This stage of the process is called “escrow.”  Escrow is considered “open” as soon as the buyer’s good faith deposit reaches the escrow agent / escrow company (stand-ins may be a title company, an attorney, or any agent authorized by your state to “close” a real estate transaction).  It is at this point that an escrow agent and a unique file number are both assigned to the account.

This escrow agent will be responsible for tracking escrow through to closing. He or she will also be the point of contact for parties involved in the transaction (buyers and sellers) and will have the ability to give ongoing status and answer any questions regarding everything in the escrow process – from title search to insurance.  Once all the documents have been gathered and signed, money “officially” changes hands, and escrow (and the transaction / sale) is deemed “closed.”

The last few days before closing escrow can be a stressful time for homebuyers and sellers.  However, there are a few things you can do to ensure a timely and smooth close. 

1. It’s important to review your final closing statement or HUD-1 statement a day or two before closing.  Look over the calculations to make sure that the buyer is receiving credit for all deposits and any other credits due from the seller.
2. Review all escrow and title fees to make sure they accurately reflect what you were told and that you agree to them.
3. Look over the preliminary report to confirm the legal description of the property and any liens or other items that may have been discovered.  Make sure all items that you did not agree to will be removed at the close of escrow.
4. Be sure escrow or title has your correct vesting (the way in which you want to take title).
5. Inspect the property one last time prior to closing to verify that everything is the way you expect it to be, and that all agreed upon repairs or work have been taken care of.

It is also very important that all conditions of the purchase contract are met prior to closing, and that all instructions that were given to the closing agent have been completed.  If you have double checked that all items are correct, it’s time to sign the closing documents!

Personal landing pages are becoming all the rage for real estate professionals.  Services like DooID.com allow you to launch your personal landing page in just a few minutes.  Once it’s active, modern-day technology allows your personal landing page to be virtually maintenance-free, pulling content from sources that you regularly use.

 As you build your personal landing page, think about the kind of personal connection you want to make with your clients.  Tell them about yourself:  your hobbies, your family, your favorite restaurant, your favorite movie.  Doing so allows your clients a peek behind the proverbial curtain – a look at the person behind the sign – so they see you as someone they can relate to.

 These days, we’re connected to the world through multiple channels; your personal landing page can be a virtual contact list for you, linking your clients to you via Facebook, Linked In, Twitter, and email, as well as your office and cell phone numbers and office address.  Each different point of contact allows you more opportunities to grow your list of clientele.

 By setting up a personal domain (e.g. yourname.com), you appear more professional.  It’s easier to build and maintain your “official” brand, linking to the companies and services that you personally trust.  Your listings have a place here as well, staying updated through the services you setup at the start.

 With a little thought and planning, your Personal Landing Page can become a powerful tool.  By giving your past and present clients a way to stay in touch, you’re also growing your business and building a reputation as someone they like and trust!

If you are in the process of purchasing or selling your first home, the escrow process is something that might come across a foreign territory to you. It is definitely understandable, as the terminology and steps involved are often extremely detailed oriented and must be completed in a strategic fashion.

Knowing that you have an experienced escrow officer and real estate professional on your team will obviously be an extremely valuable asset for you during this process, so you’ll want to ensure that you have a reliable team on your side as you move throughout the transaction.

The Beginning Stage: Opening Escrow

The beginning stage of escrow deals with basic information that must be collected prior to delving into the processing of the escrow. Information collected during this phase entails conditions that pertain to the property, general details about all of the parties involved in the transaction, and the organization of assets. Once this information is collected, instructions are devised and are used as the roadmap in moving forward. The homebuyer, home seller, escrow offices and Realtors are involved in this stage and may be called upon to provide information.

The Middle Stage:  Processing Escrow

Additional information gathering normally takes place during this stage as well, although much of the information is more specifically related to specific parts of the escrow process, including obtaining signatures on important documents, determining funds needed to move forward and obtaining a preliminary Title Report. All of these tasks must be completed in a specific order and by a specific date. This is where your escrow officer and Realtors expertise will come into play.

The Final Stage: Closing Escrow

Closing escrow is may seem like the finish line, but there are various items that must be completed in order for the close to be successful. Paying off loans, the preparation of documents and ensuring that all of the instructions have been fulfilled are just several of the actions that take place during this time. Once these items are complete the property is transferred and the escrow closes.

If you are interested in learning more about the escrow process or are seeking an experience and expertise from an escrow officer, please feel free to contact us!

In a commercial property foreclosure, the lender will usually ask the judge to assign a Receiver to take “control” of the property. Receivers are normally nominated by the lender; however, they are considered agents or officers of the court and are a neutral third party. The Receiver (typically individuals, companies, or attorneys) will “protect, preserve and secure rents” and aid in restoring order to the business after a loan default on the foreclosed property.

Receivers have authority to:
Hire tradesmen to maintain the building
Make decisions about the operation of the property and the business
Notify tenants of the receivership
Execute leases
Collect Rents
Pay Taxes
Pay Utilities
Maintain insurance
Hire a real estate broker to list and sell the property

To learn more about foreclosure and receivership laws, visit: www.receivers.org

One of the common documents a borrower may encounter in escrow is the “Notice of Right to Cancel.” This document is also referred to as the “rescission document” or the “3-day Notice of Cancellation.” This notice will be found in the loan document package, and it states that the borrower can cancel or rescind their loan transaction within three business days after signing the loan documents. Confusion arises for borrowers as to when the right to cancel applies, and if so, exactly what day the borrower can rescind their approval of the loan transaction.

When does the right to cancel apply?
The right to cancel applies to refinances or “home equity lines of credit” extended on a borrower’s “primary residence.”  The right to cancel does not apply to borrowers who are purchasing a home, borrowers who are refinancing their second home, or on investment or rental properties.

Understanding the important dates on the document.
There are two important dates on the document. The first is the date of signing. The second is the rescission date, or final date to cancel. When the lender prepares final loan documents for an anticipated signing, he may indicate these dates by printing them in advance for the borrower on the Notice of Right to Cancel. However, many lenders prefer to leave the dates blank on the document because the exact date of signing may not be known. In this case, the lender may print instructions on the document for determining the correct dates, or the lender may insert an instruction sheet into the loan package with the Notice of Right to Cancel. If the dates are already printed on the document in advance, but are incorrect, the instructions will provide information on how to properly correct, or how to properly interpret the dates to determine the rescission date.

Determining the rescission date.
The borrower has the right to cancel until midnight on the third day after signing. To determine the correct rescission date after signing, the borrower or his qualified escrow and loan document-signing agent (Notary Public) will count three days beginning with the first day following the signing date (the transaction date is not counted). Sundays and legal federal holidays are not counted, and are therefore skipped. Saturdays are counted because banks conduct lending business on this day. To help with the determination of the correct rescission date, free “rescission calendars” are available and can be found via the Internet.

Several new laws affecting the real estate industry became effective this year. In a previous post, we discussed SB 1149: Foreclosure Protection for Tenants, where a landlord is prohibited from harming a tenant’s credit score by revealing unlawful detainer records, unless the landlord prevails in court, and AB 1809: Energy Efficiency Audit in Home Inspection Report, where a home inspection and inspection report may include a Home Energy Rating System (HERS) home energy efficiency audit if requested by a client.

In this series of posts, we will highlight and give an overview of the other laws that also went into affect in January.

