Closing Protection Letters from the Title Company

Closing Protection Letters-What are they and when should you get one

A closing protection letter is issued in an Escrow and there could be several issues.  What are they?

First a closing protection letter is issued when money is deposited to the Title Company.  This is used to protect the money that is held by the title company to “protect” the money that they hold.  It is used to safeguard the funds from fraud and embezzlement.  It is also used to protect the money if the title company would close their doors.  Typically not in this market but in the late 2000s we saw this.

Who gets a closing protection letter?  The three main parties are the Buyer, the Seller and the lender if there is one involved on the Buyer’s side.

The Title companies all have a credit line and this line could be underwritten by a larger company.  So the Closing Protection letter may come from a different company but will have the Escrow number on it. This letter for the amount of the money held will go against the credit line.  This is standard practice.

If you are in the Seller’s position and earnest money is deposited, you definitely want a “CPL” to insure that your interest in the earnest money is protected. If for some reason the Buyer defaults and you have the right to the earnest money, you want to be sure that it is there when you obtain it.

If you are in the Buyer’s position and you have earnest money on deposit, you definately want a “CPL”. This protects your earnest money as the followed in the definition of the terms of the contract. When you deposit your closing funds whether it is additional funds or the whole amount, you should request an updated CPL.

If you are a Buyer and are obtaining a loan, the lender is NEVER going to send over the closing funds until they have a CPL as well.

So as you can see there may be three to four (or more) CPL in an Escrow.  These are highly recommended for both the Buyer and Seller.  As I have stated, your lender will require it.

Remember to post your comments and feel free to call me anytime.

We also have several new listings-https://justsoldit.com/team-gerchick-listings/

I answer my phone-602-688-9279

Have a great day!

Linda

 

 

 

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The Critical Dates of a Contract

The Critical Dates of the Purchase and Sale Agreement

The critical dates are written into the Sale Agreement and need to be respected.  A Contract is not valid unless it has a beginning and end date. While these are governing dates there are other dates that are probably in the contract.

REMEMBER THAT ONLY A BUYER AND SELLER ARE PARTY TO THE CONTRACT AND ALL ADDENDUMS MUST BE SIGNED BY THE BUYER AND THE SELLER!!! I can’t tell you how many times I see agents trying to change (even with good intentions) the time lines or any other terms with an email.  This does not count.

The Title Company especially on an investment property, should provide what we call a critical date letter.  READ IT and make sure that you agree with the dates. If a date falls on a weekend or a legal holiday this may still be valid.  Remember that in Arizona unless it is stated that this is business days it will default to calendar days.  Also, the time for the expiratino is 11:59 PM AZ time unless stated otherwise.

Last year there was an agent that was representing himself and waited to send a Buyer’s Inspection Report until 11:59-but guess what he only emailed it to himself.  When we realized his mistake it was exactly 12:00 midnight and my Seller did not have to make any repairs.  Additionally, his Earnest Money was at risk and he utlimately closed. It was a nightmare closing but I got it done!

If a timeline is changed, the Title Company should issue a new critical dates letter.  Remember that the Title Company is the “keeper” of the contract.  The Critical Dates letter is very useful to be sure that everyone is on the same page!

Since I negotiated the contract, either from the Buyer or Seller’s side; I should know what the intent of the Contract will be.

One of the most frustrating items is that Lender underwriters I am not sure that they really ready the Contract.  I always am watchful of the transaction to be sure that the Lender is hitting their timelines as well.

This is simply another tool to be sure that everyone understands the contract and it’s deadlines.

There are some real differences between the AAR Residential contract the Commercial contract and by reading the Contract that you sign, you have committed yourself legally to the timelines.

We will speak later about the different timelines and how they can be used both pro and con.

Remember that the backside of the website contains alot of good information but you have to register to see it!

I answer my phone and look forward to speaking with you!

Hope you have a good time reading these Blog Posts! I truly want to help you understand investing!

Linda

602-688-9279

 

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Hold Open Title Policies

Hold open Title policies are very useful for a few reasons. First, what is a hold open policy?

A hold open policy must be requested prior to the Close of Escrow of the purchase of the property. This is used for investors that are intending to resell the property in 2-4 years. What this does is save the Investor fees for the owner’s title policy that is issued when the Seller sells the property.

The Buyer soon to be Seller will pay a small fee at Close of Escrow when they aquire the property. However, when this person sells the property there is a substantial savings in the Title Insurance. NOTE-The Seller must use the same Title Company when sellig the Property without fail. When we have a hold oen policy I disclose it in the listings to the agents.

What if the owner decides to kepp the property after close? It is important that the Seller contact the Title Company and have them close the policy in order to maintain the Title Insurance. There is not a fee for this but this is an often overlooked item.

What if the Seller is not quite finished with the repositioning of the property and the hold open time period os about to expire? It is easy to extend for a small fee. The Seller must contact the Title Company prior to the expiration of the policy and request an extension. There will be a small fee for this but it still saves quite a bit at closing.

There are different time limits on policies depending on who is the underwriter of the policy. The Buyer-Seller needs to decide how long that the repositioning is going to take and buy the policy accordingly.

Wait till next week for more education!

Remember that I answer my phone. It’s funny people say, “You answered your phone!”. I say “Well you called me!”.

602-688-9279

Take Care,

Linda

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Let’s discuss inspections of investment properties!

Understanding the how and when of onsite inspections is critical to the due diligence process

While listing agents want to push through to the physical inspection-I say wait and let’s be sure that we are ready to proceed.  Here are some tips and while this may not be all of the types of inspections that you may want to do but this will give you a really good place to start.

You really want to be sure that you have all of the books and records and the other materials that you need in order to proceed with physical inspections.  If you need to personally walk the units before you start paying for inspections-do this up front and as soon as you are able.  You can do this concurrently of reviewing the books and records.

However, when you are ready to start the actual physical inspections, remember that you have a time clock ticking.  Make sure that you can get all of the reports in prior to the expiration of the inspection period.

There are several types of inspections for different reasons.  Be sure that you want to order the right kind.  Here are a few examples:

  • Physical Inspection
  • Wood Infestation Inspection
  • Sewer Inspection
  • Septic Tank or alternative waste inspection
  • Environmental Inspection
  • Survey
  • Roof Inspection
  • Asbestos Inspection
  • Mold Inspection

There may be a number of other kinds of inspections depending on your needs and the type of property.  It’s pretty easy to see that you could rack up some significant costs on inspections.  It is critical to know what the property needs now and what may be needed in the immediate future or even the long term future.

At the very least, get a physical inspection and wood infestation report.  Many people do not realize that in the standard AZ Listing agreement, the Seller has already agreed to place a clear Wood Infestation report with Title.  The physical report may or may not lead to other kinds of inspections.

While I never discourage Buyers from obtaining any inspection type of report, I like to see a Buyer start with the basics.  It also depends on what type of property that they are buying.  A gas station-you be an environmental report. Maybe not as important on a Multi Family.

On a multifamily property, maybe a roof inspection is more important.

If the property is older, a sewer and pipe inspection may be critical.

You need to rely on your Broker and primary inspector to guide you but make the ultimate choice of the kinds of inspections needed again for your piece of mind.

Next week let’s discuss Title Hold Open policies. What you don’t know what this is?  You are in for good information.

Remember that I answer my phone-602-688-9279

Linda

 

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