As the close of escrow date draws near, the buyer and seller are usually eager to close. And, loan documents arriving in escrow represent a big step towards the completion of the escrow and the transition of the property to the new owner. However, it is often mis-understood that the close will occur immediately after loan documents are received at escrow and signed. That is not always the case. There are many details (such as lender conditions) that escrow must still verify, and depending on the lender, the funding process may take several days after the signing. This post is designed to educate the buyer as to the steps that escrow goes through in dealing with loan documents that are received in escrow. As you will see, there are several items that have to happen once loan documents are received at escrow before a transaction can close. Understanding this process can help to set the proper expectations about the closing process and help buyers be better prepared to work with both their lender and escrow to facilitate a smoother escrow process.

1. Once your loan has been approved and all prior to loan document conditions have been received and approved by the Lender, the Lender will prepare loan document and send them to escrow for signing.

2. Escrow reviews the loan documents to comply with the Lender’s requirements and reviews the escrow file for any outstanding conditions.

3. Escrow will prepare the buyer’s estimated HUD1/closing statement and put together any required paperwork needing the buyer’s signature. Escrow will make arrangements for signatures on these papers.

4. Escrow will prepare the seller’s estimated HUD1/closing statement and put together any required paperwork needing seller signature. Escrow will make arrangements for signatures on these papers.

5. In some instances the Lender may have documents that may also need signatures from the listing agent, selling agent or loan agent, so escrow will also make arrangements for these items to be signed.

6. If still needed, escrow will order insurance, closing protection letter, etc as required by the lender.

7. Once the buyer’s loan documents have been signed and/or received back into escrow, escrow will package the documents to be returned to the funding Lender. This package of documents is referred to as the loan package. Ideally, by this time, all paperwork that has been sent for signature to the seller, listing agent, selling agent and loan agent have been signed and returned to escrow to include in this package. Lender’s work differently, and some will be prepared to fund the loan when they receive the loan package, others will require 24-72 hours after the loan package is received by the lender to review the package prior to advising if there are any additional requirements/conditions to fund the loan (this is the most common scenario we run across on the West coast). Buyers are advised to understand the timeframe associated with funding the loan from the lender that they are working with. This timeframe is outside the control of escrow.

8. Escrow will request funds from the lender. It is important to note, that although the loan package has been completed and received by the lender, there may be other issues/conditions related to the transaction (for example, outstanding termite repairs) that will hold up the request of loan funding from escrow. In other words, escrow has to be in a position to close escrow, meaning all conditions of the escrow have been met and all the Buyer’s closing funds have been received.

As you can see there is more to getting the Escrow closed once loan documents are in escrow than just signing, so coordinating and getting conditions cleared with your loan officer in an efficient manner is very important for a timely closing. It is important to reiterate that all loan documents are time sensitive and each Lender works differently.

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In a prior post we explain the terminology associated with Short Sales. In order to further clarify the short sale process, this post explains the process a seller must go through if they find themselves facing a short sale.

A Short Sale comes in to play when a seller must sell their home and the value of the property is just not sufficient to cover the balance owed to the existing lender. In order to accomplish this the seller must work with their existing lender(s), and any other existing lien holders, to request approval of the sales price, the sale terms, and payoff of their loan to be at a reduced amount.

The Short Sale process is as follows:

• The owner or their agent/negotiator must contact the existing lender.
• The lender will direct them to their website, or will advise how, to obtain specific forms, instructions and lender requirements.
• This group of documents, along with the lender’s financial forms (Short Sale Package*) is then sent to the lender as per the lender’s instructions.
• After the lender receives the package it is then assigned to a contact person in the lender’s Loss Mitigation Department. This process can take anywhere from two weeks to two months and sometimes even longer.
• At this point the Loss Mitigation Dept then reviews the package and will contact the homeowner to request any additional items that may be required by the lender. This request is usually made verbally to the homeowner or negotiator but can sometimes be found via the lender’s website.
• The lender will then request a Broker’s Price Opinion (BPO) from an agent chosen by the lender.
• Once the lender has received the BPO as well as the Short Sale Package they submit it for final review. Once the lender has completed their final review they may give approval as is or their approval may be subject to changes such as sales price changes. Or the lender, at this time may decide that the seller did not have ample reason for the short sale and therefore deny the request for the short sale.

