Key Takeaways
- Pennsylvania settlements are typically handled by title companies or attorneys
- Title insurance is commonly purchased and recommended for buyers
- Pennsylvania uses mortgages as the primary security instrument (not deeds of trust)
- Closing costs are divided between buyer and seller per agreement and custom
- Transfer taxes in Pennsylvania include state and local components
Pennsylvania Settlement Procedures
Pennsylvania uses title companies and attorneys for real estate closings (called settlements).
Settlement Process
Who Conducts Settlements
Pennsylvania settlements are typically handled by:
| Provider | Role |
|---|---|
| Title Company | Conducts closing, issues title insurance |
| Attorney | May represent buyer, seller, or both |
| Settlement Agent | Licensed to conduct closings |
Settlement Steps
- Title Search - Examine chain of title
- Document Preparation - Prepare closing documents
- Settlement Statement - Calculate all charges
- Signing - Parties sign documents
- Funding - Collect and disburse funds
- Recording - Record deed and mortgage
Title Insurance
Types of Title Insurance
| Policy | Protects |
|---|---|
| Owner's Policy | Buyer's interest in property |
| Lender's Policy | Lender's interest (required for most loans) |
What Title Insurance Covers
- Unknown liens or encumbrances
- Errors in public records
- Forged documents
- Undisclosed heirs
- Title defects
Who Pays
Typically negotiable, but common practice:
- Seller often pays owner's policy
- Buyer pays lender's policy
Security Instruments
Mortgages in Pennsylvania
Pennsylvania uses mortgages as the primary security instrument:
| Document | Purpose |
|---|---|
| Promissory Note | Promise to repay the loan |
| Mortgage | Security interest in property |
Note: Unlike some western states that use deeds of trust, Pennsylvania uses a two-party mortgage system (borrower and lender).
Foreclosure
Pennsylvania foreclosure is judicial:
- Court supervised process
- Longer timeline than non-judicial states
- Borrower has rights through the process
- Deficiency judgments possible
Transfer Taxes
Pennsylvania has multiple levels of transfer tax:
State Transfer Tax
| Rate | Application |
|---|---|
| 1% | State portion |
| Split | Typically split between buyer and seller |
Local Transfer Tax
| Rate | Application |
|---|---|
| 1% | Most localities (may vary) |
| Split | Typically split between buyer and seller |
Total Transfer Tax
Combined state and local often totals 2% of the purchase price, typically split 50/50 between buyer and seller (1% each).
Exemptions
Certain transfers may be exempt:
- Transfers between family members (in some cases)
- Certain corporate reorganizations
- Government transfers
Closing Costs
Typical Buyer Costs
| Cost | Description |
|---|---|
| Loan origination | Lender fees |
| Appraisal | Property valuation |
| Title insurance (lender's) | Required by lender |
| Recording fees | Deed and mortgage recording |
| Prorated taxes | Buyer's share of property taxes |
| Transfer tax (portion) | Typically 1% |
Typical Seller Costs
| Cost | Description |
|---|---|
| Commission | Real estate fees |
| Title insurance (owner's) | Often paid by seller |
| Transfer tax (portion) | Typically 1% |
| Payoff amounts | Existing loans |
| Prorated taxes | Seller's share |
What type of security instrument does Pennsylvania primarily use for real estate loans?
What is the typical combined (state + local) transfer tax rate in Pennsylvania?