Details - Lending Guidance

Contents

 

Foreword

Start at The Exit

Appraisal Guidelines
Collateral Underwriter

Determining Feasibility

Analyzing for Profit Potential
Determining AIV for Divestiture
Calculating Purchase Price
Acquisition Costs
Improvements
Holding and Carrying Costs
Divestiture
Analysis of Risk and Reward

Financing With Mortgage Money, Inc

Loan Pricing
Lender Proposal
Planning and Refinement
Collaboration / Lender Proposal / Agreement
Title Vesting / Taxation

Property Acquisition

Contracting for Property Acquisition
Inspections / Due Diligence
Construction Bids / Verifications
Title Insurance Commitment
Risk Insurance
Loan Package Submission and Underwriting
Closing Setup
Acquisition Closing
Funding

Improvements

Improvement Permitting
Construction Plan Execution
Construction Escrow Draws
Inspections; Lender / County
Cleanup / Listing Prep / Staging

Divestiture

Listing for Resale
Pricing for Advantage
Contracting for Resale

Resale Process

Hold Open Title Policy
Inspections / Due Diligence
Re-appraisal
Resale Buyer Underwriting
Closing Preparation and Setup
Deed Review
 

 


 

Foreword

 

Start at The Exit

The whole process of acquiring property below market, improving and reselling in a short period of time for a profit, otherwise known as “flipping”, begins with the exit strategy.  Start the process by identifying a property that appears to have profit potential and begin to determine what the likely value of the property will be after improvements have been completed.  In order to accomplish this correctly and avoid valuation problems with the re-sale, it’s important to have a basic working knowledge of appraisal guidelines.

Appraisal Guidelines

Appraisal guidelines may restrict the resale buyer of the subject property, assuming they will be financing the purchase, to a justifiable appraisal value based on those guidelines.  Government Sponsored Enterprises such as Fannie, Freddie, FHA, VA, ultimately own or insure most of the mortgages in the U.S.  The GSE’s have specific guidelines with regard to how they want their appraisals prepared, and any bank that sells a mortgage to them must follow the protocol. 

 

There are three primary criteria that will serve to keep investors within the lines when analyzing and choosing comparable sales:  1) physical features, 2) location, and 3) date of sale; and not necessarily in that order.  Select comparable sales that have the best combination of those criteria. 

 

Date of sale means applying more credibility to a more recently closed sale over an older one; typically within 6 months or less, but use the most recent. 

 

Physical characteristics means the most similar, for example when valuing a ranch style floor plan, do not compare with a 2-story, tri-level, or bi-level when other ranch style plans are available for comparison. Similarity includes square footage; choose comps within 20% larger or smaller than the subject property, and then adjust for differences greater than 100 square feet. 

 

Location or proximity; real estate values are hyperlocal, do not go outside of a 1 mile radius from the subject property unless nothing appropriate is available within the 1 mile radius, and furthermore a comparable sale ¼ mile away is better than a comparable sale ¾ miles away. 

 

Choose comparable sales that need the least amount of adjusting by the appraiser because they are so similar to the subject property.  Utilize these governing criteria in the selection of the three primary comparable sales for the purpose of deriving the AIV or After Improved Value.  Like an appraisal, the AIV must be based on credible sales data with the exit strategy in mind; meaning if the resale buyer can’t get the appraised value to match what they paid, the transaction could fail.

Collateral Underwriter

Collateral Underwriter” or CU, is an appraisal risk assessment application developed by Fannie Mae to help loan underwriters assess appraisal quality.  CU provides a numerical risk score from 1.0 to 5.0, with 1 indicating the lowest risk and 5 indicating the highest risk based on a combination of physical features, location, and date of sale.  Features such as square footage, lot size, bathrooms, quality, view, etc. are also considered.  Flags and messages identify risk factors and specific aspects of the appraisal that may require further attention.  CU began integrating with automated underwriting systems such as Desktop Underwriter beginning in April 2015.

