Important Real Estate Documents to Look Out For
When conducting a forensic accounting engagement forensic accountants may need to review real estate documents. Buying or selling a home is a major transaction for an individual or business and often involves large amounts of money.
Several important documents are signed by the buyer and seller in order for a real estate transaction to occur. It is important for the accountant to carefully review these documents and ensure they are reviewing the latest version signed by the buyer and seller. Below is a summary of some of these important documents.
Loan Estimate
The loan estimate document replaced the Good Faith Estimate and Truth in Lending documents as part of the new rules established by the Consumer Financial Protection Bureau in October of 2015. This document advises the borrower details about the loan they have requested. The estimated interest rate, monthly payment, and closing costs are outlined on the document. In addition, the estimated costs of taxes and insurance are described in the document.
Closing Disclosure
Also as part of the new rules established by the Consumer Financial Protection Bureau in October 2015, the Closing Disclosure document replaced the HUD-1 Settlement Statement. At least three business days prior to closing, the lender is required to provide the borrower with this document. The Closing Disclosure form provides key details regarding the sale price, mortgage and closing costs. The first page includes the terms of the loan including the amount and interest rate. The form also documents if the seller, buyer, or third party is responsible for certain closing costs/fees such as application, underwriting, appraisal, title. Other costs include homeowner’s insurance premiums, property taxes, homeowners’ association fees, real estate commission, and others. In addition, loan disclosures for late payments and the escrow account are included in the form. These fees can be negotiated by each party prior to closing. Disputes between parties may arise if all costs are not clearly documented on the Closing Disclosure.
Promissory Note
The Promissory Note is the loan contract. It contains the terms of the loan, the rate, payment intervals, and payment changes during the life of the loan, and any prepayment penalties. It also states that the home is the security for the loan, allowing the lender to have a claim to the property if payments are not made according to the note’s terms. Depending on the state you live in, the borrower will then sign a security instrument known as the Mortgage, Deed of Trust, or Security Deed. Fannie Mae (https://www.fanniemae.com) provides guidance by state on what documents borrowers will sign when purchasing a home.
Property Deed
The Property Deed is a legal document that transfers ownership of a property from the old owner known as the grantor to the new owner known as the grantee. Deed requirements vary by state. Certain elements are required in order for the deed to be legally binding. Different Property Deed types offer different levels of protection for the grantee (new owner) from claims to ownership of the property by other parties.
The information contained herein is not necessarily all inclusive, does not constitute legal or any other advice, and should not be relied upon without first consulting with appropriate qualified professionals for your plan’s individual facts and circumstances.
