Ep. 54 | How To Keep From Losing Money While Reviewing Closing Docs

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On this episode of The Mobile Home Park Lawyer, Ferd continues his discussions on closing documents. This time Ferd talks about settlement statements, declaration of value and warranty deeds, telling us all what you need to be looking out for when reviewing these documents.

 

HIGHLIGHTS:

0:00 – Intro
1:14 – The first document Ferd discusses is a settlement statement or your closing statement, which are important to look over because there are regularly mistakes
2:18 – There is standard stuff you want to make sure you get credit for
2:57 – Make sure security deposits are transferred
3:22 – Make sure you have to have all the prorations
4:09 – Look for anything you’re supposed to receive
4:37 – Ferd quickly goes through some other standard fees to look out for
5:46 – Another document you want to make sure is good to go is a declaration of value or a sales disclosure form
6:33 – Tax assessors look for things like transfer documents, and the collectors will collect based on value
8:07 – Another document is some kind of affidavit of identity
9:05 – The last big legal document is the warranty deed
10:14 – You never want to buy with a quitclaim deed
11:04 – Warranty deeds can be state-specific
12:07 – If you spend more than an hour of legal time on warranty deeds, you’re doing it wrong
12:40 – Ferd tells a story about a store throwing extra things onto your bill, similarly to how settlement statements can be wrong

 

FULL TRANSCRIPTION:

Welcome back mobile home park nation. Today I want to talk a little bit more about closing documents. We’ve already gone over kind of, a bill of sale when you buy a mobile home park and what’s involved in that. We’ve gone over the assignment of leases. Today I want to go over just kind of the rest of the closing documents. At least from the buyer side, I’m going to leave out the lender docs. At this point, that’ll be more detailed in another episode. Things like a mortgage or a deed of trust, promissory note, some of the ancillary documents related to lending and things of that nature. But today I really want to go over really the closing day to kind of the documents we should get the last minute. One of these is your settlement statement or your HUD or your closing statement.

It goes by different names, but it’s basically the two- or three-page document. That’s got a bunch of rows in it. Hopefully, they’re numbered some title companies don’t number, which blows me away, frankly, but some of the numbers, have things like no gross amount due from borrower. And it’s got a bunch of detail, gross amount due to the seller and a bunch of detail. It’s important to look over that instead of just trusting the title company, because there are errors on these things all the time. Sometimes the title companies try to sneak fees on there and they’ll try to charge you for an appraisal or, you know, I did have a bank started charging me for an appraisal. And I was like, I already paid the appraiser direct, or I’ve already paid that as a deposit. They’re like, Oh yeah, yeah, my bad, like, yeah, right. Not buying it, but so you got to watch your own money. I tell these people all the time, even like with your CPA or your financial advisor, nobody’s going to watch your money as well as you do. And hopefully, you’re really watching it, but there’s just a lot of errors on these things. And really, it’s not that hard to figure out these are pretty simple, but I still see errors. So, if you’ve got the standard stuff, you want to make sure you get credit for, like, if you put down an earnest money or deposit, you need to make sure you get credit for that. It’s going to show up on here. You’ve got things like your loan amount. If there’s any seller-paid credits, like the one I’m looking at right now is that’s got a lot for credit 3000. And on this park, this was an Iowa deal. There was a lot of forehead, mobile home at a title issue. So, I got, I said, you either fix it and go through all the titling and abandoned housing act or the quiet title process or whatever it takes, or I will. And if I do, I got to pay fees and process and really just got to pay for brain damage for me or my staff.

So, I said, I want $3000 bucks for that. And they gave me a $3,000 concession. You want to make sure that any security deposits are transferred. The security deposit should be listed on that assignment of leases as part of the certified rent roll because those are when you buy, those are liability. That’s not your money. That’s the tenant’s money. And in some states, you are required to keep that in a separate segregated account. And in some instances that separate segregated account actually has to even be interest bearing. And you sometimes you have to tell tenants where it’s at. So, you’ve got to make sure you get credit for that. And you’ve got to make sure you’ve got all the regular prorations County tax. Sometimes your special assessments. There’s obviously rent prorations, unless you perhaps to let you close on the first or 30th, some people will negotiate the contract or some states will have a preference that on the day of closing that day’s rent goes to the buyer or it goes to the seller. So, you’ve got to, it’s generally not a big difference, but you should, you could negotiate it in your contract. It’s what’s one day, you want to do the math. I see that math wrong all the time, especially in instances where there are different rental rates.