Investors and developers must be aware of the increasing scrutiny and regulation of appraisal guidelines which may ultimately affect the resale buyers ability to finance the property.  It’s a well known fact that suppressing lending lowers property values.  To avoid problems, keep all this in mind when planning the short term divestiture of investment property.

Determining Feasibility

Analyzing the deal for Profit Potential

Generally, the property should be acquired for no more than 60%-80% of the After Improved Value to make the flip successful.  There are four categories of expense to analyze including acquisition, improvements, holding, and divestiture.  Let’s take a look at each individually starting with divestiture, or resale of the property.

Determining the AIV (After Improved Value) for Divestiture

In accordance with appraisal guidelines mentioned previously, select the three comparable sales most applicable to the subject property, with one exception; condition.  The goal is to derive the value of the subject property after it has been remodeled and improved, so select comparable sales that are in the same condition as the subject property will be after it’s improved.  Make adjustments as necessary to the comparable sales to equalize them with the subject property, and then derive from that the anticipated After Improved Value of the subject property.  This is the net resale price for purposes of divestiture. 

Calculating Purchase Price

Once the AIV has been established, deduct from the AIV the other categories of expense; acquisition, improvements, holding, and divestiture, to arrive at the optimal purchase price for acquisition of the property.

Acquisition Costs

Expected acquisition costs include physical inspections to determine the safety, structural soundness, and functional utility of the property, as well as title insurance and recording fees, appraisal, survey, and attorney’s fees if applicable.

Improvements

Improvement costs can swing widely depending on condition, renovation plans, construction materials and labor availability among other factors.  Walk the property with a smartphone or digital recorder.  Imagine the property in its’ after repaired condition and record everything that needs to be done to affect that AIV condition, room by room, area by area, inside and out.  Enter the recorded data item by item into the Improvement Schedule.  Estimate the costs of each item.  It's important to document everything that may need to be addressed and leave nothing out.

Holding and Loan Carrying Costs

Depending on the structure of the acquisition financing, there may be monthly payments required while the property is being renovated and marketed for resale.  These holding costs may include principal and/or interest payments on the loan, builders risk insurance to cover hazards and loss, property taxes and owner’s association dues.

Divestiture

Analyze the cost of divestiture, which is what will it cost to sell and get out of the property.  Typical expense would include an owner’s title policy, property taxes, real estate commissions, seller-paid closing costs on behalf of the buyer, and attorney’s fees if applicable.  Ask the title company to get involved early and prepare a settlement statement to work from.

Analysis of Risk and Reward

Utilize this information by entering it into a spreadsheet for comprehensive analysis to determine if the property will meet investment goals on risk and rate of return.  “Rehab Valuator” is great software for this purpose and is the one we use at MMI.  The ultimate test of expectations will be determined by one’s ability to make deals.

Financing With Mortgage Money, Inc.
 

Mortgage Money Inc. does not make loans to owner occupants who plan to live in the property at any time now or later. Our loans are strictly for investors planning to improve and resell the property in a short time. Usually 6 months or less.

Loan Pricing

Our shareholders require that we yield between 10-15% return on funds lent.  The range between 10-15% depends on risk factors in the deal such as Loan-to-Value After Improvements (LTVAI), loan structure, property characteristics, location, experience, repeat business; the more risk, the higher return required.  

We achieve the ROI requirement in three ways; discount points, interest rate, and yield spread (percentage of profits shared at resale).  Pricing is allocated and balanced between these three revenues based on the individual needs of each borrower to create a highly customized lending solution.  

Private lending of this nature is property specific, so pricing depends quite literally on the property and the structure of the deal.  Often we can finance the acquisition and improvements all while not requiring any loan payments for the duration of the term.  We also have very unique ways of reducing risk and that enables us to further lower the cost of borrowing.  For a specific pricing quote, submit here.

Collaboration With Mortgage Money, Inc.