*Short Sale Package can consist of 100 to 200 pages including, but not limited to, the following items:

1. Listing Agreement

2. Short Sale Addendum

3. Offer to Purchase

4. Proof of Buyer’s funds

5. Owner’s Tax returns

6. Paystubs

7. Owner’s Bank Statements

8. Hardship letter from owner (explaining why the short sale is needed)

Remember that every lender and every situation is a different story so it will help to keep a handle on each request by staying in touch with the lender constantly through the process.

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As Escrow Holders we often get inquiries from Buyers and Sellers well after the close of an escrow. It is a common belief that our responsibility as Escrow Holder continues after the close of escrow, when, in fact, escrow no longer has any connection with the transaction once it is officially closed. As a neutral third party in the transaction, escrow may not always have all the answers but your escrow officer can guide you to a source that can help you.

In this series of posts, we will address some of the most common questions asked by new home owners after the close of escrow. This first post addresses the issue of taxes.

TAXES

Almost always, we get calls from Buyers after the close of escrow, asking about property taxes. As a new home owner it is important to remember the following dates:

• The fiscal year begins July 1 and ends June 30 of the following year.
• The first installment of taxes is due November 1 and is delinquent December 10.
• The second installment is due February 1 and is delinquent April 10.

It is the Homeowner’s responsibility to make tax payments on time. Keep in mind the County Tax Collector will not waive tax penalties, regardless of the reason. To avoid paying any penalties, make sure to pay the bill on time. If you have not received a bill as the due date approaches, contact your County Tax Collector and request for a duplicate bill.

Keep an eye out for our next post where we will explain what a home buyer needs to know about the Residential Property Report.

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With the increased amount of foreclosures on the market today, escrow officers are often asked about the foreclosure process. The first thing to know is the foreclosure terminology, which we discussed in a prior post. What is important for homebuyers and sellers to understand is that foreclosures happen to loans not properties therefore it is a process that is handled between the lender and the lender’s trustee company. In an effort to answer the many foreclosure questions that we get following is a simplified breakdown of the steps that lead to and complete the foreclosure process.

• The borrower fails to make more than one monthly mortgage payment
• The lender would have their trustee company prepare, record and send the borrower a Notice of Default (NOD)
• The borrower now has 90 days to bring the loan current (reinstatement period)
• If the borrower is still unable to bring the loan current the trustee company will set a sale date approx. 4 weeks out
• The trustee will prepare, record and send to the lender and borrower a Notice of Trustee Sale (NTS)
• The NTS will also be posted at the property in a conspicuous place and published in a local newspaper (publication period)
• This Notice will contain the date, time and place where the Trustee Sale will take place
• During the publication period the borrower can still bring the loan current up to 5 days prior to the sale date
• The sale is held at the courthouse in the county where the property is located
• The lender sets an opening bid that would cover the loan balance, interest, attorney fees and any other accrued fees and costs
• The property is then sold to the person with the highest bid over the opening bid set by the lender
• If no one bids over the opening bid then the lender retains the property as a banked owned property (REO)- Real Estate Owned

During the foreclosure process there are several stages in which the homeowner has the opportunity to bring the loan current and avoid foreclosure. Foreclosures contain many nuances and affect each party involved differently. Don’t hesitate to ask your agent for information about foreclosures and your situation or for further information see the links below.

• http://www.biggerpockets.com/foreclosure-process.html
• http://www.realtytrac.com/foreclosure-laws/california-foreclosure-laws.asp

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Buyer’s of a “bank owned” property, or REO sale as they are often referred to, may come across some verbiage in the Banks Addendum to the Real Estate Purchase Contract that catches their eye: Per Diem Penalty.  Escrow Officers are often asked, what does this mean?

Latin for “per day”, per diem has many uses. What per diem is referring to in this instance is in the event escrow does not close by the date set forth in the contract, the Seller can impose a daily penalty to the Buyer for each day beyond the initial agreed upon closing date until the day the escrow officially closes.

The amount of this penalty differs depending on terms of the contract. It can be a percentage of the purchase price or a set daily amount (ie $100 per day). It is important to note, agreements can be made between the Buyer and Seller to waive the penalty when applicable.