You know, I just bought a park in Nebraska and there were some people that 165, 185, 200, 205. I don’t know why they were different, but you got to make sure you the prorations right. You can’t just say number lots of times, 200, right? So just do the math on those sorts of things. And then look for anything that you were supposed to have received. So, like on this deal, I’ve got a zoning endorsement and a survey endorsement, which are supplemental to the title policy. Typically, the seller pays for the owner’s title policy. The buyer pays for the lender’s title policy and the buyer pays for endorsements. So, if you’re getting the endorsements one, at the end of closing, you want to make sure your title policy has those endorsements. And it’s all clear, but two, you want to make sure they’re on the closing statements, because that shows that you’re going to, they’re going to be on their basically. You paid for them. You got the other standard stuff like appraisal fee, flood cert fee, wire fee, UCC fee. Sometimes you’ll have settlement closes, settlement fees from an attorney or a broker you’ve normally got title exam or title insurance fees, you know, one party or both. Recording fees, Typically that’s the buyer. Transfer stamps or sales tax stamps, those are typically the seller.

And then sometimes you get a record like the bill of sale or an affidavit, those sorts of things. So that’s really how it works. Look through this. It’s just a big math problem after that. I mean, it’s basic addition and subtraction, frankly, but just add it all up, make sure the amount owed from you if you’re the buyer or owed to you for the seller is appropriate and then sign off. And obviously, make sure everybody signs off on this document. It’s really the title company’s job, but you want to make sure you get an executed copy. I always try to get executed copy in PDF the day of closing and then get an original later. I haven’t shown up to the title company in like seven years. So, I just don’t close in person. And then I don’t know why people do, you know, it’s crazy to me, still FedEx it to you. They typically going to charge you. So, if you’re going to want to pay the $19, like they don’t charge you, but make sure your HUD statement is good to go.

Other typical documents, you want to make sure you’re good to go. And this is a state or city specific item is a declaration of value or a certificate of value, or basically some sales disclosure form. This will include things like how much you pay. And there’s some subjective nature to this, which as I mentioned in my purchase contract podcast episode, as the buyer in particular, yeah, I like to have some discretion or actually frankly, total control over the allocation to purchase price because this impacts my income taxes for things like cost segregation. You got a whole episode on that with the owner Weiss, and then it helps me on my property tax appeals. And I’ve got a whole episode on that. For example, for most county assessors, which I used to be the county assessor here in Jackson County, you know, Kansas City, Missouri, they look for things like transfer documents. In Kansas City, it is what they call it a certificate of value and they look for these for sales. Well tax assessors are only allowed to appraise or assess. And then ultimately the collectors will tax based on value that’s quote ad valorem purposes, which basically means according to value.
And it’s typically real estate or in some States also tangible personal property.

So, this time the purchase contract, and this time at the declaration at sale in our purchase, you want to make sure you’ve got the right allocation there. It’s got to be reasonable. It’s got to be consistent with your contract. Or ideally, if you do a cost segregation study, it helps to have this in your contract by the way. But you can identify things as land, land improvements, personal property tangible, like lawnmowers and tools personal property tangible homes, like mobile homes or site-built buildings. On-site the buildings will typically be considered real estate buildings, real estate improvements or things like roads, you know, signage, decks, fencing some sort of sometimes landscaping features, parking areas, common parking areas, possibly infrastructure utility lines, depending on who owns them, who maintains them and whether or not they’re serving tenant-owned park owned homes, but this is important. So, get it right in the declaration of value. And typically, there’s some form of affidavit or a penalty of perjury if you jacked us up. So, don’t mess with, don’t lie, but you cannot lie by planning in advance and negotiating better against the seller.

Most people are not sophisticated in this. So, you’d really if you are, you can really negotiate well. Other typical documents at closing, there’s some sort of affidavit of identity or owner’s affidavit. This is typically a seller related document. I mean, it matters to the buyer if the seller tries to whittle it down and then you’ve got, which is pretty rare. I just faced off against an attorney who was very sophisticated and sharp, and he willed that thing down. Well, then it was so whittled down. The title company said, we’ll agree, but it’s going to jack with Ferds’ survey endorsement or zoning versus one or the other. And I said, well, that’s not cool. So, we ended up having to negotiate or that more so that I got my endorsement, and he was comfortable. His dad was the, this guy was an attorney. His dad was the seller. So, he was very concerned his dad didn’t promise something that wasn’t true, which I can appreciate. Sometimes there’s other transfer documents related to if there’s a flood zone or groundwater hazard or things like that. But you don’t have to worry about that for the most part, the title company will give you these documents and you can then ask questions or ask your attorney.