Lender Proposal

Submit a proposal on the website for our consideration.  We will respond with a spreadsheet to communicate the financial aspects of the deal which clearly illustrates what each party stands to gain.  

Be realistic, don’t expect to make all the money while taking no risks and not putting any money into the deal.  Understand that while finding the property is crucial to the transaction, so is the funding and you can’t do one without the other.  The lender will be taking substantial risk, typically more than others involved, and will need to make a reasonable return as well.

Planning and Refinement

The next step is to meet at the property and continue the evaluation.  The main purpose of the meeting is to determine property eligibility and firm up the specifics of the improvement plan.  MMI will get a visual fix on the current condition while the investor communicates the scope of work during the improvement process.  This is particularly important if MMI will be financing the improvement costs, because the construction draws for those improvements will be tied to specific milestones identified in the scope of work plan.  It’s important to develop a realistic improvement schedule based on an appropriate budget and stick to it; change orders are expensive and cause unnecessary delays. 

The Borrower will be held strictly accountable to the scope of time and work plan and they must take full responsibility for the costs and time associated with materials, labor, procedures, and machinery as required.  it is the job of the Borrower or their contractor to know accurate labor costs, timelines for completion, and amount and adequacy of materials or machinery required.

Less experienced investor's should collaborate with MMI, or a real estate professional skilled with investment properties, to determine the best course of action with the property in order to achieve the highest sales price combined with lowest possible improvement costs.

Collaboration / Lender Proposal / Agreement
Once key aspects of the deal such as the risks, time to completion, structure of the financing, rate of return, have been ascertained, MMI may propose scenarios to the borrower and prepare a loan proposal based on the terms needed to achieve the desired rate of return. This proposal may be acceptable to the borrower, or the brrower may adjust the terms and counter propose to MMI for consideration. Each will evaluate the proposal and come to terms under a mutually acceptable financing agreement and move forward.

Title Vesting / Taxation

Be sure and discuss title vesting with MMI during the collaboration process as this may change the risk profile of the deal.  MMI may lend to individuals, companies and trusts on a case-by-case basis; at times a personal guarantee could be required.  The art of limiting risk through various title vesting strategies is beyond the scope of this guidance, but we encourage investors to consult competent counsel for advice.  William Bronchick is a well known attorney in the Denver area specializing in this kind of law, among others.

Property Acquisition

Contracting for Property Acquisition

Writing a winning real estate contract is both an art and a science.  A well written contract communicates experience, low hassle, fair dealing and professionalism; all of which are characteristics any buyer or seller would want present during the process of transacting real estate.  Start by crafting the contract around the needs of the seller in exchange for the right price and terms.  If possible, make the contract assignable so as to keep the most options available.  Arrange dates and deadlines to flow efficiently by grouping them according to related contractual actions.  For example, group delivery deadlines together for things such as title work, owner’s association docs, seller disclosures, insurance and due diligence documents, while grouping objections to those items closely together.  Group survey and inspection, and possibly the appraisal dates together, and so forth.  Are there contingencies that can be waived to make the contract more attractive?  Would a large earnest money deposit impress the seller? If there is competition for the property, would a price escalation clause make sense?  What about a Specific Performance guarantee; most buyers are too afraid to choose this option, so that creates an opportunity if the deal is right.  MMI can provide a strong “proof of funds” letter that will show pre-approval for a loan, which can accompany the contract when it is submitted.    

Inspections / Due Diligence

It is important to complete inspections and due diligence as soon as possible after going under contract.  Discover everything possible early in the process.  Regardless of the contingencies which may have been waived to get the deal, we recommend completing crucial inspections anyway.  For negotiation purposes, submit your findings in writing to the seller and copy interested parties.  This can serve to put the seller in a position where they will have to disclose known defects or risk possible litigation later, and it may help massage the negotiations.  It’s better to lose $1,500 in earnest money than lose $15,000 to a bad sewer line.  For this reason, MMI will typically require a sewer inspection prior to final loan approval.  Always remember the next buyer will very likely conduct a complete inspection for general issues, sewer scope and radon gas levels at minimum, so know what they are going to find and be prepared to deal with it.  Other due diligence might include warranties, building plans, construction permits, surveys, prior inspections, radon tests, soil reports, engineer reports, documents from an HOA or notices from city, county or state governments, current leases and amendments or other occupancy agreements, and other issues that may require investigation.

