Author: Jacob Pugh

Reverse Mortgages and You!

What is a reverse mortgage?

Can I sell property with a reverse mortgage? Should my grandma get a reverse mortgage?

With a conventional mortgage, a person borrows money from a bank and the bank files a mortgage on the person’s real estate.  If the individual fails to pay back the loan to the bank, the bank uses its mortgage to sell the real estate.  Simple enough. Most residential real estate transactions involve the buyer obtaining financing from a bank to purchase the real estate.  The bank in turn files a mortgage during the process.  The funds are distributed in a lump sum to the sellers.  In a reverse mortgage scenario, funds are distributed slowly, over time to the party owning the real estate.  The lending bank files a mortgage just like a traditional purchase money transaction.

Wait.  Why would the bank make payments over a period of time to the consumer and not the other way around?

Commonly, elderly individuals that own their home and do not currently owe money against it utilize reverse mortgages.  For example, if an elderly person owns their home free and clear of liens but is on a limited income, it can be difficult to pay for day-to-day expenses of living.  At the same time, that person may have tens or hundreds of thousands of dollars in equity in their home.  House rich and cash poor.  A bank would likely not make a conventional loan to the individual because they have no source of income for repayment.  The only option for this person may be to sell their home to realize the equity.

However, a reverse mortgage will loan the individual money, typically in the form of a monthly payment, and secure the loan with a mortgage on the house.  This allows the person to realize their equity while remaining in their home. When the borrower passes away or moves out of the house, the mortgage company is either paid in full from the sale of the home or forecloses the property to sell and satisfy the debt.

Sounds decent, what’s the catch?

There are a few catches.

Unscrupulous Marketing

Many reverse mortgage companies use unsavory marketing tactics to target elderly folks.  Oftentimes folks entering into reverse mortgages do not actually require the payment to live have been convinced otherwise.

Excessive Cost

Interest rates with reverse mortgages tend to be much higher than conventional loans and reverse mortgages can carry multitudes of hidden costs to the borrower.  The interest also compounds over the life of the loan as opposed to a conventional loan, rendering reverse mortgages much more expensive.  Even worse, many reverse mortgages will only provide monthly payments for a set amount of time. So, an elderly person living off reverse mortgage payments could still be forced to sell their home and then have no money left to live.

Fine Print

Lastly, reverse mortgages are difficult to understand.  The documents are cumbersome for even a trained real estate or lending professional.  These loans can be quite one-sided in favor of the lending institution, yet many consumers enter into these types of loans without fully understanding the fine print.

Can I sell a house with a reverse mortgage?

Sure, probably, maybe, perhaps. 

Just like a conventional mortgage, if the underlying debt is paid, the mortgage will be released and the property may be sold free and clear of any liens.  Problems arise when the debt owed against the real estate outweighs the value of the home.  This is often the case with property subject to a reverse mortgage.  It is possible that the bank could agree to a “short sale,” where the bank will agree to accept less than the amount of the debt.  However, this process is typically quite cumbersome and can take several months to complete.   Additionally, there are no guarantees the bank will agree to a short sale. Several months of negotiations could result in the property not being sold.  Further, additional costs and interest continues to accrue while attempting to obtain a short sale arrangement.

Long story short, yes, a person may sell a house with a reverse mortgage.  However, best practice would be to contact the bank and request a “payoff” prior to entering into a contract for sale.  The payoff is the amount that the bank will accept for release of its lien.  If the payoff is greater than the sales price, this may be an issue that could delay the transaction.

As stated above, reverse mortgages can be quite challenging to navigate in a transaction.  That’s why Tallgrass Title has real estate professionals and attorneys on staff to assist in navigating these issues.  Give us a call, it’s our job!

How Does Title Insurance Work?

Here at Tallgrass Title, we have discussed many topics about the nuts and bolts of real estate transactions: closings, probates, commitments, policies, etc.  But what is title insurance and how does it actually work?

Title insurance is essentially insurance that either insures that you actually own a tract of real estate and/or that a bank’s mortgage is valid and filed of record.  Title insurance, like other types of insurance, is governed by the individual state.  Insurance in Kansas is established and governed by state statutes that establish the types of insurance allowed to be sold in the state and various regulations governing the sale.  The major types are life, health, hazard, liability, property and title.  Further, Kansas Statutes establish the Kansas Insurance Department and Commissioner of Insurance. The Kansas Commissioner of Insurance is tasked with enforcing Kansas Statutes relating to insurance, licensing and regulating the sale of insurance.

