Key Terms

Closing   The event at which the contract of sale and purchase between the buyer and seller is completed, or "closed". At the closing the purchase money is paid by the buyer and the title is transferred by the seller. The event is also referred to as "settlement" because after closing all matters related to the transaction are final and cannot be changed except in unusual circumstances.

Contract   The agreement entered into by a seller and buyer to transfer the title to a property. To be legally enforceable the contract must be in writing and signed by the buyer and the seller. There must also be some money put down by the buyer which is referred to as an "earnest money deposit".

Deed   The document that transfers title to real estate from the seller to the buyer. Technically, this is usually a "deed of bargain and sale" but can occasionally be a “deed of gift.” The deed must be recorded in the land records at the courthouse to protect your rights of ownership.

Deed of Trust   The document that secures your loan by putting up your house as collateral. If you default on your loan the deed of trust enables your lender to foreclose on the house and sell it to get its money back. A deed of trust is frequently referred to as the "mortgage". When the deed of trust is recorded in the land records at the courthouse it creates a lien against the title to the property. More than one deed of trust can be recorded on a property, with, for instance, a first having a priority over a second, meaning it has to be paid before the second can be paid in the event of default.

HUD-1   The settlement statement. This shows all debits and credits of the buyer and the seller in a real estate transaction. The U.S. Department of Housing and Urban Development (HUD) requires this form to be used in all residential real estate transactions in all states. It was the first form created by HUD and hence the name, #1.

Mechanic's Lien   A "mechanic" -- meaning one who has worked on your property, such as a plumber or home repair contractor -- is entitled under the law to put a lien on your property if not paid promptly. You, as the seller, may have had repairs done for which a lien could be filed in the courthouse after you close on the sale of the property. This lien can be placed in front of the lien created by your mortgage lender by its deed of trust. For this reason sellers are always required to sign an affidavit at closing certifying that no mechanic's lien can be filed against the property because all mechanics, if any, have been paid in full.

Power of Attorney   A document by which you appoint another person (called your agent or attorney-in-fact) to act for you. Under the document the person can legally bind you as if you personally acted. The powers granted the agent or attorney-in-fact can be virtually unlimited (a "general power") or limited to specific acts (a "specific power"). To act for you in a real estate transaction -- for example, if you cannot attend closing and you want to give your power to a spouse who can -- you will need a specific power of attorney. A military general power of attorney is usually not acceptable for use in a real estate closing, while a specific power is. A durable power of attorney enables your attorney-in-fact to act even while you are legally incapacitated.

Title   What you own when you own real estate. Unlike owning a car where the state issues the owner a document, called a "title", in real estate there is no document called a "title". At closing the buyer receives a deed, but this is not a title. It is evidence that the buyer very likely owns the title, but, at best, it only conveys what title the seller had. Research in the land records at the court house is required to eliminate the possibility of defects in the title the seller conveys by the deed. Even a perfect title examination of those records, however, cannot eliminate all possible defects in the title. This is where title insurance comes in. Every mortgage lender will require you, as the buyer, to purchase title insurance to protect them against all risks of defects in the title. In addition to lender's title insurance, there is owner's title insurance which protects you as the buyer. If purchased at the same time as the lender's policy the additional cost is not great since the title company gives what is called a "simultaneous issue rate". Rates are regulated by the State Corporation Commission. Jones, Walker & Lake always advises the purchase of owner's title insurance.

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