Construction Bids / Verifications

The best way to limit labor and material expenses to ensure the project comes in as budgeted is to obtain multiple bids.  Create a clear, concise, detailed improvement plan and put it out for bids.  The more detailed the scope of work, the more leverage the developer will have with contractor’s.  Let all participants know they are competing for the job.  After obtaining and comparing bids, are there opportunities to utilize the best of each bid?  Take some time to verify material costs and do a “make-sense” check on labor.  For example, x price for x number of laborers for x amount of time should approximate a reasonable labor cost per worker per hour.  This helps to avoid paying rock layers like rock stars.  We recommend separating labor and materials and purchasing those materials directly if possible.  Some contractors don’t like to break it all down, partly because they don’t like paperwork, but sometimes it is because the more detail given, the more the developer can hone in on the actual labor costs.  Some will claim they can get materials at a lower cost and so the developer should allow them to handle materials as well; which may or may not be true.  Look for ways to develop long term reliable relationships with these bidders.  Negotiate for win-win, but stay in budget.   If the developer will be directing the construction process, pay attention to the personality mix and styles of those who will be communicating with each other often.  Along with financial strain and delays on the project, it can cause a sense of panic if a contractor walks off the job because they can’t get along with the developer.

Title Insurance Commitment

We require a title insurance commitment from a reputable highly rated carrier.  Developers reselling the property in less than one year can typically qualify for a “Hold Open” Title Insurance Policy, which allows them to hold the policy open until the end buyer closes on the resale.  This saves a bit of time, but mostly money, because for a nominal extra fee at the acquisition closing, the developer can avoid paying the full cost of two policies.  The Hold Open Policy option is less costly than a reissue rate as well.  Like every insurance policy, review carefully and understand the requirements and exceptions for coverage.  The best title companies will have legal counsel available for questions and solutions upon request at no additional charge.

Risk Insurance

Builder’s Risk Insurance is a crucial part of the development process and must be obtained by the borrower and approved by MMI prior to closing.  Builder’s risk insurance differs from a typical hazard insurance policy by insuring the structure and building materials while under renovation and while being unoccupied.  Insure the property for the full value after renovation, and add to that the potential costs of demolition and debris removal, which is costlier than most realize. 

Loan Package Submission and Underwriting

Documents typically needed for underwriting include purchase agreement and all related seller disclosures, appraisal or value analysis, engineering reports, short term resale profit analysis with long term rental contingency plan, scope of time and work budget with material and labor breakdown, improvement contract with contractor’s, copy of contractor’s liability policy, documentation of experience through prior projects completed, title insurance commitment, builder’s risk insurance binder with paid receipt for one year in advance, borrower credit report and copy of driver’s license.  For best efficiency, all documents should be submitted at one time, all together.  The verification and underwriting process will typically take 48-72 business hours in most cases. 

Closing Setup

Once the loan is approved MMI will send the loan closing documents and a breakdown of the financial figures to the title company for settlement statement preparation.  The statements are then prepared by the title company and sent back to and approved by MMI prior to distribution to other parties.  Once all parties have reviewed and approved the settlement statements, the closing can take place.

Acquisition Closing

The closing date and time are typically designated according to the purchase contract.  Colorado is a “wet funding” State meaning the parties must have certifiable “good funds” at the closing table or the closing cannot not take place and the party not presenting certified funds may be in default under the purchase contract.

