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What to do When the Seller isn't the Seller

There are variations in the manner a person or entity can hold title to real estate. We usually encounter a seller as an individual or perhaps a husband and wife couple. This checklist is provided to give you a step up in dealing with variations in different types of ownership interests when listing a property by making sure you have the necessary information that will bind the seller to the contract, listing agreement and closing documents.

The Individual Seller: This is the most common way residential real estate is held. If you are dealing with an individual or couple who hold title to the property make sure you acquire the following:

  • Obtain a prelim to confirm the manner in which title is held

  • Obtain the social security numbers of the parties

  • Obtain the names, account numbers, and approximate balance of all mortgage liens on the property

  • Verify the marital status of each owner and get the name of any spouse of the owner who is not in title and tell the client that all these individuals are necessary parties to the contract and the closing

  • Confirm that all the owners and their spouses will be present at the closing, and if not make arrangements with the closing company to get the clients pre-signed - Make sure that each owner is a United States Citizen

  • If a Power of Attorney is anticipated to be used, make sure that the whereabouts of the original instrument are known and that the original is brought to closing. Before closing, make sure the closing company has reviewed and approved the use of the Power of Attorney

  • If the seller tells you they are currently going through a divorce, then ask the names and contact numbers of any the attorneys involved and whether or not the final decree is anticipated to be filed prior to closing. Tell the closing company that a divorce is pending and any special instructions your clients have told you concerning division of any proceeds

The Deceased Seller: In dealing with an estate, you will need to make sure that the individual representing the estate is a duly authorized and empowered representative of the estate. You should acquire from the representative the following:

  • Obtain a prelim to confirm the manner in which title is held

  • Probate Court Document entitled “Entry Appointing Fiduciary” which shows the individual that has been appointed as Executor or Administrator for the estate

  • If the decedent owned only a fractional interest in the property, treat the other owners as indicated above under the “Individual Seller”

  • Obtain the name and contact number for the attorney handling the estate - Obtain the Tax Payer ID No. for the estate

  • Obtain the other information you would for any “individual seller” shown above, but know that an Executor, as a Fiduciary, can not give Power of Attorney to another to handle their duties

The Seller as a Trust: It is becoming more common for individuals to place their assets into revocable living trusts as a manner of estate planning. When your seller has placed their property into a living trust we call the owners Trustees and they are Fiduciaries for the trust, much akin to an Executor of an estate and you need to acquire the following:

  • Obtain a prelim to confirm the manner in which title is held

  • Obtain a copy of the Trust Agreement or preferably a Memorandum of Trust, which will outline the duties, powers and authority of the trustees in dealing with the assets of the trust. This should be provided to the closing company for their review and approval prior to closing

  • Obtain the Tax Payer ID No. for the trust, but in most cases the individual trustees social security numbers will be the appropriate information

  • Obtain the other information you would for any “individual seller” shown above, but know that a Trustee, as a Fiduciary, can not give Power of Attorney to another to handle their duties

The Seller as a Business Entity: It is not very common for residential real estate to be held by a corporation, partnership or limited liability company unless the property is being held as investment property. If you have a case where title is held by one of these business entities, you need to acquire the following:

  • Obtain a prelim to confirm the manner in which title is held

  • Obtain a “Good Standing Certificate” from the entity showing them as a viable entity to do business in the State or contact us and we’ll get this for you

  • Obtain from the entity evidence of the authority of the persons you are dealing with to bind the selling entity. Depending upon the type of entity, these authority documents are as follows: Partnerships: A Partnership Certificate will list all the partners of the partnership and if less than all the partners will be signing the contract and other documents, you will need a Partnership Resolution signed by all the partners indicating who can sign on behalf of the partnership. Corporations: A Corporate Resolution will list the officer or officers by name and title, who are authorized on behalf of the corporation to bind the corporation to documents and contract involving the sale of real estate. Limited Liability Companies: The limited liability company acts like a partnership and a corporation and the document setting forth the authority of its Members or Mangers is called the Operating Agreement. So in dealing with a limited liability company, we’ll want to make sure that the individual is listed as a Member or Manager within this document and has the authority to bind the company.

  • Obtain the other information you would for any “individual seller” shown above, but know that a Partner, Officer or Member, as a Fiduciary, can not give Power of Attorney to another to handle their duties

  • Obtain the Tax Payer ID No. of the entity and their mailing address

The Seller as a Bank or as a Relocation/Employer Company: You might encounter a listing where the property has been acquired by a Bank for non payment of the mortgage they held on the property or the seller’s Employer is handling a relocation. In most cases, like a Relocation Transaction, the Bank will be represented by a closing company. This representation does not require that the closing take place with the Bank’s or Relocation Company’s closing company, but most of the necessary information the closing company handling the transaction will need concerning the seller is with the seller’s closing company. In dealing with these Bank Owned properties or Relocation directed business, you should make sure of the following:

  • Does the purchase contract addendum required by the Bank or Relocation Company require the use of their closing company for the end purchaser to receive closing cost contributions or Owner’s Title Insurance coverage paid for by the seller

  • What are the Bank’s or Relocation Company’s reimbursement requirements when it comes to repairs, utility bill payments or inspection costs

  • What is the referral fee required to be paid from the commission

  • What time frame is required for the Bank or Relocation Company to forward the necessary closing documents, such as the Deed, to the closing

The Seller as an Investor: When your seller does not occupy the property being listed and is an investor of real property, in addition to the information you would obtain as you would with any “individual seller”, discuss the following with the seller:

  • Obtain a rent roll on the property and know the amount of rents paid under leases for each unit in the property and the security deposits held by the seller. Depending upon the timing of the closing, rents are generally prorated between the parties and security deposits are turned over, together with the original lease agreements themselves.

  • If your investor seller intends to use the proceeds from the sell of the property to acquire other investment properties, discuss the possibility of utilizing a 1031 Tax Exchange so that the capital gains associated with the sale can be deferred to some future time

The Seller as a Land Contract Holder: When you are dealing with a seller who is not yet the title holder to the property but is the owner by virtue of a land contract, you will need to obtain the following:

  • Obtain a prelim to confirm the manner in which title is held

  • Obtain the names and contact numbers of the original owners and determine the information from them that you would acquire from an “individual seller” concerning marital status, mortgage information, social security numbers and availability for closing

  • Obtain the amount of the payoff the seller owes the original owners under the land contract, through the anticipated closing date

  • Remember that the paying off of a Land Contract will involve a 2-step closing process and that the original owners are necessary parties to the closing process

 
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What is Title Insurance
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Role of the Realtor with their Title Co
Various Types of Deeds Used in Real Estate Transfers
What to do When the Seller isn't the Seller
 
 
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