Washington Post Shows No Love for Title Insurance

By Nikki Smith
Marketing Director
Federal Title & Escrow Co.

The Washington Post ran an article in last Sunday's paper called Easing the Pain of Closing Costs. Considering closing costs pertain largely to the title insurance and escrow services, I was a little surprised to see just three sentences about choosing the right title company. See below:

Find cheaper title insurance. Title insurance protects against challenges to your ownership, with separate coverage for your lender and for you. But as much as 80 percent of the premium goes to paying commission to a title agent. Shop around for title insurance.

I wanted to throw in my two cents in the comments section at the WaPo website but the comments section has been closed! So since I already went the trouble of cobbling some thoughts together, I'll leave them here:

Where's the love for title insurance? Three sentences is all?!?

If somewhere down the road a title defect comes to light, title insurance is all a home buyer has to protect his/her real estate investment. In DC, the most common title defect is a result of fraud.

Lenders require home buyers to purchase a lender's title insurance policy, while an owner's policy is optional. So there is an opportunity to save some money there.

You can choose between standard coverage or enhanced coverage, too. Some title companies may downplay the standard option, but in many cases a standard policy is sufficient. And it's cheaper.

The main thing for home buyers to know if they have the right to choose: Home buyers choose the policy, and they can choose what title company handles the settlement. So don't let a mortgage lender or real estate agent steer you toward a title company without doing a little cost comparison of title companies on your own. Lots of companies offer online quotes. Some title companies (like Federal Title) offer extra savings just for ordering services directly from them online.

This video is a good introduction to the overall process.

... Anyway, the article represents title insurance unfairly. Yes, it can cost thousands of dollars on top of the sale price of your home (around 3-6 percent extra depending on where you live), but the peace of mind is worth it in the long run.

Here's a final thought: If closing costs are outside your budget, consider offering the seller more money for the home in exchange for him/her covering settlement and escrow fees.

What Do TILA Changes Mean for Lenders, Title Agents?

Changes to the Truth in Lending Act (TILA) now require lenders to provide consumers "early disclosure" of good faith estimates of mortgage loan costs and a minimum seven-day waiting period between disclosure and closing.

This means it's all the more important for lenders to obtain an accurate settlement fee quote from their title agent as early as possible.

The Federal Reserve has highlighted the major changes in the truth in lending early disclosure requirements in the chart below:

To avoid delays in the closing process, lenders must be precise. The new requirements also call for an additional three business days of wait-time before consummating a loan transaction should the APR reflected in the initial disclosure vary by more than an eighth of one percent (.125%).

A guaranteed quote, such as the one offered by Federal Title & Escrow Company, will ensure there are no surprises – or closing delays – at the end of a real estate transaction.

Closing Costs Explained Visually

Finally - our new video!!
We have been working on producing a video that explains closing and settlement costs, visually. Buying a house is a huge financial committment and one that should not be taken lightly. The number one question we get from buyers and borrowers is "How much is this going to cost?" While there is no easy way to answer this question, we have created a suite of tools to get buyers and borrowers started.

But this new video is the one we are most excited about, take a look and let us know what you think.

Transparent Title Companies - Where are they?

By Ann Herdon Eskew

WHAT IF YOUR PREFERRED TITLE COMPANY:

* Delivered an instant, online, guaranteed closing cost quote to you and your clients - specific to the transaction;
* Was independent and gave back part of its revenue to your home buyer; instead of giving money back to your broker through an Affiliated Business Arrangment;
* Allowed you to submit the transaction order entirely online.

Very few title companies offer a Web 2.0 experience when it comes to delivering service. In fact, most still cling to fax machines and land lines -- taking orders over the phone, quoting fees/costs over the phone. Further, many title companies have no room to significantly lower their fees to your client because they are kicking back 30% to 50% of the transaction revenue to a broker by way of an Affiliated Business Arrangment.

I am proud to say that my company, Federal Title, has remained independent for the last 13 years. We have grown to be the largest independent title company in the Washington, DC metro area. Our growth is directly attributed to our ability to deliver instant, online, and guaranteed closing cost quotes to agents, home buyers, and mortgage lenders. It is also attributed to our REAL Credit Program in which we give back part of our revenue to the home buyer rather than a referral source. The consumer loves transparency and savings and we deliver.