Adverse Possession Claim Requires Timely Payments
For a claim of adverse possession, existing law requires proof that taxes have been paid on the property for a five-year period. Effective January 1, 2011, Assembly Bill 1684 will further require that all state, county, or municipal taxes have been certifiably paid in a timely manner for the five-year period the property has been occupied and claimed. Read More

MLO Requirements
Effective January 1, 2011, Senate Bill 1137 requires those who act as a mortgage loan originator (MLO) to hold a MLO license endorsement issued by the Department of Real Estate (DRE) in order to be employed or compensated by a real estate broker. Those who act or advertise themselves as an MLO without a DRE MLO endorsement is guilty of a crime punishable by a $20,000 fine, six months imprisonment, or both. Corporations acting as an MLO without the endorsement by the DRE are punishable by a fine of $60,000. Read More

Several new laws affecting the real estate industry became effective this year. In a previous post, we discussed SB 931: Short Sale Deficiency Protection for Sellers, in which lenders who have agreed to a short sale will not have the ability to obtain a deficiency judgment against the seller after the short sale is completed (applying only to first mortgage loans).

In this series of posts, we will highlight and give an overview of the other laws that also went into effect in January.

Foreclosure Protection for Tenants:
Senate Bill 1149 states that tenants that remain in a property after is has been foreclosed must be provided a notice of their statutory rights for one year, and must be explained in a separate cover sheet or included in a 90-day termination notice. This law also prohibits a landlord from harming a tenant’s credit score by revealing unlawful detainer records, unless the landlord prevails in court. Read More

Energy Efficiency Audit in Home Inspection Report
Effective January 1, 2011, a home inspection and inspection report may include a Home Energy Rating System (HERS) home energy efficiency audit if requested by a client. The inspection may be performed by a home inspector who meets the HERS regulations requirements. REALTORS are encouraged to provide the HERS booklet that explains the statewide HERS program to residential buyers. Read More

There are two ways to pay for the Private Mortgage Insurance Premium (MIP): (1) out of pocket, or (2) financed by the lender. When the borrower is presented with the estimated settlement statement at the close of escrow, the MIP premium is always reflected in a line item as a debit (“charge”) to the buyer, regardless if it has been financed by the lender or not. This is to ensure that the proper amounts of the financed funds are allocated correctly toward the purchase price and the MIP premium. See examples below:

1. Estimate Closing Cost with MIP paid out-of pocket:

2. Estimated Closing Costs with MIP financed by lender:

It is important to remember that the MIP premium will always be reflected as a line item “debit” even if it is being financed by the lender. The “Funds required” line item will reflect the actual amount needed from the buyer prior to the close of escrow.

What is the PCOR?

Ordinarily, at the time of transfer when sales of property are recorded via the grant deed with the county recorder, the grantee (buyer) fills out and files a PCOR. It is a two-page questionnaire requesting information on the property, principals involved in the transfer, type of transfer, purchase price, and terms of sale.

The PCOR normally satisfies the change of ownership reporting requirements unless the form is returned incomplete. The PCOR is to be completed, signed and certified by the buyer, as the buyer is signing the document under penalty of perjury. It is then filed in the county recorder’s office for the county where the property is located. The county assessor may also request other information about a deed or other matters related to the transfer after reviewing the PCOR. The PCOR is confidential and is not available for public inspection.

What is the purpose of the PCOR?

Each county assessor’s office reviews all recorded deeds for that county to determine which properties require reappraisal under the law. Once the county assessor has determined that a change of ownership has occurred, Proposition 13 requires the county assessor to reassess the property to its fair market value as of the date of ownership change. The PCOR is important to this process and it must be filed at the time of recording, otherwise an additional $20 recording fee will be assessed.

If the PCOR is not filed at the time of recording, the county assessor will send a Change of Ownership Statement (COS) to the transferee (buyer). If the COS is not filed by the transferee within 45 days of the county assessor’s request, then penalties can ultimately range from $100 to $2,500.

Understanding how to complete the PCOR

The section at the top of the first page of the document is used to identify the buyer (transferee) and seller (transferor), and the property being transferred. The information may be typed in the areas provided. Enter this information as it appears correctly on the grant deed. Be sure to enter the 10-digit Assessor’s Parcel Number (APN), which can be found in the title report provided by the escrow officer, and is also usually also found on the buyer’s purchase contract for the property. Also enter the mailing address to which property tax notices are to be sent.

Part I of the PCOR is used to provide transfer information, and it can be confusing. The assessor uses the information in this section to determine if the transfer may be excluded from reassessment. If a buyer has questions about Part I, the county assessor’s office can be contacted for assistance, or the buyer’s real estate agent or escrow officer may be consulted. Parts II, III, and IV of the document will help the county assessor better understand the nature of the transfer and the purchase price.

Finally, the buyer’s name must be printed at the end of the form, and the buyer must sign it to certify that the information provided is true and correct.

When real estate is sold in California, the state requires that income tax for that sale must be withheld.  In this post we will discuss sellers who are individuals or who may qualify as an individual.  We will also explain qualified exceptions and exemptions to withholding.

What is the 593-C Form?
The seller will need to fill out the State of California Real Estate Withholding Certificate, form number 593-C.  The escrow company will provide this form to the seller, typically when the escrow instructions have been prepared and sent out for signatures.

Completing the 593-C Form

The standard amount of taxes to withhold is equal to 3 1/3% of the total sales price.  (Note: If the seller is claiming an exemption by filling out the 593-E form, the percentages will be different on if it is reduced withholding.  Those percentages are reflected on the form itself.)

If the seller is an individual, enter the social security number (SSN) or individual taxpayer identification number (ITIN) as indicated on the 593-C form.  If the sellers are spouses/registered domestic partners (RDPs) and plan to file a joint return, enter the name and SSN or ITIN for the spouse/RDP on the 593-C form in the space provided.  If there is more than one seller and the sellers are not married/RDPs, then each seller must complete their own 593-C form.

Entities That May Be Considered “Individuals” by the Franchise Tax Board

Single Member LLC:
If the seller is a single member disregarded LLC, enter the name and the tax identification number of the single member.

Grantor Trust:
A grantor trust is created when the trust is formed by the grantor(s) and the grantor(s) are also the trustee(s) of the trust.  A good example of a grantor’s trust is a Family Trust.  The grantor trust is disregarded for tax purposes and the individual seller must report the sale and claim the withholding on his/her/their individual tax returns.  If the trust was a grantor trust that became irrevocable upon the grantor’s death, enter the name of the trust and the trust’s federal employer identification number (FEIN) on Form 593-C.  Do not enter the decedent’s name or trustee’s name or SSN.

Exceptions to Withholding
Certain real estate transactions are exceptions to state income tax withholding.  The exceptions are: 

1. the total sales price is $100,000.00 or less;
2. the property is being foreclosed upon pursuant to a power of sale under a deed of trust, or sold by a deed in lieu of foreclosure;
3. the transferor is a bank acting as a trustee other than a trustee of a deed of trust;
4. the seller certifies to an exemption.

Exemptions to Withholding
There are several exemptions.  The most common exemption is the seller’s principal residence as set forth under Internal Revenue Code (IRC) Section 121.  Generally speaking, the seller must have owned and lived in the property as their main home for at least two years during the five-year period ending on the sale of sale.  Another exemption would be a loss or zero gain.  Claiming this exemption will require form number 593-E to be filled out and signed by the seller. 

If any of the first three exceptions are applicable, the seller checks the appropriate exception on the 593-C form and signs the form.  If the seller checks number 4 on the 593-C form, claiming an exemption, there is an additional form which will need to be filled out. 

The California Franchise Tax Board website has provided more information with a complete list of exemptions, as well as forms 593-C and 593-E.

It is always important for the seller to check with their tax advisor when filling out the 593-C and it is even more important if the seller is filling out a 593-E exemption form.

Senate Bill 931, providing California Short Sale Deficiency Protection, will go into effect on January 1, 2011.  This new law states that existing lenders of record who have approved and agreed upon a short sale will not be able to obtain a deficiency judgment against the seller after the short sale is completed.   After providing written consent to a short sale on a first mortgage or first deed of trust, the lender must accept the proceeds of the sale as full payment and must fully dismiss the remaining balance due on the loan.   This law applies only to first mortgage loans secured by one to four residential units.  However, this law would not apply if the lender is seeking damages for fraud or waste by the borrower.

