Title Commitment on New Construction - Anything to Note?

Question

Hey hey hey, BiggerPocketeers!

A friend is buying a new house, and I'm representing her as her agent. I've never sold new construction before, and just got the title commitment. This seems a bit frivolous, since it's a new build, but wanted to make sure I'm not missing anything.

Is there anything specific to look out for on the title work?

Tom Gimer · Answer

@Jay Hinrichs Over here it seems the builders pay up front and form an entity to recover these costs. The details of the repayment arrangement are typically contained in bold print in the deed so subsequent purchasers are aware of the liability... most are paid annually over the 30 years following the purchase. But since that obligation was only recently created, the purchaser of new construction would need to actually read the contract and disclosures to figure out they are on the hook for $30k additional (or whatever the amount is).

Tom Gimer · Answer

Often there is a deed of trust to be partially released as to the subject property. Be on the look out for front foot benefit charge/agreement requiring payback of water/sewer/utilities connection often over a period of many years. Of course be sure of title with respect to mechanics liens. And pull and review every item listed as a special exception in the title commitment. The last item is not unique to new construction but rather good practice for all buyers.

Jay Hinrichs · Answer

Nothing different than any other house.  many times though you will see a master deed or mortgage for way more than the house is selling for.. as Tom stated bank will give partial release.

I think Tom is indicating maybe bonds for utls.. ??? not familar with front foot benefits never heard that one before

In California many developers used Mello Roos bonds to float the cost of infrastructure and those bonds are paid back in hour annual tax bill.

But like anything else bank lending money will want clean title. unless of course they are paying cash.. then its up to the buyer/agent to instruct title what to have removed prior to closing if anything.

Scott P. · Answer

It's awesome that you're standing up and asking a question about a subject that is new to you and that you're asking it here where everyone can learn. Thank you!

It seems you're already getting good input.

I had a realtor handling closing on a lot for new construction.  It was her first closing of that type.  There was a partial mortgage release from the seller / developer's bank which was fine but the realtor didn't made some mistake on property taxes.  She voluntarily refunded her commission to me and I paid the balance of the bill and did not pursue the matter.  The seller/developer declared bankruptcy.  (I was listed as a creditor due to the tax issue.)  So I could not pursue him.  She's still a realtor in the area and I've since sold the property.  The point is...it's wonderful that you're pursuing answers because that can help avoid missing something.

Best of luck to you on the endeavor!

Tom Gimer · Answer

FFB is likely a regional term and the concept of deferred water and sewer assessments may be as well. Around here it's a method of shifting cost for utilities connection to end user. Liens run with the land for decades.

Thomas Waddle · Answer

Mindy, I run a title company that is owned by a parent company of a new home builder.  My office is in Longmont. Call me we can discuss - will PM my number.  Assuming I didn't do the title commitment (if I did - you have nothing to worry about, trust me! ;-)   ), I would be happy to review it with you and go over some of the really minor differences in new build vs. resale title.

Jay Hinrichs · Answer

In CA we do those with bonds  1915 act  1911 act  and mello roos.. or in Oregon the state wont sponsor these type of bonds for the private sector.. one other reason Oregon cant grow like CA.. you need private capital for all infrastructure improvements or at least a majority.

Title Commitment on New Construction - Anything to Note?

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