Funding

Once the borrower has signed all relevant documents, the title company will prepare a funding package which will be sent to MMI to evidence all documents have been executed according to the lender's instructions.  Upon review and approval of the funding package, MMI will authorize funds to be released and the title company may then disburse funds, close the transaction and record the documents.

Improvements

Improvement Permitting

Most building projects in the City and County of Denver including new construction, remodeling and repairs require a building permit plan review to evaluate the project before permits are issued.  There are some instances where only a trade specific permit or a quick permit is issued with no review required.  When a building permit plan review is necessary, plans are reviewed in one of two ways; as a ‘same day / walk-in review’ or as a ‘log-in review’.  The type of review required depends upon the value and complexity of the project.  Projects that qualify for a same day review have a total construction value less than $300,000.00 and do not require approval from any other agency.  Log-in project reviews, both main and intermediate, require approval from each reviewing authority; architectural, structural, mechanical, plumbing, electrical, fire and wastewater for issuance of a permit. 

 

No demolition or construction may begin until proper permitting is in place.

Construction Plan Execution

Improvements must be executed according to the scope of time and work plan in order to keep the project on track and eligible for subsequent construction draws.  Care should be taken to avoid change orders once improvements have begun as they are costly and time consuming and are often opportunities for the contractor to charge higher fees.

Any changes to the scope of time and work plan must be approved in writing by Mortgage Money, Inc. No demolition or construction of any kind may take place before being approved.

These changes require a revised budget to be submitted, and Mortgage Money, Inc reserves the right to approve or deny any changes or deviations from the approved plan in its sole subjective discretion.

Borrowers are expected to have carefully researched and worked with their contractor to know what is required for each particular part of the construction stage, what materials are needed, what it will cost, and how long it will take to complete.  Mortgage Money Inc.'s role is that of lender, and not project planner, project manager, or financial planner of the project.  Borrowers may be strictly held to the approved scope of time and work plan.

Construction Escrow Draws

Construction draws are disbursed by pre-determined stages of completion, at a pre-determined cost and a pre-determined time, in accordance with the scope of time and work plan.  Once a milestone has been reached, the project is eligible for additional escrow draw to propel it to the next stage, and so forth until the project is complete.  Strict control of escrow funds must be maintained and managed at all times throughout the project.  The work required under the construction draw must be completed in a timely manner as dictated by the scope of time and work plan.

Receipts for materials and invoices for labor must be submitted to MMI for approval in advance.  If there are any excess funds left over from the draw, they must be applied to the following stage of the project.  Mortgage Money Inc. will only release draw funds with a corresponding receipt for the expense.  The dates on receipts and invoices provided must correspond with the timing and dates of the draw period.  Every dollar must be accounted for, or the expense cannot be included in the draw.  Expenses that do not have a corresponding receipt or invoice become the expense of the Borrower and are ineligible for draw funds.  Draw funds may not be used to compensate or reimburse the Borrower under any circumstances.  Profit for the Borrower may only be realized at the resale of the property.  Draw funds may only be spent on the specific purpose under which they were lent, for that particular part of the construction.  Escrow funds must never be used for any other purpose whatsoever or the loan may be in default.

Lien Waivers must be obtained from the contractor’s and workers receiving payment and must indemnify the owner against sub-contractor’s leining the property as well.  MMI's representative will walk the property to verify all the components of the milestone have been completed, and that all paperwork and receipts are in order before the escrow disbursement check can be cut.  It’s important to note construction escrow draws are additional funds lent on “real property” and not for “materials and labor” and so the milestone has to be completed in order to be eligible for additional escrow funds.

The work must be completed in the time frame provided for in the scope of work schedule for that particular draw, otherwise the loan could be in default.  If the borrower goes over budget and the project gets off track, Mortgage Money Inc. is under no obligation to continue to fund the loan.  Mortgage Money Inc. is under no obligation to fund  amounts exceeding pre-determined levels for any particular draw or the total construction costs.  If the Borrower needs extra funds over and above the budget to complete the stage of construction they are in, or to complete the project in general,  it will be at the expense of the Borrower.  Note that cost over runs and any monthly payments made by the Borrower are not deductible expenses from the yield spread calculation affecting loan pricing.