Section 580e of the bill reads:

(a) No judgment shall be rendered for any deficiency under a note secured by a first deed of trust or first mortgage for a dwelling of not more than four units, in any case in which the trustor or mortgagor sells the dwelling for less than the remaining amount of the indebtedness due at the time of sale with the written consent of the holder of the first deed of trust or first mortgage. Written consent of the holder of the first deed of trust or first mortgage to that sale shall obligate that holder to accept the sale proceeds as full payment and to fully discharge the remaining amount of the indebtedness on the first deed of trust or first mortgage.

(b) If the trustor or mortgagor commits either fraud with respect to the sale of, or waste with respect to, the real property that secures the first deed of trust or first mortgage, this section shall not limit the ability of the holder of the first deed of trust or first mortgage to seek damages and use existing rights and remedies against the trustor or mortgagor or any third party for fraud or waste.

(c) This section shall not apply if the trustor or mortgagor is a corporation or political subdivision of the state.

 The information in this blog is provided for informational purposes only. We recommend anyone going through a short sale or foreclosure to consult a licensed real estate attorney for advice.

Most often, when a property sells, the transaction is negotiated and the purchase agreement is put together by the real estate agents representing the buyer and seller.  The real estate agents also act as the primary point of contact with escrow during the escrow process.  In contrast, a “for sale by owner” escrow does NOT have a real estate agent representing the buyer or seller.  As a result, the buyer and seller become the primary points of contact in the transaction and are responsible for providing to escrow all the parts and pieces needed for the escrow process to happen.  This post is intended to help clarify the responsibilities of the buyer and seller in escrow for sale by owner transaction.

To open escrow, escrow will need to receive the “terms of the sale” direct from the buyer and seller before escrow instructions can be prepared for signing.   Escrow does not negotiate terms between the Buyer and Seller or give legal advice, therefore, it is suggested the buyer and seller meet (prior to making an appointment to open escrow) and discuss the terms and write up their “Agreement”, spelling out what has been agreed to, including the sales price, closing date, who pays for what closing costs, etc.  By having this information in written format, any misunderstandings of what was verbally agreed to when they come into escrow will be avoided.  Escrow does not provide the “Agreement Form” but can refer them to (a) their attorney, (b) store that carry forms or (c) going online for possible Purchase of Real Estate Property forms that would be helpful to them.

What to Bring To Escrow in a For Sale By Owner Transaction:

• Copy of the written Agreement between the buyer and seller spelling out the terms
• Seller is to bring copy of their loan coupon for any loans to be paid off at closing
• Seller is to provide name of homeowners association &  management company (if applicable)
• Buyer to bring earnest money check payable to “escrow”, which will be deposited into Escrow Company Trust Account

Buyer’s Actions involving New Lender Requirements:

• Buyer gives a  check to the new lender covering credit report and appraisal costs
• New lender will require substantial documentation from the buyer in order to give loan approval.  Since what will be required may vary among lenders, the buyer will work directly with the lender as to the documentation the new lender requires

Seller’s Action involving New Lender Requirements:

• Seller needs to be available for appraiser to have access to property in order to complete the appraisal required by the new lender

Escrow Company’s initial contact with New Lender:

• Provides a certified copy of all written agreements and escrow instructions presented to the escrow officer by both buyer and seller
• Escrow Officer works closely with the new lender, supplying additional documents as required by lender including estimated closing statements

Options Available to the Buyer:

• Professional home inspection
• One year home warranty policy
• Termite Inspection

Seller is Responsible for Providing:

• Copy of Homeowners Association documents, if applicable  (escrow will order for seller through the management company)
• Provide Buyer with Seller Transfer Disclosure Statement if property is 1 to 4 single family  (forms can be ordered through a Natural Hazard Disclosure Company)
• Operable Smoke Detector (1 to 4 single family)
• Water heater needs to be strapped (1 to 4 single family)
• Grant Deed (will be provided by escrow for seller’s signature to be signed before a Notary Public)
• Deliver keys to Buyer direct

Buyer Responsibilities:

• Opening deposit
• New lender name and loan agent phone number
• How you are going to “take title” to the property  (contact your CPA for advise)
• Obtain fire insurance
• Sign loan documents
• Final closing funds in the form of CA Cashier’s Check or wired funds

Duties that the Escrow Holder Will Perform:

• Prepare escrow instructions and conveying documents  for signature of Buyer and Seller
• Order preliminary title report from Title Company (to verify seller’s ownership and any liens against the property)
• Order any payoff statements on any deed(s) of trust(s) or other liens of record, that will be paid from Seller’s proceeds at the close of escrow
• Provide certified copies of escrow instructions and preliminary title report to Buyer’s lender
• Coordinate with Buyer’s lender for signing of loan documents
• Prepare Buyer’s estimated closing statement  for signature (showing loan charges and other agreed to buyer’s closing costs) and request balance of Buyers funds to be in the form of CA Cashier’s Check or wired funds
• Prepare Seller’s estimated closing statement (showing payoff charges per written demand and seller’s agreed to closing costs) for signature prior to closing
• Send to Title Company the recording documents for closing and request lender’s funds
• After documents have recorded and escrow has received in writing all recording and payoff charges from the Title Company, escrow will then balance the file and disburse seller’s proceeds and buyer’s refund check and any other disbursements required

The escrow officer is the central point of contact for all the items required in the transaction as called for in the written agreement and escrow instructions.  The only exception would be the documentation the new lender requires directly from the buyer.

It is important for the buyers and sellers to provide the documentation needed by the escrow officer in a timely manner.  The escrow process will move more smoothly for everyone if the information required by the escrow officer is given at the beginning of the escrow.

In every purchase/sale of Real Estate, the buyer is granted title to the property from the seller through the delivery of a Deed.  The escrow company/title company or an attorney prepares this Deed, and the Deed shows the seller, currently vested on title, is granting the title to the buyer, as the buyer has chosen to take title of the property.  Because there is more than one type of property Deed, some buyers may have questions about why a certain Deed was issued in the transfer of their property.

There are four types of deeds: Grant Deeds, Warranty Deeds, Special Warranty Deeds, and Quitclaim Deeds.  A Grant Deed or general Warranty Deed is normally used in the transfer of residential real estate, while a Special Warranty Deed is typically used in Commercial property.  Special Warranty Deeds are also now more commonly being used in the transfer of REO, or Real Estate Owned, properties.

In all Grant Deeds the grantor gives a “general warranty” of title against any claims.  With a Grant Deed and a Warranty Deed, the grantor’s warranty applies to any period of time, while the grantor held title or before they held title.  In a Special Warranty Deed, the grantor gives the warranty for only the time period in which they held title to the property.   Quitclaim Deeds are most often used to transfer title to family members, divorcing spouses, or to people who know each other.

All warranty given through a Deed pertains only to the condition of the title of the property.  It has nothing to do with the condition of the physical property.  The Deed must also include the legal description of the property as well as the APN Number that is displayed on the tax rolls for the property.  The Deed is prepared in accordance with the type of property that is being transferred, or per specific instructions provided by the seller, and is usually recorded within one business day after escrow has received receipt of loan funds.

The state of California views Grant Deeds, Warranty Deeds, and Quitclaim Deeds as the same thing.  The Deed conveys ownership, and the title insurance company will insure that the buyer receives clear title to the property they are purchasing and guarantees against encumbrances.  As long as buyers go through an escrow and receive title insurance at the close of their escrow, they do not need to be concerned with the type of Deed that is used to transfer the property into their names.

An Impound Account, also known as an Escrow Impound Account, is an account set up and managed by mortgage lenders to pay property taxes and insurance on behalf of the home buyer.  These accounts are set up with the lender during escrow to ensure that the home buyer’s property taxes and insurance are paid on time and in full.  The biggest misconception with the Impound Account is that it is managed by the escrow company.  However, after escrow collects the initial deposit for the Impound Account and after the transaction is closed, the escrow company is no longer involved.

