An Explanation Of The Legal Documents Required In Buying A House

Q. When do I receive the deed to my house? I understand that the lender retains the deed of trust until the mortgage has been paid off and then returns it stamped “paid and canceled”. But I thought that the deed to the house is to be returned to me after it has been recorded. The title company that conducted my settlement says they will retain it in their files. They have sent me a copy, but refuse to release the original. Is that correct?

A. Absolutely no, and I am surprised that the title company has taken that position.

Once the deed recorded among the land records in the county (or city) where your house is located, the deed itself is not an important document. You probably will never need it again -- even when you go to sell the property.

But, the deed belongs to you and you should demand that the title company release it immediately.

Typically -- and depending on the jurisdiction where the deed is recorded -- it can take weeks (if not months) for the recorded deed to be returned to the title company or attorney that conducted the real estate settlement. But once the deed has been returned, the title company (or attorney) should send it to you with the title insurance policy which you probably purchased when you went to settlement.

The deed should contain -- on its face -- the recording information. Usually it is a document number assigned by the Recorder of Deeds. This is your proof that the deed has, in fact, been recorded.

If the title company continues to refuse to release the original deed back to you, I suggest that you contact the insurance commission in the state where your property is located.

Your question prompted me to expand on the various legal documents which a buyer has to sign when settlement takes place. Here are some of the relevant documents:

Deed: this is the legal document which transfers the property from your seller to you. You should review it carefully at settlement to make sure that your name (or names) are spelled correctly, and that the legal description is correct. If you are taking title with another person (a spouse or a friend) make sure that the status of title is the way you want it. If you are in doubt as to how title should be structured, discuss the matter with your legal advisor before you go to settlement.

Promissory Note: Assuming that you are not paying all cash for your new house, you will be getting a loan from someone. It could be from family or from a mortgage lender. Either way, you will have to sign a promissory note. This is, in effect, an “IOU”. You promise to pay your lender the full amount, payable in equal monthly installments, at the interest rate previously agreed upon. This is an extremely important document; you must review it carefully before it is signed. Your lender will keep the original until you completely pay off the loan. But you must get a copy of the note at settlement (or shortly thereafter).

Deed of Trust: This is the mortgage document. As you stated in your question, it is recorded among the land records, and your lender will keep the original. When you pay off the loan, the lender will return it with the promissory note. This document is rather lengthy -- and quite legalistic. Make sure that the person conducting the settlement fully explains all of the ramifications and conditions contained in this document. Basically, so long as you make your monthly payments on a timely basis, you should have nothing to worry about. But once you are in default (a term which is defined in both the note and the trust) then many of the provisions of that deed of trust become operative -- such as the right of the lender to ultimately foreclose on your property.

It should also be noted that you cannot deduct any mortgage interest for tax purposes unless your property is secured by a deed of trust. That means that the deed of trust must be recorded in land records.

Settlement Statement: After Congress enacted the Real Estate Settlement Procedures Act (RESPA) several years ago, the Department of Housing and Urban Development (HUD) promulgated a uniform settlement statement. It is now commonly referred to as the HUD–1. This document contains the financial picture relating to the sale -- and the purchase -- of the property. It lists the lender’s charges, the title company’s fees, and the governmental recording fees. Next to the promissory note, it is my opinion that this is perhaps the second most important document. You should review it very carefully -- item by item. You should also keep this document for as long as you own the property. It will be useful for income tax purposes next year when you file your income tax return, and it may also be useful when you sell the house. Many of the items on the HUD-1 (such as recording and transfer taxes) can be used to reduce any profit you have made when you sell.

Survey: Although not all lenders require that the purchaser obtain -- and pay for -- a survey of the property, I definitely recommend that every purchaser authorize the settlement provider to obtain a property survey. It should be noted that the typical survey that is provided at a settlement only shows the location of the house on the lot. While the title insurance industry will generally not accept a title claim based solely on the survey itself, the survey will assist the purchaser in determining whether fences, trees or other such objects are properly located within the property being conveyed.

Miscellaneous Documents: Lenders like to add a number of other documents -- such as the Truth in Lending disclosure statement, tax id number, name affidavit, etc. -- to the pile of documents which the buyer has to sign in order to complete settlement. Although many of these are unnecessary, some are required by law or by the secondary mortgage market. The bottom line, however, is that if you want the loan, you have to comply with these lender requirements.

For many years I have encouraged lenders to try to reduce the unnecessary paperwork which is required at a settlement. Indeed, when former Chief Justice Burger retired from the United States Supreme Court, he stated in a speech to the American Bar Association that he could have sold a multi-million dollar jumbo jet with less paperwork than was involved when he sold his single family house in the Commonwealth of Virginia.

But, the paperwork persists. Be prepared to sign a lot of documents when you go to settlement.