When purchasing an insurance policy, an individual or entity enters into a contract with the insurance company.  The contract establishes the amount of coverage sold, the terms of the policy, exceptions to coverage and what constitutes a claim.  Kansas state law also establishes how fees are established and charged, how the money is accumulated, and who is entitled to the proceeds.  This ensures that when a claim (loss) happens, that the insurance company has retained sufficient funds to pay potential claims.  Otherwise, an unscrupulous company could sell policies and spend the premiums paid and then be without sufficient funds to pay a claim.  For example, if a consumer purchases a title policy insuring the person as an owner of the real estate with a policy amount of $100,000 and it is later shown that the property is actually owned by another party, a title insurance company is bound to pay up to the amount of $100,000 loss.  Now, there are a multitude of corrective measures and potential outcomes of any claim.  The bottom line is that a title insurance company is bound to hold a certain amount per $1000 of insurance sold for potential claims.

Kansas insurance statutes also require that reinsurance be purchased when a particular title insurance company’s “reserve” or “pool” is not large enough to cover the size of policy sold by the company.  This is done by purchasing reinsurance from another title company or other insurance company.  This protects the customer from an insurance company failing to have the reserves to cover certain sized policies.

In Kansas, most title insurance is sold through independent agents (including Tallgrass Title!).  An independent agent sells title insurance on behalf of a title insurance company, otherwise known as an underwriter.  An underwriter and independent agent enter into an agreement allowing the independent agent to sell its title policies with a certain division of the premiums.  Here at Tallgrass Title, we currently write title policies for three underwriters.  In our experience, each offers a unique product and the variety of options available allows us to better serve our customers.

In the end, title insurance is simply another form of coverage that specifically protects property rights.  Here at Tallgrass Title, we are proud to serve our customers in this regard.  This includes explaining any aspect of your real estate transaction or title policy.  If you have a question, feel free to ask one of our real estate professionals.  We love to talk title!

Inheriting Property (and Inheriting Liens?)

When individuals pass away, their assets are left to their heirs (next of kin) or individuals listed in a will, trust, etc.  These assets will oftentimes include real estate.  Sometimes, this real estate has liens against it.  When it does, the recipient of the property might ask: “Am I responsible for these liens or the debts of the person that passed?”  The lawyer answer is “yes and no”.

Typically, surviving individuals are not liable for sole debts of a passing individual (certain exceptions exist for a surviving spouse regarding specific expenses incurred by a passing spouse but we won’t muddy the water with this one today).  So, if your aunt passes and you are her sole surviving heir and she has insufficient assets to pay the bill, you are not responsible for it.  However, if you are her sole surviving heir and she has assets sufficient to pay the bill, then it is typically paid out of the estate and the difference is paid to you.

On the other hand, liens on real estate are different and follow the real estate. So, if an individual has borrowed money to purchase a house and the bank has taken a mortgage (lien) and the property is transferred, that mortgage follows the house.  So, if your passing aunt also left you a house with a mortgage you will own that house subject to the mortgage.  If your aunt did not also leave specific funds to satisfy the mortgage, you will either need to pay the debt associated with the mortgage or the bank will take the house from you, sell it, satisfy the debt and pay you any difference.  This process of a bank taking real estate to satisfy its debts is known as a “foreclosure.”  The process is time consuming and costly and interest will most typically continue to accrue during the interim.  These additional costs will be collected from proceeds from the sale of the house.  Conversely, you may also sell the house yourself and pay the underlying debt and most often save substantial equity in the real estate that would have been wasted in a foreclosure.

Again, an individual is not typically liable for the sole debts of a decedent (mostly, as stated above) but may choose to pay the debts of a decedent in order to protect equity in property received from a passing individual.  One of our roles at Tallgrass Title is to find and potentially clear liens on real estate being inherited.  This process can often be confusing. Our title professionals are available to answer questions during this process.  It’s our job!

What the Heck is a “Notary” Anyway and Why Do Certain Documents Need One?

A “Notary Public” or simply “Notary” for short, is a public officer that has received legal authority to perform certain functions intended to prevent fraud and forgery.  Each state has its own set of laws that govern the duties of notaries.  Notaries in Kansas perform five basic functions:

  1. Take acknowledgments
  2. Administer oaths and affirmations
  3. Take a verification upon oath or affirmation
  4. Witness or attest a signature
  5. Certify or attest a copy

With real estate transactions, you will most likely encounter a notary for the purposes of witnessing a signature and administering an oath.  In witnessing the signing of a document, the notary will verify that you are the person you claim to be, watch you sign a document and then stamp the document with their notarial seal.  When administering an oath, the notary will have you raise a hand and swear that the information contained in the document is true and correct. Most people will encounter this scenario in their lives.