How It Works:
Each month, an amount equal to about 1/12 of the total sum of the annual property taxes and insurance due is collected from the buyer, along with their mortgage payment, and placed inside the account.  When the time comes to pay the annual property taxes and insurance, the lender makes the payment from the funds accumulated in the account on the behalf of the buyer.

Setting up an Account
The account is set up by the mortgage lender during escrow.  Escrow collects an Escrow Impound Deposit, which is typically a deposit of 2-6 months worth of taxes and insurance.  Due to the fact that property taxes can be adjusted and insurance rates can change, this deposit ensures there are sufficient funds to make the payments in full when they are due.

Common Questions Regarding an Escrow Impound Account:

Is it mandatory to have an Escrow Impound Account?
No.   The buyer may elect to pay property taxes on their own, and there is usually a small fee when waiving the account.  However, based on the type of loan, the lender may require the buyer to have one.

Is it a good idea to have an Escrow Impound Account?
Since the property taxes and home insurance bills only come about twice a year, many average Americans have a hard time saving for them, and gladly give their money to the loan company interest free.  This is one less thing to worry about, as the lender makes the payments for the buyer.

Do I have to decide now whether or now I wish to set up an account?
If it is not a condition of the loan, the buyer does not have to make an immediate decision.  However, depending on the lender, there may be a cost to set it up at a later date.

The purpose of impound accounts is to help home owners pay their annual property taxes and insurance on time.  For more information on your account, payments and more information on how they are managed, contact your mortgage lender.

Today, QR codes, or “Quick Response” codes, can be found in newspapers, magazines, brochures, billboards, even on the back of business cards.  Think of them as “image hyperlinks” in the form of a bar code.  Businesses and marketers use them today to take their consumer to a customized URL using their cell phone.

How does it work?

Any person with a smart phone can take a picture of the QR code (using any QR code reader software).  After the photo is taken, the software will direct the user to a specific landing page associated with that particular code.  These codes can be scanned from printed ads, signs, t-shirts, even computer screens.  By scanning a QR code, smart phone users can access a wealth of more detailed information while on the go.

This technology is being used in many different markets, and is especially making its presence known in real estate marketing.  Real Estate agents have incorporated QR codes on “For Sale” signs, large window ads, flyers, etc. The possibilities are endless.  Once someone scans the code, the customized URL they are directed to could feature details of the home for sale, a view of the floor plan, colorful photos, a video of the inside, a map showing details of the location or additional properties around the area, etc.  They could even be given a way to contact the listing agent immediately.

QR codes make it easy for prospects to get information on properties instantly and easily.  Instead of remembering an advertised URL, it’s so much more convenient to simply take a photo on a cell phone and be redirected within seconds to the customized URL.  There are many different QR code generator websites, such as www.qrstuff.com and www.interlinkone.com , and QR code reader software, such as I-Nigma, Optiscan, and QuickMark.  Generate your free code today to begin using the latest strategies and trends in real estate marketing.

One of the many important documents received by Escrow from a lender is the Truth in Lending Disclosure Statement (TIL).  The TIL disclosure statement is one of the most misunderstood documents required for closing, and Escrow Officers are often faced with many questions from the borrower regarding this document. This post is designed to educate the borrower (purchase or refinance) as to how to best understand the Truth in Lending Disclosure Statement. 

A lender is required to give the borrower a Truth in Lending “statement” containing information on the loan’s annual percentage rate (APR), the finance charge, the amount financed, schedule of payments, and the total payments required. The statement may also contain information on security interest, late charges, prepayment provisions, and whether the mortgage is assumable.  The lender will require that the TIL disclosure statement is signed by the borrower along with many other loan documents, all of which must be received back into Escrow.

What is a TIL?

It is important to understand that the TIL statement is not an agreement between the borrower and the lender. It is a federal-required disclosure document (Regulation Z) under The Truth-in-Lending Act (TILA), which is an important part of the federal Consumer Credit Protection Act. The TIL disclosure statement requires complete disclosure of all credit terms, conditions and consumer costs of obtaining credit. Unlike the “Good Faith Estimate” document which discloses an entire sale transaction’s cost, Truth-in-Lending deals only with the cost of the loan.

Understanding the APR Calculation in the TIL Statement

One of the most common questions Escrow receives regarding the TIL statement often has to do with the annual percentage rate.  This piece of information in the TIL statement often confuses borrowers, as the APR calculation is prominently displayed on the document. It is not uncommon for a borrow to panic when they are presented with the statement during Escrow and loan document signing, as the APR is usually higher than the agreed contract interest rate of the loan.

To many borrowers APR, or “annual percentage rate”, sounds a lot like “interest rate.” The APR is not an interest rate. It is a measure of the total cost of credit, expressed as a percentage rate. The contract interest rate is defined in the promissory note. The purpose of the APR is to provide the borrower with a uniform measure of the total cost of a loan.  The APR calculation includes the contract interest rate in addition to the other costs of the loan, including any prepaid costs (points and fees) that are part of the cost of borrowing. The contract interest rate in the note is only one part of the finance charges. The APR is a representation of the total finance charges.

Though it is important to understand how the APR is calculated, it is equally important to thoroughly understand the other elements of the TIL statement, as the lender requires the statement is signed by the borrower and given to Escrow.  For more specific questions related to a borrower’s loan, Escrow will assist the borrower in contacting the lender representative.

In Today’s tight-lending market, individuals looking to invest have the opportunity to capitalize on some great deals and benefits when making an “all cash offer” on a property.  An “all cash offer” is an offer that does not require a third party lender.  Cash offers also make for one of the smoothest escrow processes possible.

So how does a cash offer affect escrow?

As mentioned in a previous blog posting (Life of an Escrow – Buyer’s Perspective) there are three stages of the escrow process: the opening, the processing, and the closing.  The opening and processing stages of an “all cash” escrow are no different than those of a normal escrow; however, the closing process differs slightly since there is no lender involved.  During the closing process, once the escrow officer has received the buyer’s and seller’s signed initial paperwork and has received all demands, bills and/or reports required under the contract, the escrow officer will prepare the closing amendments and any additional documents necessary for signatures.  In addition, the estimated closing statements are prepared for signatures and the buyer is made aware of the funds needed to close the transaction.  Depending on how quickly the signatures and appropriate paperwork can be collected, the escrow could potentially close in as quickly as a week!

If a buyer is considering investing in a property, they should speak with their agent to learn how paying cash can be beneficial to both parties.  These benefits might include:

• A seller possibly accepting the “all cash offer” rather quickly, even if it’s not the highest offer, or one of many
• A seller finding an “all cash offer” more attractive because a buyer who is purchasing “all cash” is generally highly motivated to close escrow quickly
• No appraisal inspection/appraisal review issues or delays
• No loan or underwriting issues or delays
• Parties having the option to waive certain reports or inspections that they are not interested in paying for, that a lender may require as part of the loan process
• The buyer paying less money in closing costs

Upon the escrow officer’s receipt of all conditions of the purchase contract being met, the buyer’s final wired closing funds, and the final signed paperwork from the buyer and seller, the escrow is ready to close. Escrow then coordinates the recording with the Title Company.  (Though all counties have different guidelines for recording times; most recordings take place the following business day.)  The real estate transaction is considered closed when the Grant Deed is stamped and recorded in the County Recorder’s Office.  Because there is no lender involved in an “all cash escrow”, the escrow tends to close faster and is considered a much smoother process.

If you have any furhter questions about all cash escrows, feel free to contact us.

