of well water test kits are available in a wide price range, depending on the parameters being tested. As shown below, the North Carolina Department of Health and Human Services (NCDHHS) recommends a schedule to test for well water safety. Procedures, fees, and ordinances may vary from county to county. The NCDHHS suggests contacting the Environmental Health program at the local health department for information about the specific procedures to have the water tested. WATER TESTING RECOMMENDATIONFrequencyRecommended Testing Every YearTest for total and fecal coliform bacteriaEvery Two YearsTest for heavy metals, nitrates, nitrites, lead, and copperEvery Five YearsTest for pesticides and volatile organic compounds (VOCs)Note: Test yearly any known pesticide that is applied in your area

Part 1 Chapter Overview

You have been gaining the tools necessary to help your clients list, sell, and buy real estate. In this chapter, we'll see how the end of the process works as we discuss real estate closings, sometimes referred to as settlement. Settlement can be the most exciting part of a real estate transaction. It sounds simple: The buyer brings his money, the seller turns over the deed and the keys, and the buyer has a new place to live. However, the process entails many activities that must occur before, during, and after the settlement meeting. Chapter Outline and Objectives This section is divided into two units and a chapter quiz: Pre-Closing Procedures Closing Procedures After completing this section, you will be able to: Recall the due diligence of the buyer and the responsibilities of other individuals in the pre-closing process. Recognize the procedures involved during and after the closing process.

Zoning Ordinances (1 of 2)

Zoning ordinances are laws that divide a city or county into different areas, or zones, for the purpose of setting forth permitted uses and activities under each zoning classification and specifying requirements for compliance. While the state may have some responsibility for determining zoning—mainly for public lands and open spaces—zoning is generally the responsibility of local entities such as counties and municipalities. Each zone may define the following: Minimum lot sizes Minimum front feet on a road or street Maximum building height limits, often to comply with local fire codes Setback requirements and side yard rules that require buildings to be at least a specified distance from the front and side property lines Density of the area, in other words, the ratio of land to improvements or a maximum number of units Buffer zones or visual barriers to separate and screen residential areas from nonresidential areas