One way a Buyer can strive to close escrow on time and avoid penalties is to complete escrow and mortgage paperwork and provide requested documents in a timely manner. However, circumstances may still arise that are beyond the Buyer’s control. In this event, a Buyer should ask their agent to renegotiate the terms of the contract to extend the closing date or to waive the penalty with the Seller and Seller’s agent.

In REO transactions, as with any real estate transaction, it is very important to be sensitive to all time frames in order to alleviate unnecessary charges.

If you have further questions about the Per Diem Penalty, do not hesitate to contact your escrow officer for further clarification or leave us a note in the comments.

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When purchasing a home the escrow process can appear to be complex, especially for a first time home buyer. Following is an overview of the escrow process from the buyers perspective:

Escrow is officially “open” once the Escrow Holder receives a purchase contract signed by both the Buyer and Seller. Escrow holder then assigns an escrow number, opens a title order and follows up on the Buyer’s initial deposit. The initial deposit must be received by the Escrow Holder within 3 business days after acceptance. Now that escrow is open – what happens next?

Like anything else – things usually have a beginning, a middle and an ending. Escrow is no different and we will attempt to demystify the Buyer’s escrow process by breaking it down into three distinct parts:

1) Opening
2) Processing
3) Closing

Opening: The opening phase is the information gathering segment of the escrow. It allows the Escrow Holder to gather the necessary information from the Buyer and to communicate with all applicable parties. In order for the Escrow Holder to do this effectively, it is very important for the Buyer to complete and expediently return all documents in the initial escrow package.

Opening escrow packages for the Buyer will typically contain the following:

1) Escrow Instructions
2) Statement of Identity
3) Vesting Form
4) New Lender Info
5) Fire Insurance Info
6) PCOR
7) Buyer’s Affidavit

This may appear to be a mountain of paperwork, but it’s purpose is designed to let the Escrow Holder know who their Buyers are, which lender is in need of an escrow lender package, how the Buyer(s) are taking title and who will be insuring the subject property.

Processing: The second phase of escrow is commonly referred to as the processing phase. In this segment, the Escrow Holder gathers and distributes reports and disclosures to applicable parties. Depending on the specific terms of the purchase contract, reports and disclosures may include all or some of the following:

1) Preliminary Title Report / CC&Rs / Plotted Easements
2) Natural Hazard Disclosures
3) Termite Report – Inspection/Completion
4) Homeowner’s Association Documents
5) City Report
6) Rent Statement

These reports provide information regarding various aspects of the subject property such as title, taxes, liens, hazardous zone determinations, pest infestation assessment and rental amounts to name a few. These disclosures may be information overload but are necessary and mandatory to provide full disclosure to Buyers. Buyers are asked to review all reports/disclosures provided and acknowledge receipt of same via signature within the time frames specified in the purchase contract.

Closing: In the final phase of the escrow process, the Escrow Holder gathers information in the opening and processing segments and incorporates same with terms of either lender financing or an all cash closing.

In the case of lender financing, Escrow Holder will contact Buyers as soon as loan documents have been received and schedule a time for signing with a notary public. Signing of loan documents will take approximately 30-45 minutes and ideally should occur several business days prior to the scheduled close of escrow to allow ample time for the following:

1) Signing of Loan Documents
2) Lender Review of Loan Documents
3) Lender Release of Loan Funds

Upon signing of loan documents, Buyers will review an estimated closing statement prepared by the Escrow Holder. The estimated closing statement provides an accounting of all applicable fees, closing costs, credits and prorations pertinent and particular to the transaction such as lender fees, title and escrow fees, property taxes, HOA dues, and Seller credits etc. The estimated closing statement also provides Buyers with the dollar amount required to close the transaction. Note: all closing funds must be certified and received by Escrow Holder via wire transfer or cashier’s check 2 business days prior to close of escrow.

In an all cash closing, the estimated closing statement and final escrow amendments are also be presented to Buyers for review and signatures. Funds will then be requested from Buyers and the escrow will be considered “funded” upon Escrow Holder’s receipt of Buyer’s certified closing funds.

Upon Escrow Holder’s confirmation that loan funds have been released, Buyer’s certified closing funds received, receipt of signed documents from both Buyer and Seller, and all terms of the purchase contract fulfilled – the transaction is now ready to close/record. Recording typically takes place 1 business day after all of the above has occurred. The term “close” refers to the day on which the transfer deed (grant deed) is stamped and recorded by the County Recorder’s Office. This is the official date on which transfer of ownership occurs and the Buyer becomes the new owner of the subject property.