Life of an Escrow

As the chart illustrates, the escrow company is the neutral third party that facilitates the closing process when real estate is purchased or sold.  Escrow is involved in many of the details regarding the purchase or sale transaction. It is common for there to be myriad of details, and escrow works with many different parties, such as a title company, mortgage banker, seller’s agent, etc., during the escrow process. It is important to also understand that escrow holds the money associated with the transaction until the requirements of the contract are accurately completed. Once escrow has facilitated the completion of the legal and contractual items, the transaction is recorded at the county and the buyer becomes the new legal owner of the property.

There are many details buyers and sellers should become aware of to facilitate a smooth escrow process.  Many of these details are items we discuss on our blog in an effort to help demystify this complicated process.  The chart above serves as the foundation for most transactions and can be used as a basis for further discussion or questions you may have with your escrow officer.

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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What is the Statement of Information?

Upon the opening of escrow, Buyers and Sellers receive their initial escrow package – the Statement of Information (also known as the Statement of Identity) is included in this package for completion and return to the escrow holder.

The statement of information is a one page document which requests the party’s name, date of birth, social security number, current and previous addresses etc.

Who requires the Statement of Information?

The Title Company of record requires this completed form to ensure successful and expedient transfer of title. This document assists in eliminating untimely delays in closing of real estate transactions.

How does the Statement of Information work?

The Statement of Identity establishes and confirms identity. Confirming identity will assist the Title Company to eliminate/resolve matters that affect real property such as child support liens, judgments, bankruptcies etc., filed against persons who have the same or similar names.

This is important as such liens and judgments are recorded against real property and against individuals on a daily basis.

Why Should Buyers/Sellers Complete the Statement of Information?

Consider these scenarios:

Scenario #1: Seller is Robert Smith. The title company runs a name check on Robert Smith. Title company finds recorded liens and judgments filed against a Robert Smith that must be paid.

How will title eliminate our Seller, Robert Smith against these potential liens? Title will compare social security numbers, previous address, etc. (as per Statement of Identity) to determine which Robert Smith is liable for payment of said liens/judgments.

As result, our Seller Robert Smith has been eliminated as the potential party owing thousands of dollars due to liens.

Scenario #2: Buyer/Borrower is John Williams. Once again, title runs a name check and discovers that a John Williams has defaulted on his child support payments. Upon further investigation it has been determined that YES this is our Buyer/Borrower. Now escrow has the heads up to advise their Buyer/Borrower to bring his account current and also escrow can then secure an updated statement that will be sufficient for title transfer.

In conclusion:

The title company requires that buyers/borrowers and sellers fill out the Statement of Information to be able to complete their fiduciary duty to return clear title for the real estate transaction. The documents the title company requires comes from the escrow company after it has been completed by the Buyer or Seller, so your Escrow Officer can discuss the Statement of Information with you. Each transaction is case specific. Your Escrow Officer can clarify the points that are needed to finalize the transaction.

If the Statement of Information requirements give you cause for discomfort, talk to your Escrow Officer about the specific needs of your escrow. Your Escrow Officer will be able to explain the Privacy Act Notice with which CV Escrow is in compliance.

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The escrow process can be a complicated and often technical necessity of buying and selling real estate.  The escrow company and its officer have many duties to juggle on behalf of the Realtor, Seller, and Buyer during the real estate transaction.  Understanding the various duties and functions of the escrow can assist all parties in ensuring a successful and timely transaction, as everyone involved has a part to play.

The escrow officer’s main duty is to remain as a neutral third party between buyer and seller in a real estate purchase transaction at all times.  The escrow officer is not to be involved in negotiations between buyer, seller and/or lender.

Additional escrow officer duties and responsibilities are as follows:

1.   Receive and hold buyer’s funds in a non interest paying trust account during escrow

2.   Read and comply with all agreements as detailed in the Purchase Contract and Joint Escrow Instructions as it pertains to the escrow process

3.   Follow mutually signed, written instructions agreed upon by buyer and seller during escrow

4.   Prepare Escrow Instructions/General Provisions, Amendments, Grant Deed (for seller’s signature), Estimated Closing Statement and any additional documents required to clear title or as required by the new lender

5.  Although in many cases reports are ordered by the buyer, seller or agents outside of escrow in some cases the escrow officer will obtain reports as required by the purchase contract and provide same to the buyer during escrow for their review

6.   Make sure escrow is in receipt of buyer and seller signatures on Purchase Agreement and Joint Escrow Instructions, Escrow Instructions/General Provisions, Grant Deed, any Amendments, Estimated Closing Statements and any other documents required during escrow

7.  Receive loan documents from the buyer’s new lender (IF APPLICABLE) and prepare amendments and estimated closing statements as required by the lender on their lender’s instructions

8.  Order the evidence of insurance from the buyer insurance agent as per the requirement of the new lender

9.  Send the signed loan documents and all lender required items to the new lender for funding

10.  Send original recordable documents along with any releases required to clear title to the title company for recording at the close of escrow

11.  Make sure that escrow is in receipt of all funds necessary to pay the seller their proceeds as well as all invoices agreed upon by buyer and seller during escrow

12.  Make sure the seller has sufficient equity in the property to cover all costs, payoff of liens and any invoices agreed upon by buyer and seller during the escrow

13.  Make sure that all the proper paperwork is in escrow to provide the buyer with clear title to the property

14.  Make sure that all the conditions agreed upon by the buyer and seller on the purchase agreement and in writing through escrow have been satisfied prior to closing the escrow and transferring the property into the buyer’s name

The Buyer and Seller should also be aware that they will be receiving many additional items that may require their signatures from their agents and lenders directly.

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Do you have a foreign investor or buyer looking to purchase a home in California? Our experience has been that if the client writes a personal check drawn on a foreign bank, it may take several weeks to be able to verify that the check has actually cleared. On the other hand, deposit checks we take from a customer drawn on a U.S. bank typically clear within 3-4 days.

Wire Transfers Expedite Process
There are steps you can take to ensure the escrow closes on time by working with your buyer to understand the need for a wire transfer to expedite the closing process. When you write an offer and are presented with a check drawn on a foreign bank, write on the first page of the purchase agreement that the buyer will arrange to wire transfer the deposit to the escrow company upon acceptance of the offer.  Sometimes Realtors will go so far as to actually take the check to present with the offer, but state that the check will be replaced with a wire transfer upon acceptance.  Either way works.  Please keep in mind, that some escrow companies may require a wire from a foreign buyer (and not accept a check at all) due to the possibilities of delay. Contact the escrow company directly to inquire what the required procedures are.

There are problems that could arise if a check drawn on a foreign bank IS deposited into escrow:

1. Buyer could call his bank to put a stop-payment order on the check and escrow may not even be notified of this for 6 to 8 weeks.  Our escrow officers have experienced buyers who decided against the purchase of the property and placed a stop payment on the check and then were unaware the stop-payment had been done.
2. Costs are being incurred on the strength of the buyers’ earnest money deposit.  If the Sellers are holding their property off the market, they deserve to be assured that the buyer has “good funds” in escrow to back up the offer they have made to purchase
3. If the escrow is scheduled to close rather quickly, for example 14 days, and the initial deposit check drawn on a foreign bank is deposited into escrow, the escrow company may not be able to verify clearance of the check as a way of guaranteeing that there are “good funds” in the escrow and allowing the escrow to close.

Our experience has been that there has been little resistance from the buyer to following these suggestions. We have seen that if a buyer is told up-front by the Realtor that any funds coming into escrow must be made by wire transfer, it conveys to the client that we are all on the same page and have the same goal: closing the escrow successfully.

Here is an example of a wire transfer request

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To help consumers more easily understand settlement costs and prevent big price discrepancies between the preliminary Good Faith Estimate and the HUD-1 settlement statement, the U.S. Department of Housing and Urban Development (HUD) has created stricter Real Estate Settlement Procedures Act (RESPA) regulations are scheduled to take effect by April, 2010. (The regulations originally were to take full effect on January 1, but HUD provided a four month respite for compliance to the industry.)

For a review of what RESPA is, see our prior blog post.