Mortgage Money will charge between $150 - $225 per draw depending on complexity.

Inspections; Lender / County

Inspections will be conducted by MMI and the building authority.  MMI will inspect the property for conformance with the scope of time and work plan for construction escrow draws, while the building authority inspects the property for conformance to building code regulations.  Both require a 24-48 hour notification period.  

Cleanup / Listing Prep / Staging

Once all the improvements have been completed, the property should be professionally cleaned to make everything sparkle and smell fresh.  Staging a home can make a significant difference in the resale price and is usually worth the cost.  Like any well promoted product, presentation is immensely important, exterior aesthetics, or ‘curb appeal’ is equally important.  Touring new home builders’ models in the area gives one a sense of professional product presentation for staging and showcasing a property.  Finally, take well-lit higher resolution photos showcasing all the features and benefits of the property finishes and fixtures.  Like staging, a professional may be in order to vividly capture the essence and experience of living in the property.

Divestiture

Listing for Resale

Since cost can also be measured in terms of lost value, i.e. a lower sales price, having a concise and effective marketing and exit strategy is crucial to achieving the highest price.  The best way to achieve the highest price in the shortest amount of time with the least amount of cost and hassle is to list the property for sale with a professional Realtor®.  High exposure is key to getting not only the highest offers, but multiple offers simultaneously, a market dynamic which goes a long way to ensure the seller has captured the highest price possible.  Further, third party negotiation is a proven and effective method of achieving goals and objectives with less compromise.  The value created by a good Realtor® will exceed their cost and thus makes good financial sense.

Pricing for Advantage

Pricing the property correctly is one of those very valuable services a Realtor® can provide.  Pricing too high, means taking less over a longer marketing period while pricing too low means leaving money on the table now; either way is a loser.  Price correctly and sell for the highest price in a shorter time frame.  Further, the first couple of weeks on the market are the most critical in achieving a high price, so it must be priced correctly in order to hit that target.  Bottom line; price it competitively within its micro market and realize a better profit margin when you sell.  

Contracting for Resale

Having received multiple offers or just one offer, it’s crucial to accept the right offer the first time.  Focus on the financial strength of the buyer and their ability to close and less on who is offering the highest price.  Interview the buyer’s lender to find out how far along in the underwriting process they are.  Has the lender ‘verified’ income and asset documents for down payment, work history, does the credit and debt ratio profile meet the underwriting requirements of the loan program, have they actually run it through the computer and what was the outcome?  What if the appraisal comes in lower than the contract price, does the buyer have additional cash to solve the problem if they need it?  When choosing consider that more down payment means less risk for the lender; more security in the buyer's ability and willingness to repay means less scrutiny on the transaction as a whole, making for a smoother more reliable closing.  The lender will most likely decline to answer any questions without their borrowers permission, so anticipate this before contacting them and ask the buyer to give written permission to their lender to speak candidly in advance of the phone call.

Have the FHA anti-flipping rules been considered?  If the loan is to be FHA insured, check for the latest updated property flipping rules to be sure the deal will be in compliance before any contract is accepted.  As of January 1, 2015, the FHA anti-flipping rules are back in effect!  This means the date between recording of the last sale and the date of the new contract for the resale must be at least 90 days in between.  The purchase contract must be written on the 91st day after recording of the last sale or the loan is ineligible for FHA insurance and may be denied.  Underwriters may require the deal be canceled and restarted with a fresh contract to comply with the rule.  

This makes conventional buyers more attractive because there is no such rule for conventional financing and the appraised value does not attach to the property for 120 days as it does with FHA financing.

Also, effective 9-14-2015 FHA loans will be insured according to the new Single Family Housing Policy Handbook (SF Handbook; HUD  Handbook 40001.).  