Upon Escrow Holder’s notification from the title company that the recording has been confirmed – escrow has officially “closed”. The Escrow Holder will then prepare the final accounting of the file and disburse funds and documents accordingly, normally by the next business day.

Escrow is closed – congratulations!

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Short sales and foreclosures are the current hot topic in real estate with many of these types of transactions coming across the Escrow Officers desk. Foreclosures and short sales are often confused but they are two distinct processes supported by their own individual terminology. Following is a summary of many of the most common terms that a buyer and seller will experience in purchasing/selling either a foreclosure or short sale property.

Foreclosures

• Pre-foreclosure: The period beginning with initial mortgage default up to when the distressed property is sold
• Notice of Default (NOD): official notice from the lender that the Borrower has defaulted. The NOD formally starts the foreclosure process and it outlines the reinstatement period.
• Reinstatement Period: The time frame stipulated in the NOD that the borrower has to reinstate the loan by making payments and bringing account back to good standing.
• Trustee Sale: if after the reinstatement period has expired the loan is still in default the lender can then sell the property as soon as 21 days after the Notice of Trustee Sale is recorded.
• Publication Period: begins once the redemption period has expired and must be at least 21 Days prior to trustee Sale. A notice is published once a week for three weeks in the local newspaper.
• Notice of Trustee Sale (NTS): Recorded document explaining when and where the foreclose sale will be held.
• Redemption Period: The time period that the distressed borrower has to redeem the loan after the NOD is recorded. In California, that time period is 90 days. (not to be confused with statutory right of redemption)
• Statutory Right of Redemption: One year after the Trustee Sale the borrower can make payment of loan in full plus costs to redeem.
• Real Estate Owned (REO): the status of the property when the ownership is transferred involuntarily from the homeowner to the bank.

Short Sales

• Short Sale: When a lender agrees to accept less then what is owed on the mortgage and release its lien on the property.
• The Property is “upside down”: This phrase is commonly used to describe a situation where the amount due on the existing loan is higher than what the property is appraised for or will sell for.
• Loss Mitigation Department: The department at the lender that is responsible for reviewing all short sale documentation, ordering a BPO, and approving or denying short sale.
• BPO: Brokers Price Opinion (BPO), typically ordered by lender, is a property valuation report to help determine what the property might sell for.

This list of terms serves as a foundation for future posts where we will further describe the process of a foreclosure and short sale as well as compare and contrast the differences between the two. Stay tuned!

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If there is one thing that seems to create intense panic during the course of escrow, it is when the contract closing date draws near, and the Buyer’s loan is not quite ready to go.

In this age of new and changing loan regulations and requirements, it is important to give your transaction time to accommodate the process. A 30 day escrow with new financing, although may be possible, is generally not probable. Lender’s rely on a host of information, from the buyer, escrow, title, appraisers, etc. Also, chances are that once the loan is submitted, additional supporting documents will be requested from the buyer.

All of us involved in the transaction – agents, escrow, lenders, etc., want our customers to be happy with our services. We all rely on repeat business and referrals, so why would we want it any other way! In my years of experience, I have learned that remaining calm and refraining from finger pointing will show my customers that I am in control and empathize with their frustration.

If you want your clients to remain calm, prepare them in the beginning – when the contract is presented. Explain that the closing date may change in the event financing takes a little longer than expected. Keep them updated along the way, so they can plan accordingly.

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The Buyer’s Choice Act (AB 957) was established to protect the buyer’s right in an REO transaction in having a choice as to which Escrow Company and Title Company is used. This sounds great, although in many cases it can be a benefit to the buyer to choose the companies that the REO Bank use on a regular basis for the following reasons:

• The REO Banks require the settlement companies to use their online systems (only the companies selected by the REO Banks are given authorization to log onto the online systems) in order to obtain necessary documentation for your transaction. Without access to the online systems there may be delays in the closing process.
• The REO Banks have special internal requirements that must be completed before they can move forward to closing. The Escrow Companies and Title Companies used by the REO Banks know the requirements and are able to provide the seller with the necessary items in advance therefore getting the job done quicker and more efficiently.
• The Title Companies that work with the REO Banks have documentation already in place that is necessary to clear the title on the properties. Using Title Companies that work with the REO Banks creates a much smoother transaction process for you.
• The REO Banks must approve an estimated HUD settlement statement prior to authorizing the close of escrow. In order to accomplish this each REO Bank has special requirements for certain items they need prior to approving said settlement statement. All these items again must be sent to the seller via their online systems. Using the companies that know the REO Bank’s requirements helps to get your transaction completed much quicker and smoother.
• Each REO Bank is different and has different requirements. Using an Escrow Company and Title Company that has experience with that particular Bank’s requirements will inevitably make your transaction smoother.

For further information on the Buyer’s Choice Act you can read the following article: AB 957 “The Buyers Choice Act” Passes

When making your choice or accepting the seller’s choice of escrow or title companies, consider asking the following questions to the prospective companies:

1. Do they retain an Errors & Omissions Insurance Policy and a Fidelity Bond each with a minimum of $2,000,000 which protects your transaction to the fullest value?
2. Do they conduct background checks on all new hires through the Department of Justice including stockholders, officers, directors and managers?
3. Are Potential employees barred if they have drug convictions, moral turpitude or theft of any type on their record?
4. Do they have set minimum financial requirements by their licensing entity?
5. Are their trust funds and processing of files audited by their licensing entity, or in-house auditors and CPA?
6. Are their trust funds balanced every day?
7. Is their computer systems capable of handling the paperless file required for processing an REO transaction?
8. Are they proficient in a variety of REO software platforms?
9. Do they have an extensive back up computer systems, which includes a disaster preparedness plan?
10. Can they handle all transactions in a professional, honest and diligent manner?

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The New Year is here, you are ready to purchase a new home, what’s new?? The biggest and most significant industry change in years, maybe even decades, has come from the US Department of Housing and Urban Development (HUD). HUD has revised the Good Faith Estimate (GFE) and the HUD-1 Settlement Statement to try and make it simpler and easier for the consumer to make responsible and informed decisions before purchasing a home.

As a consumer, most of the changes and revised forms have been made with your best interests in mind. HUD has tried to prepare a simpler more direct way to help you understand your options and fees up front so that you have as much information as early as possible to be able to make the best decision for you and your family. The new rules and forms have been put in place to help provide a loan shopping tool that accurately discloses terms and fees, and prevents last minute changes to either at closing.

In anticipation of the new rules, HUD has released a publication to help guide you, the consumer, through the loan decision process: Shopping For Your Home Loan: HUD’s Settlement Cost Booklet. Real Estate Settlement Procedures Act (RESPA) requires that loan originators provide consumers with the booklet within three days of a loan application. This booklet, albeit lengthy, provides a basic overview of the home buying and mortgage lending process. It also explains in detail each part of the new GFE and the new HUD-1 Settlement Statement.

The intention of the new GFE is to encourage consumers to shop and compare fees from various lenders before choosing a mortgage. It shows what services are lender chosen (and thus cannot change), and also what services the consumer can go out and shop for. It clearly states important dates, loan terms, and settlement charges should you decide to move forward with the loan.

The new HUD-1 Settlement Statement then allows borrowers to easily compare those quoted fees to their final costs before closing on a loan. A new page has also been added to the HUD-1 Settlement Statement that contains a chart which shows the actual fees charged compared to those fees that were listed on the GFE. The chart identifies charges that should not have increased at all compared to the GFE, those that should not have increased by more than 10% compared to the GFE, and those that can fluctuate.

• Origination charge: cannot increase.
• Transfer taxes: cannot increase.
• Appraisal fees: can only increase up to 10%.
• Government recording fees: can only increase up to 10%.
• Title insurance: can only increase up to 10% if borrower uses the title insurer selected by the lender

It also shows whether the consumer’s monthly payment will increase and, if so, when. This gives the borrower a very clear picture of what the closing expenses will be compared to what was shown on the GFE, so he or she can note any discrepancies and ask about them up front and prior to closing –preventing surprise fees and delays at the time of signing.

With these new tools now available and with a clearer disclosure of fees and terms, hopefully consumers will be able to make informed and responsible decisions that will help them and their families achieve financial success and home ownership.

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