New RESPA Rules

The upcoming Real Estate Settlement Procedures Act (RESPA) Reform requirements aim to provide customers with the essential information and adequate time to understand their home purchase and refinance options.  HUD is requiring that loan originators provide borrowers with a standardized Good Faith Estimate (GFE) which clearly discloses key loan terms and closing costs.

The loan industry, in an effort to dissuade consumers from shopping for a loan, created separate Good Faith Estimates for each company, so that consumers could not equally compare costs. With the new standardized GFE, consumers now will have a chance to compare “apples to apples” when looking at competitive loan products.

In a busy year of reforming the mortgage industry, there are new federal governmental regulations called the Mortgage Disclosure Improvement Act (MDIA) (see below) which went into effect in July of this year. To clarify why RESPA and MDIA are related, if a lender is out of compliance with the MDIA, they are subject to a RESPA violation. The new standardized GFE, the MDIA, and stricter RESPA laws will all assist consumers in understanding the complexities of the mortgage process.

While HUD requires the RESPA Reform regulations to take effect in 2010, many lenders have begun implementing the required changes early. We, at CV Escrow, have experienced that interpretations of the RESPA Reform requirements vary from lender to lender and as a result have caused delays in closing. Below is information about the MDIA from an attorney that specializes in RESPA law to help clarify the new requirements which will assist in closing transactions on time.

Compliance with Mortgage Disclosure Improvement Act/RESPA Requirements:

1.The 3/7/3 Rule requires a seven business day waiting period once the initial disclosure is provided before closing a home loan (business days are everyday except Sundays and Holidays). This means that before a borrower can close on a transaction the borrower must receive the initial Good Faith Estimate (GFE) and initial Truth in Lending (TIL) statement disclosing the final Annual Percentage Rate (APR) seven days prior to closing.

2. If the final annual percentage rate is off by more than .125%  for a fixed rate loan or .25% for an ARM loan, from the initial GFE disclosure, then the lender must re-disclose and wait yet another three business days before closing on the transaction. Note: If the rate fluctuates EITHER WAY, up or down, more than .125% on a fixed or .25% on an ARM, the re-disclosure takes effect.

3. Lenders are forbidden from collecting money for appraisals, loan applications, etc. prior to the delivery of the truth in lending statement. Lenders can only collect the credit report fees from the borrower at the time of prior delivery of the final TIL. No other fees are permitted to be collected at the time of the application. If the TIL is sent by mail, additional charges can occur after the 3rd business day after the borrower receives the TIL in the mail.

4. The following language must be clearly written on the initial and final TIL: “You are not required to complete this agreement merely because you have received these disclosures or signed a loan application.”

5. Any Lender or Settlement Service Provider found in violation of the new RESPA regulations will have 30 days after the close of escrow to correct any errors and compensate the consumer for any overage.

What do these new MDIA/RESPA regulations mean to a Realtor?

Plenty. These rules help the buyer make sure that their lender does not say one thing and then do another. Here is how Realtors can help their clients:

* Make sure to check the initial Good Faith Estimate and Truth In Lending form for a buyer and look for discrepancies in charges. The new rules were put in place to protect consumers from being low balled one figure by a loan officer only to find out at the closing table that the fees charged were much higher. The new MDIA rules will absolutely delay closings if these steps are not followed carefully.

* Buyers, sellers, and real estate professionals should not schedule a closing until the borrower has completed the seven day waiting period as required in the initial Truth In Lending statement.

* Contact your Escrow Officer for an Estimated Settlement Statement as soon as the Good Faith Estimate is available.  Many lenders do not contact escrow for fees and/or recurring closing costs.

To learn more, go here for the new RESPA rule FAQ’s and here for the RESPA final rule.

Go here to learn more about the 120-day delay in the RESPA regulation enactment.

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How would you react if you had a limited amount of funds in the bank to pay for closing costs and then were hit with hundreds of dollars in extra “unexpected” closing costs? This is a problem that the Real Estate Settlement Procedures Act (RESPA) was enacted to eliminate. The goal of RESPA is stop hidden fees and charges by settlement service providers and to stop kickbacks to ensure the integrity of the real estate transaction for the consumer.

In 1974, RESPA was enacted by Congress. Its intent was consumer protection by regulating the disclosure of all costs and business arrangements in a real estate transaction settlement process.

Enforced by the U.S. Department of Housing and Urban Development (HUD), RESPA requires that consumers receive disclosures at various times in the transaction and outlaws “kickbacks” that increase the cost of settlement services.

Specifically, Section 8 of RESPA prohibits a person from giving or accepting a referral fee, kickback, or anything of value in exchange for the referral of settlement-service business.
An example of an illegal “kickback” was when title companies would pay for rounds of golf, provide free administrative services, or sponsor educational classes for Realtors and lenders to encourage referral business.

A common RESPA violation, with direct impediment to consumers, occurred with lenders during the housing boom. Consumers would apply for a loan, receive a Good Faith Estimate providing the cost to obtain that loan, and then, they would go search for a new home. After making an offer on the home, they would get the final loan documents to sign at close of escrow. When they sat down to sign the final loan documents (HUD 1 settlement statement), they were oftentimes surprised to find extra and ambiguous closing costs and fees that had come up during the escrow process, sometimes along with higher interest rates.  These fees were added by lenders who lured consumers with promises of low cost loans.

RESPA has done away with many of these types of unsavory business practices, as well as leveled the playing field between lenders and others in the real estate industry.

To help consumers more easily understand settlement costs and prevent big price discrepancies between the preliminary Good Faith Estimate and the HUD-1 settlement statement, HUD has created stricter RESPA laws, which take effect in January 2010. HUD has published a Frequently Asked Questions about RESPA which is a good resource for further information.

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When purchasing real property in California you may discover that the property is subject to Mello-Roos. Mello-Roos is the common verbiage used to describe a tax that is imposed upon real property that falls within a Mello-Roos District. This tax or fee, which is a form of financing, can be used by cities, counties, and special districts (such as school districts) to help pay for major improvements and services within the district which might include schools, roads, libraries, police and fire protection services. Mello-Roos taxes are imposed in addition to the normal tax base applied to the real property for that area or development.

The tax was initially developed due to the limited ability of local governments to use property taxes to construct public facilities and services. The taxes usually are levied on a specific development for approximately 10-15 years or until the infrastructure bonds are paid off. You will need to check with your County Assessor’s office for the fees for your particular property.

It is important to know about this long-term additional expense when buying a home within a Mello-Roos District due to the costs added to the property’s tax base.

The California Land Title Association has written an in-depth description of Mello-Roos. You can read the full article. Below are key points from that article:

What is a Mello-Roos District?

A Mello-Roos District is an area where a special tax is imposed on those real property owners within a Community Facilities District. This district has chosen to seek public financing through the sale of bonds for the purpose of financing certain public improvements and services. These services may include streets, water, sewage and drainage, electricity, infrastructure, schools, parks and police protection to newly developing areas. The tax you pay is used to make the payments of principal and interest on the bonds.

What are my Mello-Roos taxes paying for?
Your taxes may be paying for both services and facilities. The services may be financed only to the extent of new growth, and services include: Police protection, fire protection, ambulance and paramedic services, recreation program services, library services, the operation and maintenance of parks, parkways and open space, museums, cultural facilities, flood and storm protection, and services for the removal of any threatening hazardous substance. Facilities which may be financed under the Act include: Property with an estimated useful life of five years or longer, parks, recreation facilities, parkway facilities, open-space facilities, elementary and secondary school sites and structures, libraries, child care facilities, natural gas pipeline facilities, telephone lines, facilities to transmit and distribute electrical energy, cable television lines, and others.

When do I pay these taxes?
By purchasing an interest in a subdivision within a Community Facilities District you can expect to be assessed for a Mello-Roos tax which will typically be collected with your general property tax bill. These special tax payments are subject to the same penalties that apply to regular property taxes.