But what is the notary actually doing and why do you need them to perform these functions?

With a non-notarized signature, another individual viewing a signed document must identify, prove, or trust that the signature was actually made by the person purporting to sign.  If you consider that a deed in a real estate transaction can pass real estate worth hundreds of thousands or even millions of dollars, it is easy to see that the area could be rife with fraud.  A Kansas Notary, as stated above, is a public officer that has been vetted by the Kansas Secretary of State and deemed trustworthy to perform the duties of a notary.  A notary also must provide a “bond” insuring their duties as a notary.

In witnessing a person sign a document, the notary is creating a presumption that a person is the individual that signed the document.  In the law, a presumption means that the burden of proving a fact has shifted to the other side.  Therefore, when a signature is notarized, it is presumed, or more likely than not, that the signature is authentic.  A person challenging the authenticity of a notarized document has the burden of presenting evidence that is persuasive enough to overcome the presumption in proving that a person did not sign a document.

Additionally, in Kansas, all documents that are filed with a county’s Register of Deeds must  be notarized as required by law.  So, for most real estate transactions, this includes a deed and mortgage.  These are also the documents that are responsible for the conveyance of the interest in real estate, making it easy to understand why such a requirement exists.

In real estate transactions, affidavits (sworn statements of fact) are the most common sworn statements encountered.  Usually, these come in the form of affidavits of death, affidavits of equitable interest, or affidavits of debts and liens.  Most of the time, they are used to clarify or clear a title concern and are required by a lender or title company as part of a transaction.

As one can see, Notary Publics serve a very important role of preventing fraud and forgery in every real estate transaction. At Tallgrass Title, every one of our team members is a Notary Public and understands the importance of that role and duty that it carries. Should this post present questions regarding the role of a notary in a real estate transaction, feel free to contact our office.  We are happy to assist!

What Do Lower Interest Rates Mean to a Realtor?

Those in the real estate industry are well aware of the fact that interest rates for loans have been lowered by the Federal Reserve over the last couple of months.  This reduction in turn lowers the interest rate paid by a borrower for a loan with their bank.  Lower interest rates have caused a large increase in loan “refinancing.”  Refinancing simply means replacing your existing home loan or commercial loan with a new loan at a lower interest rate to save financing costs or to increase the amount borrowed without affecting monthly payments.  For example, if a consumer borrows $200,000 at 4.0% interest with a 30-year term, their monthly payment would be $955.  That same loan at 3% interest would result in a monthly payment of $843.  The benefit is clear:  under this scenario, a consumer would be paying $100 less per month for the same borrowed amount.  Who wouldn’t want to save a $100 a month on their monthly payment?!!

So, people are refinancing their home loans and other commercial loans.  But how does that affect a Realtor?

As a buyer’s agent, you are well aware of your client’s “buying power.”  Meaning: what can your buyer afford?  At the end of the day, what your buyer can afford translates to “what payment can they afford.”  With lower interest rates, principal goes farther and a buyer can afford payments on a larger mortgage and ultimately the buying power of a buyer increases. Therefore, what houses you are showing a client could change.  Even more important is if you have a Buyer that was pre-approved several months ago and has not yet found a home to purchase, it would be wise to have the buyer update their pre-approval.

As a seller’s agent, you are often tasked with consulting with your client on how to reach a listing price for real estate.  Through comparable sales, inventory and available potential buyers, a list price is reached.  As discussed above, due to lowered interest rates, the buying power of potential purchasers has increased.  Based upon the increased buying power, there could be a larger pool of potential buyers for your list property.  Therefore, the list price may be increased if supply does not support the potentially higher demand created by the larger pool of buyers.  It’s basic economics.  However, the interest rates decrease is certainly important to evaluate when consulting on establishing new list prices.

Of course, this post is not encouraging agents to encourage buyers to purchase to the maximum amount of their financing ability or to encourage the increase on listing prices of property.  Each transaction will require the expertise and market knowledge of a Realtor to make those determinations.  Rather, this post is meant to spur the discussion of market impacts due to lower interest rates, especially in the Riley, Geary, Pottawatomie and Wabaunsee County markets.  Our team at Tallgrass Title understands the market impacts caused by interest rate changes and have recently seen a significant increase in refinance title insurance orders.  We are happy to discuss these changes and how they affect your clients.  It’s our job!

