How is a Real Estate Deed Transferred at Final Payment?

After months fulfilling the terms of a real estate purchase agreement under the Land Contract format, the Buyer is ready to submit the final payment to the Seller to complete the transaction.

With that payment, let’s examine the process for transferring the Deed to complete the transaction.

The contract entered into by the parties requires the Seller to transfer title to the property that is not encumbered. Even with that contract language, the Buyer should review the title to the property to see if any mortgages, liens or encumbrances are shown that will or cannot be satisfied through the final payment. This can be done by searching the title –- something the Buyer can do him or herself at the recorder’s office in the county where the property is located or, more preferably, by a licensed and insured title agency hired by the Buyer to search the title.

Once the Buyer is satisfied that the only mortgages, liens or encumbrances that exist will be satisfied using the balance of the purchase price, the final payment is paid to the Seller. This final payment can be made directly by the Buyer to the Seller, or from the Buyer to an escrow agent (usually a title company) who then pays the Seller.

If payment is made directly to the Seller, the Seller will provide Buyer with a signed copy of the Deed. The Buyer will file that Deed with the county recorder’s office and pay any transfer fees or taxes that are required. Filing the Deed provides proof that the Buyer now owns the Property.

The Buyer must also ensure that any lien or mortgage that existed on the Property is released or terminated. This will require the Seller’s mortgage holder and any other person who holds a lien to file a written release or termination with the recorder’s office.

Paying the balance of the purchase price directly to the Seller then ensuring that the proper mortgage or lien releases are filed can be a tricky proposition. The Seller must first pay the mortgage company and any lien holder the amount that is owed to them. Only then will the mortgage company and lien holders provide the Seller with written mortgage or lien releases. The Seller must then file those written releases, or provide those documents to the Buyer for filing. Fees will be required for filing these releases, too. So for a Buyer or Seller not familiar with the recording system, this process can be tricky and fraught with pitfalls that could prevent the Buyer from securing good and clean title to the Property.

To eliminate the complexities of the deed and lien release filings, the parties can secure the services of an escrow agent. For a fee, this escrow agent, usually working for a Title Company with significant experienced in real estate transactions, handles the transfer from start to finish.

When an escrow agent is involved, the Buyer pays the balance of the purchase price to the escrow agent, who will deposit those funds in escrow. The Seller provides the escrow agent with the signed Deed transferring the Property to the Buyer and the escrow agent will secure the required mortgage and lien releases from the mortgage and lien holders. Then, the escrow agent will pay the existing mortgage or lien holders in order to satisfy the balances owed on those mortgage and liens. The escrow agent will then file the mortgage and lien releases and file the Deed transferring ownership in the Property to the Buyer. The escrow agent will also pay the required fees and taxes associated with the transfer of the property using the money paid by the Buyer to the Seller or with funds contributed by both parties. The balance of the purchase price will then be paid to the Seller.

To complete the process, the escrow agent will provide the parties with a statement showing how the balance of the purchase price will be paid to the mortgage holders and the parties, the costs, fees and taxes associated with the transaction, and which party will be required to contribute funds pay these costs, fee and taxes. This statement is usually referred to as a HUD Statement.

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