How much will the Mello-Roos payment be?
The amount of tax may vary from year-to-year, but may not exceed the maximum amount specified when the district was created. In the case of the purchase of a new house within a subdivision, the maximum amount of the tax will be specified in the public report. The Resolution of Formation must specify the rate, method of apportionment, and manner of collection of the special tax in sufficient detail to allow each landowner or resident within the proposed district to estimate the maximum amount that he or she will have to pay.

How are Mello-Roos taxes affected when the property is sold?
The Mello-Roos tax is assessed against the land, but is not based upon the value of the property, therefore, the possible increased value of the property does not affect the amount of the tax when property is sold. The amount of the tax may not exceed the original maximum amount stated in the Resolution of Formation. Any delinquent payments must be satisfied before the sale of the real property, since the unpaid amounts are a lien against the property.

When purchasing a home in California, buyers should be proactive in ascertaining if the home falls within a Mello-Roos District so they are knowledgeable about the additional tax on the home. Here are some avenues to obtain more information about the precise amount of taxes that will affect the property you are considering purchasing:

• Inquire with your Realtor who has the resources to investigate if the property has a Mello-Roos tax associated with it.
• The information can be found on the Seller’s transfer disclosure statement disclosing if the property is in a Mello-Roos District.
• The information is in the Mandatory Natural Hazard Disclosure report that the seller is required to provide to the buyer during the escrow process.

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To help homeowners over the age of 55 be able to afford to move to a different home in California or purchase a “move down” home and not suffer an increase in property taxes, Propositions 60 and 90 were passed.  The Propositions, also known as the Reappraisal Exclusion Program, provide a one-time property tax relief by preventing a property valuation increase when someone over the age of 55 sells their home and purchases another home of equal or lesser value, effectively saving the seller thousands of dollars each year.

Both Sellers and REALTORS need to understand that there are specific timelines to apply for the exclusion, they need to know which counties in California allow the transfer, and what are the qualifications for the exclusion. Let’s start by defining Proposition 60, 90 and 110.

What are Propositions 60 and 90?
Propositions 60 and 90 are constitutional amendments passed by California voters that provides property tax relief for persons aged 55 and over. it allows these persons, under certain conditions, to transfer a property’s factored base year value from an existing residence to a replacement residence. ?Typically the property tax of a newly purchased or constructed residence is based on its current market value upon change of ownership. However, the provisions of Propositions 60 and 90 may result in substantial tax savings since it allows the property tax of the original (sold) property to be transferred to the newly purchased or constructed home if eligibility requirements are met.
Proposition 110  allows the transfer of a base year value for severely and permanently disabled persons. Except for the disability factor, the qualifications for Propositions 60/90 are same as Proposition 110.
What is the difference between Proposition 60 and Proposition 90?
Proposition 60 allows transfers of base year values within the same county (intracounty). Proposition 90 allows transfers from one county to another county in California (intercounty) and it is the discretion of each county to authorize such transfers. As of January 2007, only seven counties have passed an ordinance authorizing intercounty transfers; however, it is recommended that you call your assessor for verification as it could change at any time.

Here are the counties currently allowing the Exclusion Program:
Alameda, Orange, San Mateo, Los Angeles, San Diego, Santa Clara and Ventura.

Here is a list of counties that have rejected Prop 90:

Butte, Calaveras, El Dorado, Fresno, Lake Madera, Mendocino, Merced, Mono, Monterey, Napa, Nevada, Placer, Sacramento, San Benito, San Bernardino, San Luis Obispo, Santa Barbara, Santa Cruz, Shasta, Siskiyou, Solano, Sonoma, Stanislaus, Tulare, Trinity and Yolo.

What does “equal or lesser value” mean?

Sellers are able to take advantage of the Reappraisal Exclusion Program when they sell a home and purchase another home of equal or lesser value. What does that entail?

Equal or lesser value means that the fair market value of the replacement property does not exceed one of the following:

100% of the market value of the original property as of the date of the sale if the replacement property is purchased before an original property is sold.

105% of the market value of the original property as of its date of sale if the replacement property is purchased within 1 year after the sale of the original property.

110% of the market value of the original property as of its date of sale, if the replacement property is purchased within the 2nd year after the sale of the original property.

If you purchase a property of greater value than the original sale property, there will be no exclusion.

Timeline:

You must buy the replacement property within two years of selling the original property in order to qualify. You have three years following the purchase date or new construction completion date of the replacement property to file an application for the exclusion.  As of the date the original property sold, the seller or the spouse of the seller must be 55 years or older or be permanently disabled.

Proposition 110 creates an exception to the one-time-only limitation for anyone who becomes permanently disabled after having received a reappraisal exclusion as a claimant over the age of 55 years. If a person over the age of 55 years transferred the base year value from an original property to a replacement property and subsequently becomes disabled, then that person may now transfer his or her base value a second time.

A seller may apply for this exclusion in the county of the replacement property by completing and submitting the necessary application form.  Contact the County Assessor or download the application directly from the County Assessor’s website.

For more information about the Propositions, frequently asked questions and more, go here.

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A title binder, also known as an interim binder, is not a title insurance policy, but is, instead, a commitment to issue a title policy. The key to the title binder is asking yourself, “How long do I plan to keep this property?” The title binder is a cost saving tool for people (i.e. investors) who intend to “flip” a home or for those who are subject to frequent relocation or who just find themselves not wishing to remain in a specific home for more than two years.

Every time you sell and buy a home, you incur costs to have the title searched. Title insurance protects the buyer of a property or the lender for the property against unknown defects in the title. For a one-time premium, the title insurance company, which is in the business of examining public records, preparing title abstracts, and selling title insurance, issues the insurance after doing a title search on the property. By purchasing a title binder up front, you can save hundreds of dollars in title fees because it allows the purchaser of real property to resell the same property and have a policy of title issued to his/her buyer at fraction of the cost.

For example, if an investor purchases a “fixer upper” they would purchase a title binder as soon as they bought the property, knowing they plan on fixing up the property and selling it within a year. When they go to sell the property, they use the same title company they originally used and avoid having to incur the costs of having the title searched again for the new buyer.

The binder was designed for a special purpose and cannot be used in every real estate transaction. The standard term for a title binder is two years. However, some title companies do offer an extension for another year at an additional cost of another 10% of the Owners Policy Cost. It is very important to note, the same title company that issued the title binder must be used when the property is sold. Sometimes, the listing agent for the former buyer (now the seller) was not aware of the title binder purchased at the time the property was purchased.

Under normal circumstances in California, the seller of real property pays for the buyer’s title insurance. The interim binder provides a method to avoid duplicative costs. An Interim Binder gives its holder the option to obtain coverage during the period set forth in the Interim Binder, sell the property, and provide a title insurance policy for the new buyer, all at the cost of a single owner’s policy plus a “binder fee”, usually 10% of the premium for the owner’s policy. Accordingly, where a buyer or developer intends to resell the property within a defined time period (usually two years), an interim binder may constitute a useful and cost effective alternative.

It is important to repeat, however, that an interim binder is not insurance, it is a commitment to issue an insurance policy. However, if a claim arises during the interim binder period, the person to whom the interim binder was issued may convert the interim binder to an owner’s policy of title insurance naming him as insured and tender that claim pursuant to the policy. Title binders are only for buyers, not lenders and are issued in lieu of an Owner’s Policy.

More information about the legalities of title binders can be found here

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Proposition 58 provides property tax relief by preventing an increase in property taxes when real property is transferred between parents and their children.

Proposition 193 broadens the tax relief to include transfers between grandparent and grandchildren, or from grandchildren to grandparents. This transfer is only exempt in cases where both parents of the grandchild are deceased.

The Parent-Child Exclusion applies to any real property purchases or transfers between parents and children, which occurred on or after November 6, 1986.