Closings Continue at Tallgrass Title

At Tallgrass Title, we understand that real estate transactions must continue during the COVID -19 pandemic.  Real estate sales and transactions cannot simply stop because of this serious health scare.  Many contracts for the sale of real estate were signed prior to the global outbreak.  It is doubtful that the contract was contingent on a global pandemic.  Additionally, numerous folks began the refinance process for their home loans.  Without closing within a specified time, loan locks are in danger of expiring.  Therefore, closings continue to take place but with new added precautions and measures to support social distancing and prevent the further spread of the virus.  At the same time, many of these measures have been in place at Tallgrass Title for several years.  The purpose of this post is to share these measures with our customers and how they’re convenient and will save the parties time, pandemic or no pandemic.

  1. Early deed packets mean smooth closings. Having the Seller sign deed packets ahead of closing allows for the Seller to be absent from the closing.  The Sellers can sign their packet in front of a notary at their convenience and simply drop the packet in the drop box at either one of our locations.  The only in-person interaction that a Seller must currently have with another person is signing the deed packet.  However, notaries (as well as TGT staff) are providing ways to prevent spreading the virus further.  We are also offering several different options to assist in social distancing loan closings.  Ask one of our closing agents for options!
  2. Use of electronic signatures. With the growing use of online services, wet-ink signatures are simply not needed for most documents.  Several programs like HelloSign, DocuSign and Dotloop allow for a person to sign from their phone or computer.  Therefore, there is no need to meet face-to-face with a person to execute closing paperwork.  At Tallgrass Title, we routinely offer parties the option to sign settlement statements electronically.
  3. Use of Earnnest for delivery of earnest money. Earnnest is a program much like Venmo, Cash App or PayPal that allows for the instantaneous transfer of earnest money.  Therefore, there is no need for the physical delivery of earnest money to our office.
  4. Wiring of proceeds or delivery to bank. Tallgrass Title offers free wiring of real estate agents’ commission checks. We also offer to wire Seller’s proceeds from their transactions.  Additionally, our free courier service will deliver proceeds or commission checks to any local bank free of charge.  This means that there is no need to pick up a paper check at our office.  Ask your closing agent for details.

Our goal is to make your transaction as smooth and convenient as possible.  This includes in times of uncertainty.  As stated, most of these techniques and measures have been in place before the COVID-19 pandemic so our team is well acquainted and comfortable with their use.  Should you have any questions, our real estate professionals are happy to help. It’s our job!

HELOCs and Second Mortgages

When most consumers purchase a home, they obtain conventional financing for the purchase.  This often takes the form of a 30-year, fixed rate loan.  In order to secure the loan made to you, the bank files a mortgage with the register of deeds.  This document tells the world that the bank has a first-place lien against the house and if any other creditors file a lien, that lien will be inferior to the first-place loan.  Now, let’s say that the same homeowner would like to make improvements to their home, add a pool or build a garage and would like to borrow additional money to do so.  The homeowner may also want to borrow funds for reasons unrelated to the home such as consolidation of credit card debt, assisting a child with college tuition or a business venture.

So, rather than to refinance the entire home loan and file a new mortgage, etc, to account for the increase in the loan, a bank will often file a second mortgage.  This can also take the form of a home equity line of credit type mortgage (HELOC) which is also usually a second mortgage as well.  The difference is typically the bank will automatically release a second mortgage upon payoff.  With a HELOC, the bank will keep the mortgage filed and the note open to allow a consumer to re-advance funds as needed.  Only upon request of the homeowner will the bank release the mortgage upon payoff.  This saves the costs and expense of making a new loan every time a homeowner wants to borrow funds.

HELOC’s and second mortgages can be obtained with the bank that made the first purchase loan or with a different institution as selected by the homeowner. The bank handling the loan will usually order title insurance to insure that the mortgage is secured against all liens, besides the first place mortgage.  If a consumer with a second place mortgage or HELOC later decides to sell the real estate, the title company simply pays off the second mortgage the same as it pays the first at closing.  The only additional step is to request additional payoff information.  Of course, there are many different types of second mortgages and HELOC’s.  it is a good idea to discuss options with a finance professional.

