Closing And Paperwork – An Overview

Wednesday, April 12th, 2006 at 7:24 pm

So, you found a motivated home seller and reached an agreement. Now what?

Well, now you need to get the paperwork done and close. This is what you have really been afraid of all along, isn't it?

We will get into the actual step-by-step completion of the paperwork later but for now we'll just take a look at an overview of the process.

As I said before, you will buy the home right there at the kitchen table (kitchen table closing). The seller actually signs the Deed over to you on the spot. This means there are no closing costs and no attorney fees! That is why you can agree to pay all closing costs - there really aren't any.

Almost all loans you will run into will have a Due On Sale clause. This means that if the house is sold, the bank can accelerate the mortgage and force the total amount to be due. However, in actual practice, the bank just wants the payments (although you are not officially taking over the payments by assuming the loan). As a general rule, as long as they are receiving the payments, the bank is happy.

The signature on the Deed needs to be notarized to be binding. If you are sure before you meet with the seller that you are going to be able to buy the house on the spot, you could have a notary public accompany you or meet you at the house. A link to a resource of Notaries may be found on my Resource page. If you don't have a notary with you and can't get one to meet with you before you have to leave the seller's house, have the Deed signed by the seller anyway and arrange to meet with him/her later at your bank or accountant's office to have another deed signed and notarized. However you do it, you have to get the Deed notarized - no ifs or buts!

The Deed will also have to be recorded at the County Recorder's office. There is a small charge for this (usually $10 or less). Some states also have a transfer tax. The County Recorder will be able to tell you how much the tax is, if any. You can find a link to a listing of State Transfer Taxes on my Resource page.

Double check with your own county because some localities levy their own tax even though the state does not. The transfer tax is not a great amount, usually 0.1% to 1.0% but it does have to be paid when you record your Deed. If a loan is not paid off, the amount of the outstanding mortgage may be exempt.

When you contact your courthouse, ask for a list of their EXEMPTIONS. In some areas, the tax is only based on any cash the Seller receives (which amounts to little to nothing when you use this idea to buy a house). This is not always the case. Some jurisdictions charge a tax based upon the gross sale price. Check to be sure.

Once you have the Deed, it is prudent to get a simple preliminary title search on the house to make sure there are no surprise liens the Seller did not tell you about. A full title search can be expensive and may not be needed. A preliminary title search is much cheaper and is satisfactory for our needs. You just want a cursory examination as far back as the current Seller has owned the house.

If the Seller only owned the property two years, that's as far back as you have to go. A paralegal can do this for $50-$75. If you find something you don't like about the title or the house itself, you will have 30 days to Deed it back, so it is virtually risk-free to you. You may also want to get a property inspection.

Always get the Deed as soon as possible first! Get the paperwork signed and notarized, record the Deed, pay any applicable transfer taxes, and then do a title search (and a property inspection too, if you want one).

You can continue making the payments until the house is paid off, but if the Seller is owed equity, it is best to refinance in your name in a year or less to pay the Seller what is owed. By this time you will have a good track record and should not get turned down again for your own home loan. If the house is in the process of foreclosure, only offer half the equity (not due until the house is either resold or refinanced).

Remember, you are only looking for Sellers who need debt relief and can't afford their payments any longer. And you want to work with houses that are For Sale By Owner only (not those listed with a real estate agent).

If you have been following my posts so far, you have an overview of one way to buy your home with nothing down, NO QUALIFYING and NO CREDIT. There are other ways to do this which will be revealed in future posts. You also need details of the actual paperwork which we will review.

That's it for now. Get out there and keep hunting for motivated sellers and get into your new home!