The last big legal document you see at closing is the warranty deed. Typically, I like to buy with a General warranty deed, which is more insured if you will, more beneficial, there’s more seasons of title. And I think we used call it in law School is bundles of sticks that make up real property, a real estate. And basically, reader’s digest version, if you have a general warranty deed, and if I sold you my property with general warranty deed, I am representing that I have all these different, they call them seasons of title, all these different bundles of sticks while I owned it. And prior to my ownership, like up the chain, which is pretty bold, because I don’t know about the chain. So, it’s riskier as the seller to do general. So, I’m buying, I want the guy to do at risk, right? When I sell, I sell under a special warranty deed, which says, look, I represent that.

I got what I got, but I’m not vouching for the guy up the chain. So, if he backed it up, it’s not my fault. Don’t call it on right. It is not my problem anymore. And that’s pretty standard. And sometimes you’ll have a trustee’s deed or a limited liability company deed. Because of the nature of ownership. But normally you get a warranty, some form of general warranty or special warranty deed, and you never want to buy with a quitclaim. That’s Q-U-I-T claim to you. It is because that basically means that the purported sellers giving me whatever he or she owns, but they’re not representing that they own it or that they have any rights. This is kind of like, if you give away a mobile home, you do it via quick claim.

If you have good title, you give good title, but sometimes you just get people give away mobile home. They are like, I don’t own it. I don’t know who owns it. It’s here. I’m not saying I own it. I didn’t go through the housing act. If you move in and I’m not going to say anything, I’m looking the other way. That would have basically be a quitclaim bill of sale, which may or may not even be worth doing and writing, frankly. But generally, you should not, you shouldn’t take any stock into it because we’re not giving you any stock in it. It’s a worthless representation.

Warranted deeds are pretty boilerplate. They can be state-specific, I’m unaware of them any of them being city-specific, but they can be state-specific. And in some states, you have to have a state-licensed attorney in that state. So, there’s some states that I’m not licensed in. And I can do general real estate practice from my desk in Kansas City, all over the country. But I can’t do things like show up in court. And there are some statutory provisions like warranty deed. Like I am from Illinois. I own five parks in Illinois. I’m not licensed in Illinois. I left at 18. Didn’t like the tax structure among other things, I never came home. So, based on that, I never got my law license in Illinois. I had to hire an Illinois attorney to do a deed for me. Just because that’s part of the rules. It was kind of annoying. But for the most part, I did all the legal work. Legal work on my own on that case, I just couldn’t sign off on the deed. So just make sure, you can ask the title company that, they’ll know the local records. Other than that, there are certain provisions granting provisions and things like that, that are in the warranty deed, but any attorney’s going to have the template that knows how to do that. I wouldn’t do it yourself. It’s pretty inexpensive.

I mean, if it costs more than an hour of legal services to do a warranty deed, you’re doing it wrong. With very limited, very limited exceptions in my opinion. So anyway, closing day is exciting. It’s important. Whether you’re buying or selling, you got to make that the HUD statements correct. Cause I kid you not it’s wrong all the time. And sometimes I think it’s wrong fraudulently, which reminds me of an interesting sidebar. And as you know, it’s my show. So, I get to do sidebars. If you want to hang up now you can, or I don’t know, I don’t really listen to podcasts. Don’t tell people I said that.

Grocery business, my dad was in the grocery business, name, and food’s a big grocery chain in the Midwest here. And my grandpa, my great-grandpa, Ferd Sr founded it. And then Ferd junior, Ferd third, my dad were in the business for a long time and they didn’t do this. But one trick in the grocery businesses, they would put a, they keep a broom right by the cashier and the broom was like $12. And everybody that would go through that day, they’d scan the broom and they just Jack 12 bucks onto your bill. Most people don’t look at their bill, they are invoices. Well, if somebody notices they get home, sometimes I go whatever. And they charged me 12 bucks for a broom I didn’t buy, no big deal and they just eat it, or they just forget about it. And every once in a while, somebody would show up pissed, Hey, you charged me $12 for a broom. And of course, the broom would be right there in the aisle and the cashier would say, Oh, you left it, it is right here. No, that wasn’t my room. Oh, well, I’m sorry. Let me just give you a refund then. And the person’s like, Oh, okay, good. And they basically got away with, you know, the getting away, getting away with trying to screw that person. And they got lots of other people who were unsuspecting. So, I gave you that sidebar saying, I have literally caught title companies and banks doing that, $250 a year, $200 a year, a closing agent fee here. And maybe it was the accidental broom thing, but it didn’t pass the smell test for me. So, as I like to say, don’t trust, and verify, and that goes for your attorneys too, your CPAs, your closing agents, read the fine print, man. I mean, it’s just, there’s too many people out there taking advantage of folks and you can avoid it by being diligent. So be smart, be diligent, godless.

 

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