Here at Tallgrass Title, we deal with second mortgages and HELOCs on a daily basis.  Should you have any questions during your purchase, sale or refinance, feel free to contact our title professionals.  We are here to help, its our job!

You’re Invited

Hello Manhattan! Please join us at the grand opening of the Manhattan office of Tallgrass Title. We are having a reception at our location in the Hartford Building on April 18 from 5 to 7 p.m. and we’d like for you to attend.

Local group, Solar’s Jazz Quartet will be delivering musical treats for your ears.  Amazing food will be provided by Blacksheep Catering and Jake will being offering specialty cocktails.

We’ve heard from many of our customers they’d like for us to open an office in Manhattan, and as your newest neighbors, we want to hear how we can best serve you. We are excited to see you at our event so that we may learn more about your needs as a real estate professional.

The event will be held at our new office located in the Hartford Building located at 210 N. 4th.

Come out and eat, drink and say hello!

New Year, No More Mortgage Registration Tax!

In Kansas in years past, mortgage registration tax was charged by the State of Kansas for the filing of a mortgage at the county register of deed’s office. This tax was based upon the size of the mortgage and had to be paid at the time of filing the mortgage.  In the last year of its existence, a residential mortgage in the amount of $100,000 would result in a tax in the amount of $50.00.  As you can see, this amount can quickly multiply on larger mortgages.  Additionally, a filing fee based upon the number of pages to be filed was charged along with the mortgage registration tax.  A standard, thirty-year mortgage typically results in a filing fee of anywhere from $100.00 to $350.00.  These fees will typically show up as financing charges or “closing costs” on a settlement statement.  In my experience, most individuals were not aware of the fees until they reviewed their closing statements.  It was usually a shock for buyers to learn that they had to pay a couple hundred dollars simply to file a document at the register of deeds.

A few years ago, several homeowner, realtor and homebuilding groups lobbied State Legislators for the repeal of the mortgage registration tax. Their efforts were successful, and the tax was phased out over a few years until now.  Beginning on January 1, 2019, mortgage registration tax is no longer charged in Kansas.  This means immediate savings for homebuyers and homeowners that are refinancing their existing loans.  Additionally, the filing fees charged at the register of deeds will not increase in 2019.  Again, this is helpful to the Kansas home buyer and homeowner.  Should you have any questions regarding the repeal of the mortgage registration tax or the current filing fees, feel free to contact Tallgrass Title.

Easement Basics

Easements to real estate are simply an interest in some other person’s land for the limited purpose identified in the easement. In plain language, it is the right of another person to use your land for some limited purpose.  Easements can be exclusive; meaning that the use is restricted to a certain person or persons.  Easements can also be limited to a certain amount of time or can be perpetual and “run with the land.” As there are countless different variations of easements, it is impossible to explain all the law surrounding easements.  The purpose of this post is to point out two of the most common types of easements and give a brief overview of common issues.

Some of the most common forms of easements are travel easements and utility easements. A travel easement is the right for another individual to cross real estate not owned by them.  Usually this is for the purpose of accessing their own real estate.  Commonly, a travel easement (otherwise known as “ingress-egress” easement) is granted to a homeowner who owns real estate that is only accessible by crossing another person’s land.  With agricultural real estate, a travel easement is typically given to a farmer so that they may access their field or pasture as there is no direct access from a road.  Most of these types of travel easements are perpetual or “run with the land.”  This means that if the owner of the easement sells their real estate that is accessed by the easement, the new owner will have the right to continue to use the easement.  When representing buyers of real estate, if there is not apparent direct access from a government roadway, it is wise to inquire as to whether there is a travel easement and whether it transfers to your buyers.  Nobody wants to purchase real estate only to find out they cannot access it!

The other major type of easement is a utility easement. Based upon reading the first portion of this post, it should come as no surprise that a utility easement is simply the right to cross another person’s real estate with utilities.  These types of easements range from a small water line running to a house all the way to high voltage transmission lines.  The most important thing to take into consideration with utility easements is whether the easement will affect the planned use of a potential buyer.  Utility easements commonly do not allow a person to build any structure over or under an easement.  For example, if a Buyer had plans to build a garage, the location of an easement could affect these plans.

An easy way to determine whether there are easements on real estate being purchased or sold is to review the title commitment. This report should list all easements that are affecting the real estate being transferred.  The easements will be listed under the “exceptions” section or following the legal description.  Often the commitment will only list the existence of the easement and not specify the details.  At Tallgrass Title, we happily supply the underlying document listed in our commitments upon request.  That’s our job!