Tennessee Real Estate FAQs

Whether you’re dealing in residential or commercial property, a real estate transaction is likely the largest single investment you make in your personal or professional life. Unless you’re involved in real estate as a living, you probably don’t go into real estate transactions very often. It can be stressful making such big decisions without adequate information or the advice and assistance of a trusted professional. Below are answers to frequently asked questions our attorneys often hear from first-time home buyers and sellers or house flippers and investors new to the business. If you have other questions call River City Title & Escrow in Memphis at 901-723-9200.

Q. What is a real estate closing?

A. Simply put, a closing is the final step in most formal real estate transactions. The actual closing involves reviewing and executing documents for the purpose of completing the transaction. Anyone who has been through a closing may know that it is basically a lengthy and convoluted meeting with the closing attorney. But it is important because it is the last chance to address problems and ask questions. The deal itself is officially “closed” when there are no remaining issues, all distributions have been made, and the new owner of the property has taken possession of the property.

Property owners who are refinancing or taking out new loans on real estate also go through a closing process. This differs from the purchase/sale context a little, but accomplishes the same goals. The main purpose of such a closing is to protect the lender’s investment, but it also benefits the borrower by identifying any new problems with title that may have arisen.

Q. What should I bring to closing?

A. Closing is the official transfer of ownership of a piece of real property. At closing, necessary documents are signed, funds are exchanged, and the title and deed are handed over. If you are the buyer, you should bring an official photo ID so documents can be officially notarized. These documents will likely include a note that describes the mortgage terms and a deed of trust that confirms the house as mortgage collateral. You’ll also need to bring a cashier’s check covering the remainder of the down payment and closing costs. For security, you can have the check made out to you and then sign it over to the seller or title company at the closing. You might also need to present a copy of a valid homeowner’s insurance policy, including flood certification if required.

If you are the seller, you’ll need to bring photo identification, as well, so the documents you sign can be duly notarized. Of course, you need to bring a complete set of keys to the property, and don’t forget the garage door openers! You might also need to bring final utility meter readings or other documents required in your locality.

Closing always takes longer than you think it will, and it takes forever if you aren’t prepared. Work closely with your attorney, the closing agent and title company beforehand so you’ll be as prepared as possible for a smooth and successful closing.

Q. What is “escrow” and how is it involved in my transaction?

A. Escrow refers to an agreed-upon place in which money or property is held pending the occurrence of an event or events. Usually the escrowed money or property goes into a bank account. In the course of a real estate transaction, your closing attorney may hold earnest money or other funds throughout the process to be disbursed either at closing or upon the occurrence of an agreed-upon event. If you are financing a purchase, the lender may require an additional agreement to hold some money escrow to be disbursed periodically. This is usually to ensure timely and full payment of things like taxes and insurance. Escrow is not however specific to real estate closings and can be used in many contractual contexts.

Q. What is title insurance?

A. A great deal of work goes into making sure the buyer gets good, clear title to property in a real estate transaction. This effort includes a title examination, which is a study of the records related to the history of ownership of the property. A thorough title exam should turn up any questions of ownership, defects in the title, or potential claims against the property. Sometimes litigation is required (suit to quiet title) to clear a cloud on the title, such as the existence of a lien, a property line discrepancy, boundary dispute or easement. Matters such as these most often require litigation to clear the title; they are generally not matters you can resolve at the closing.

Title insurance protects the buyer from undisclosed defects that impair ownership rights or from damage caused by a negligent or faulty title search or examination. For instance, the title examiner may have made mistakes in examining records, there may be errors or omissions in the deeds themselves, or there might even be forgeries or undisclosed heirs. Title insurance warrants that the title the buyer receives is good, and if a problem with the title later arises, the title insurance company fixes the problem and pays for any damage caused to the buyer.

Some title insurance policies include blanket exclusions for matters such as eminent domain or environmental disasters, and they may include riders regarding specific known, suspected or unresolved issues related to the particular piece of property. Title insurance policies are highly technical and complicated; it’s good to have your attorney involved in the title search or examination and make sure your title insurance policy is explained to and that you understand it.

Q. What is a title examination?

A. The closing attorney examines title so they can give an opinion on the status of the title. The goal is to provide an owner with assurances about their rights to the property and anything that might affect those rights. This is a massive cost-saving measure that protects owners of property from unexpected problems with a major investment and sellers from liability for not disclosing something they knew or should have known about. The cost of the title examination is nothing compared to lengthy litigation real estate.

The examination starts with a search of relevant public records. The examiner uses that information to confirm the “chain of title” is unbroken by confirming that there is a record showing how each owner of the property in the search period validly took title. Sometimes the examiner cannot confirm how someone came to own the property, or they see multiple parties claiming the same ownership at once. They must then try to figure out why title did not pass correctly and help get the problem corrected if necessary. They are also looking for problems like fraudulent transfers or incorrectly executed deeds.

The goal of the closing attorney is to confirm that title to property is “clear.” A title examination looks for “clouds” on title like liens, covenants, and restrictions. The examiner gives an opinion on whether the encumbrance can/should be cleared from title or if cloud on title passes from owner to owner. This includes unavoidable restrictions and requirements like code ordinances, subdivision restrictions, utility easements, and other restrictions that each owner of that property must abide by no matter what.