TROUBLE BREWING; ESTATE TAX IN MD, DC AND VA

By: Jennifer Concino of Tobin, O'Connor, Ewing & Richard

With the average cost of a house rapidly rising in the DC Metropolitan area, it is especially important that homeowners recognize the need for tax and estate planning. Each and every homeowner should make sure that he has planned for his certain and eventual demise. For example, the estate of a resident of the District of Columbia with equity in a house of $1,500,000 could pay $64,400 in estate taxes to the District. Proper estate planning could help the homeowner defer, reduce or even potentially eliminate the tax.

The Federal Situation:
As you may already be aware, in 2001, Congress passed the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) which, among other things, increased the federal estate tax applicable exclusion amount as follows:

Year -- APPLICABLE EXCLUSION AMOUNT
2006-2008 -- $2,000,000
2009 -- $3,500,000

EGTRRA eliminated the federal estate tax for individuals dying on or after January 1, 2010. However, unless between now and then, Congress and the President extend the law beyond December 31, 2010, or provide alternative tax relief, the estate tax as is existed in 2001, i.e. only a $1,000,000 applicable exclusion amount per person, will be reinstated on January 1, 2011, including a marginal rate of 55 percent.

Many of the documents drafted for our clients in the past include the establishment of a "by-pass trust" the funding of which is determined by a formula providing that the largest amount that can pass free of federal estate tax (the applicable exclusion amount) will fund such by-pass trust. By "forcing" the funding of a by-pass trust, each spouse is assured of utilizing his or her applicable exclusion amount thereby enabling each family to pass the largest amount possible of their estate to the next generation free of estate tax.

The States React:
Many states, facing deficits and losses in revenue as a result of EGTRRA, have taken action to prevent a similar increase in their exemption amounts for state death tax purposes. As such, the issue of "decoupling" has arisen. For example, even though the federal applicable exclusion amount is $2,000,000 this year, the State of Maryland and the District of Columbia have capped their exclusion amounts at $1,000,000.

Virginia has repealed its estate tax for individuals dying on or after July 1, 2007. Since many clients' estate planning documents include the forced by-pass trust formula, $2,000,000 (the federal applicable exclusion amount) would pass to the by-pass trust upon the death of the first spouse. This would result in no federal estate tax at the time of the first spouse's death, however, there would be a tax on the excess $1,000,000 in Maryland and the District of Columbia. The amount of that state death tax is pretty hefty; in 2007, the tax may be almost $85,000. For a death which occurs in 2009, where the federal applicable exclusion amount of $3,500,000 would pass to the by-pass trust (and Maryland and the District of Columbia continued to cap their exclusion amounts at $1,000,000) the state estate tax could be over a whopping $225,000! Maryland has, however, capped its estate tax to 16 percent of amounts over the $1,000,000 exclusion amount.

Our Response:
The current differences between the federal and state death taxes, as well as the differences among the local jurisdictions, require a case-by-case analysis for each client. For example, in some instances, it will be preferable to pay the state death tax assessed at the time of the first spouse's death by fully funding the by-pass trust with the federal applicable exclusion amount. Although this will accelerate the payment of state death taxes, the excess amount funded into the by-pass trust (i.e., $1,000,000 in 2007), including all appreciation thereon, will then be excluded from the surviving spouse's estate, thereby potentially sheltering significant wealth and saving federal tax at the top marginal estate tax rate which is 46 percent in 2007.

However, many clients may prefer to avoid the payment of state estate taxes upon the death of the first spouse and in such cases, it may be necessary to prepare new wills/revocable trusts. These new documents can provide that the by-pass trust will be funded with the lesser of the federal or state exclusion amounts. Another option provides that the entire estate would pass to the surviving spouse, subject, however, to the surviving spouse having a power to "disclaim" a portion of the bequest into the by-pass trust. This option would allow maximum flexibility on a post-mortem basis to the ever evolving estate tax landscape. Alternatively, the entire estate of the first spouse to die may be paid over to a marital trust for the benefit of the surviving spouse. In such case, the personal representative may determine after the death of the first spouse not to elect "marital deduction" treatment for any portion of the marital trust (the state estate tax exclusion amount or the federal estate tax exclusion amount).

Make an Appointment:
We recommend that each of our clients have their existing estate planning documents reviewed as soon as possible. Please contact us (202-362-5900) to arrange a time to discuss your documents and what changes, if any, are appropriate for your needs.