To achieve the highest sales prices, developers should have a working knowledge of these underwriting guidelines, because first time buyers typically represent a large share of the housing market and many of them will utilize FHA financing.

Resale Process

Hold Open Title Policy

If set up initially with the property acquisition, delivering a new purchase contract to the title company within the requisite time period will produce a title commitment under the previously ‘held open’ policy.

Inspections / Due Diligence

Inspections conducted by the resale purchaser of the property will likely include a general inspection, radon inspection and sewer inspection at minimum.  Often, when issues requiring further evaluation are found, additional professionals are brought in, such as electricians, plumbers, HVAC techs to diagnose problems and engineer solutions.  Frequently requested due diligence documents might be: warranties, building plans, construction permits, surveys, prior inspections, radon tests, soil reports, engineer reports, documents from an HOA or notices from city, county or state government.  These documents should be carefully reviewed for anticipation of problems. 

Re-Appraisal

The appraisal process has been insulated from the mortgage company in most cases.  Appraisal Management Companies or AMC’s handle communication and dispatching of appraisal assignments.  If the property value is in question, it may be necessary to research and produce supporting data which can be supplied to the appraiser for their consideration.  The best way to accomplish this is to meet the appraiser at the property with the supporting documentation along with contact information so they can collaborate later if desired.

Buyer Lender Underwriting

Once the resale buyer's lender has acquired all income, asset, credit, and collateral documents from the borrower, the file can be submitted to underwriting.  Each department typically has a "turn time" for each stage of the underwriting process, such as underwriter review, document preparation, wire preparation, and funding approval.

Closing Preparation and Setup

In preparation for closing, the developer and lender should collaborate on the loan payoff so there are no lingering questions at the closing table.  MMI will prepare a mortgage loan payoff statement and send it to the developer for review.  The payoff statement will generally reflect the terms agreed to previously in the collaboration process, with the exception of the yield spread component which was an estimate previously, but known now due to having an executed resale purchase contract.  The payoff statement is then sent to the title company to be entered on the developers closing settlement statement.

The date, time, and location of the closing is dictated by the contract, closing instructions, and the parties mutual agreement.  

Deed Review

Every transaction is different; every deed is different.  Deed review requires careful proofreading for typos and misspellings; comparing title commitment schedules A and B with the deed to be sure they match; making sure the choice of deed designated in the contract is prepared on the correct form.  

The seller (Grantor) names appears 3 places in the deed:  In the first sentence; at the signature line; and in the notarization.  The names must be identical in all 3 places.  The seller names must be identical with the names of the owners on the title commitment.  Identical means identical so if the commitment includes “Jr.”, then the deed must include “Jr.” in all three places.

The buyer (Grantee) name appears once in the deed in the first paragraph.  The buyer names must be identical with the names of the buyers on the title commitment.

Joint Tenancy; Tenancy in Common:  for multiple buyers, the deed must provide that title be taken as provided in the Buy/Sell contract, or as countered or amended.

The legal description in the deed must be identical to the legal description in the title commitment.

The part of the deed review in which mistakes are found more often is in Title Exceptions.  Title exceptions are per the contract in the provisions titled Owner’s Extended Coverage (OEC) and Title Documents.  Title companies, the good ones included, often do not follow contractual requirements as to title exceptions.  Even after issues are brought to their attention, they still may not want to correct it.  Be persistent about getting it right and if necessary contact legal counsel for guidance, or escalate the requested corrections to their legal department for written clarification.  

 

A cautionary note; obtaining a property from someone with equity in their home, who is in default under Colorado law, could carry a jail sentence if done improperly.  Colorado defines a borrower in “default” once they are 30 days late on their mortgage.  That’s just one missed payment!  If purchasing a property under this scenario, stay in compliance by using the Colorado Real Estate Commission form titled:  Contract to Buy and Sell Real Estate (Colorado Foreclosure Protection Act) and be sure to carefully adhere to the requirements therein.