Q. What are some common title issues?

A. Common title issues include:

• Property transfers not involving an attorney – Non-attorneys may not understand legal requirements or the consequences of not following them. This frequently leads to omissions and mistakes that can cause serious problems.
• Unpaid taxes – The closing attorney will almost always look at whether taxes are owed and then require any outstanding taxes to be paid.
• Deceased owners of record – When an owner of a property passes away, their property title will pass either as directed by the deceased person or by operation of law if they did not leave legally enforceable directions. How the property passed is a major point of concern when examining title because the last owner of record is obviously not going to be the one transferring title in a subsequent transaction.
• Property descriptions – Before closing a transaction, the attorney will ensure that the legal description of a property accurately identifies the property. This is a requirement for title insurance, but also can be a source of litigation if there is a dispute as to who owns what.
• Liens – Liens can be imposed on real estate for a lot of reasons, but usually for an unpaid debt.
• Foreclosures – Foreclosure is the process of a creditor taking title to a property to satisfy a debt. It is usually used in regards to mortgage defaults, but sometimes refers to the sale of property to satisfy a variety of types of debts.
• Divorces – The divorce process frequently involves division of real estate owned by a couple. The results of the divorce can cause confusion about things like who actually owns the property, or the spouses may not understand who is responsible for mortgage payments. This is a great example of how other areas of law cross over into the closing process, and further highlights an attorney is preferable to a non-attorney to handle a closing.
• Agency – Agents can be anyone taking action on behalf of someone else. There are many situations where a person might want or need an agent to complete their real estate transaction. The closing attorney sometimes finds issues with things like the appointment of the agent, the validity of the agent’s actions, or they may find that a person became an agent through pressure or coercion.
• Simple Errors and Omissions – The smooth transfer of real estate is a key part of American property rights. Even a small mistake, like the phrase in a game of telephone, can morph and grow over time into a much bigger mistake. Luckily there are processes available to fix minor mistakes such as a misspelling, a misidentified party, or an omission in a parcel ID.
• Ongoing litigation – Sometimes a title search reveals ongoing litigation involving a property or the property’s owner that may affect rights to the property or bar the transfer of ownership.

Q. Is flipping a HUD home a good idea?

A. A HUD (Housing and Urban Development) home is a house that was purchased through an FHA (Federal Housing Authority) loan but was later foreclosed by the government. HUD homes are prime targets for flippers since they are usually sold far below market value, although often in an as-is condition.

Buying a HUD home is not like buying a regular house. Instead of making an offer, you bid on the property, sort of like a silent auction. When you can put in a bid on a HUD home depends on the number of needed repairs and whether the home is deemed insurable through the FHA. If the house requires less than $5,000 in repairs, it is likely FHA-insurable. If the home is uninsurable, you can bid on the home seven days after it comes on the market. For homes that are FHA-insurable, you can’t put in a bid until the house has been on the market for 30 days.

Buying a HUD home is a different animal from buying a conventional home. You must go through a HUD-registered agent, and you really want to find one who is not only registered but who has experience dealing in HUD homes. There are different rules for inspections and return of earnest money, and it can be hard to get a loan for an uninsurable property if you aren’t paying cash. The purchase price of a HUD property might be very attractive, but there could be major defects and building code violations you don’t know about. Do your homework, and work with an experienced local real estate attorney who can guide and advise you through the process.

Q. I got a notice of a code violation that says I must go to Environmental Court. What is this?

A. This is notice of violation of local building code, though you may see violations for plumbing code and other ordinances. Usually a property only gets a citation requiring an appearance in Environmental Court if the violation is really bad. There are many reasons the code inspector could find a property in violation.

This process came as a result of Memphis and other cities (especially Cleveland and Wilkes Barre) searching for innovative ways to address the vast number of distressed properties in their community’s. As a result, the Tennessee Neighborhood Preservation Act was enacted as an additional enforcement mechanism to identify code violations and supervise remediation. The NPA also established Environmental Courts, which are specialty courts specifically tasked with hearing NPA cases and related code violations. In some cases, the Court imposes a “receivership” lien that bars transfers of interests in the property and allows the Court to appoint a receiver to remedy the property if it becomes necessary to do so.

Our firm handles some of these cases. Please inquire if you have questions about blighted properties or if you’d like to be appointed receiver. It is a new and ever-changing law that can affect every property owner in many Tennessee counties.

Q. I already have a real estate agent and a title company. Do I need an attorney too?

A. An attorney can help you in countless aspects of your real estate transaction, including negotiating a deal that meets your price while also protecting your interests. An experienced real estate lawyer can explain the risks and benefits of a particular transaction to enable you to make an informed decision. Your attorney can also handle issues at the pre-closing stage so that your closing is primed for success. However, any closing agent will tell you that something unexpected always comes up at closing, no matter how well prepared you are. Having an attorney present at the closing or on-call means you can deal with whatever issues arise and conclude the transaction successfully whenever possible.

Q. Does your firm accept credit/debit?

A. At the moment we only accept checks, wires, and in very limited circumstances small cash payments.

Q. What sets your firm apart from others?

A. In Memphis and the surrounding areas we are fortunate to have a dearth of highly respected and accomplished real estate attorneys. We pride ourselves on having attorneys and staff with a wide variety of experience in the real estate field. This helps us offer our services to many more clients, whether they are involved in real estate investing, rehabbing distressed properties, or simply want to buy a home for the first or twentieth time. We are also very lucky to have attorneys licensed in Mississippi and New York, which allows us a wider area of service coverage. Please see our employees’ profiles for more information about their unique experiences and expertise.