The exclusion applies to natural children, children adopted before the age of 18, stepchildren (as long as the parents are still married), and sons- and daughters-in-law are considered children under this exclusion program.

What most homeowners do not know is that the claim must be filed within three years after the date of the purchase/transfer or prior to the transfer of the property to a third party, whichever is earlier or within six months after mailing of the notice of supplemental assessment.

What type of property can be transferred without a tax increase?

A parent may transfer their principal residence and any other property valued up to $1,000,000 to their children. The properties will not be reappraised providing that the proper Claim for Exclusion from Reappraisal form is filed and approved by the Assessor’s Office.

An inheritance or transfer to children within a trust may qualify for this exclusion. The trust documents must be provided with the claim.

You may request a Parent-Child or Grandparent-Grandchild Exclusion claim form by contacting your local County Assessor/Recorder/Clerk office. You may ask your Escrow Officer for the contact information for your local Assessor’s office, too.

The Los Angeles County Office of the Assessor did a great writeup on this topic, as well, and included links to the forms that are used in exclusion claims.  Their summary can be found here.

The points presented here are meant as an informational summary and are not inclusive of all of the nuances of the propositions.  For full definitions of Prop. 58 & 193, please view Revenue and Taxation (R & T) Code Section 63.1 online at www.leginfo.ca.gov and consult with your tax or legal professional.

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Whether you are a REALTOR considering getting into the niche business of dealing with REO’s, a buyer looking to find a deal on a home by seeking a foreclosed property or a seller looking for information on what happens when a foreclosure proceeding is started, you need to know and understand the foreclosure process. By understanding this process, you will know how long the process may take, which entities are involved, and when the proceedings can be halted. Below is a simplified version of the process.

Defaulting on one’s loan causes the start of foreclosure, the process by which the lender takes over the home in order to recover their principal investment. Once the house is either sold on the steps of the title company or the court house at the Trustee’s Sale or “repossessed” by the lender, it is sold and the former owner must vacate at the discretion of the new owner. When there is a power of sale clause in the deed of trust the non-judicial process of foreclosure is used.

Notice of Default:

In California, the timeline of non-judicial foreclosure begins when the trustee files a notice of default. This is a letter that is sent to the owner/trustor notifying him or her of their default of the loan. This notifies the owner of the intent of the lender to follow through on their right to collect on the debt. The copy of the notice, which is recorded at the County Recorders Office of the appropriate county, is mailed to the address of notice as per the deed of trust.

Notice of Trustee’s Sale

No sooner than ninety (90) days after the trustee records the Notice of Default, the Trustee must publish a notice of trustee’s sale in the local paper and simultaneously file that notice with the county recorder’s office. No sooner than twenty days (20) after the notice of trustee sale is filed, the home may be sold at public auction for the amount of the debt plus foreclosure costs. If no one bids at the auction, the lender assumes ownership of the property, and may dispose of that property to recover their cash investment.

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To help avoid confusion, here is more information about the tax credit and the form that needs to be filled out in order to apply for the tax credit.

The credit:

• Applies to purchases that close after April 8, 2008, and before Dec. 1, 2009.
• Applies only to homes used as a taxpayer’s principal residence.
• Reduces a taxpayer’s tax bill or increases his or her refund, dollar for dollar.
• Is fully refundable, meaning the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.
• The credit is claimed using Form 5405.

This year, qualifying taxpayers who buy a home before Dec. 1, 2009, can claim the credit on either their 2008 or 2009 tax returns. They do not have to repay the credit, provided the home remains their main home for 36 months after the purchase date. They can claim 10 percent of the purchase price up to $8,000, or $4,000 for married individuals filing separately.

The amount of the credit begins to phase out for taxpayers whose adjusted gross income is more than $75,000 or $150,000 for joint filers.

For purposes of the credit, you are considered to be a first-time homebuyer if you, and your spouse if you are married, did not own any other main home during the three-year period ending on the date of purchase.

The IRS has a new YouTube video $8000 Tax Credit Explained and other resources that provide details about the tax credit.

This is not intended as legal or tax advice. To fully understand the tax credit and apply successfully for the refund, please consult a tax professional.

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In these tough economic times, many homes have been languishing on the market, making it difficult for Sellers to move on to other homes and locations.  In order to make a sale, a Seller can offer to do a “carryback”.  A carryback loan, also known as a “seller carryback” or “seller’s second”, is a loan which is financed by the Seller of a property to help a Buyer purchase the house. Normally, this aids in the completion of the sale of the property. It could also refer to the part of the purchase price the Seller is able and willing to finance for the buyer.

For instance, the typical seller carry back situation is 10% down, 10% seller carry back and 80% first mortgage. This is a percentage of the purchase price. An example is a $1,000,000 house would have a $100,000 down payment, a $100,000 seller carry back and a $800,000 conventional first mortgage deed. Another scenario for a seller carry back is if the seller owns the property free and clear and the seller carries a first mortgage or trust deed. Sometimes there is a first trust deed which the buyer can take over and the seller carries a second mortgage.

Utilizing a seller carryback works well when the Buyer cannot come up with a big down payment or they may not fit into the “conventional” loan process because of their career or past credit history. Understanding the potential pitfalls of doing a seller carryback, but also knowing the rewards, is crucial to this type of sale.  In a seller carryback scenario, both parties need to exucute an All Inclusive Trust Deed.

An “All Inclusive Trust Deed” or AITD is a “Seller Carry” that “wraps” or includes an underlying loan or loans of record. It is usually recorded at the close of escrow with a Grant Deed conveying full to title to Buyer and Title Insurance is issued.  The AITD’s face amount includes the unpaid balance(s) on underlying encumbrances, plus the remaining unpaid balance of the Sellers equity.

Sellers remain responsible for the payment on the underlying loan(s) or until they are paid in full. The Sellers equity position in the note is always the difference between what is owed to the Seller and what the Seller owes the underlying lender.

The AITD becomes a junior trust deed, subordinate to the underlying trust deed(s).  The inputed interest rate (9% or applicable Federal securities rate, which ever is lower) is the minimum interest rate allowed for Seller financed transactions. The Documentary Transfer Tax on the grant deed is based on the purchase price LESS the liens of record.

Advantages:
The Buyer does not need to qualify for a loan with a lender and closing costs are minimal.  The Seller has advantage of installment sales income tax recording method, so long as payments are received in more than one tax year. The Seller, by agreement in writing with buyer, may prohibit prepayment of up to a 12 month period following the sale.

Because the underlying loan(s) may have a lower interest rate, or may have been paid down considerably, the Seller’s effective interest rate yield may be higher than the actual note rate.  The Seller benefits from the “Interest Override” which is the difference between the interest rate on the existing loans of record and the rate negotiated on the AITD.

Disadvantages:
Recording may alert an underlying lender to enforce the “Acceleration Clause” or “Due on Sale Clause” and require the underlying loan to paid in full.  At this time, the underlying loan would be considered in default and said lender could start foreclosure proceedings.

Paying off an AITD:

There are two types of AITD payoffs:  Equity Payoff and Full Payoff.

The AITD should not be reconveyed until such time as any equity of the seller and the existing deed(s) of trust have been paid in full. At all times the seller is responsible for the underlying loan(s) of record, since there has been no release of liability given by the existing lien holder(s). Any late payments and/or default, will reflect on the Seller’s credit accordingly.

Being able to sell a house quickly by not having to wait for a mortgage company to approve a buyer or having to rely upon an appraiser to come in with the “right” price can sometimes make this type of an arrangement attractive. However, be sure to consult a real estate attorney and professional tax advisor on the implications (or benefits) before entering into a transaction.

If you are either in the process of buying or selling a foreclosure property, understanding the basic terms will help you ask appropriate questions of your REALTOR, the escrow officer, the lender or other parties involved in the transaction. This can expedite the timeframe of the process for everyone involved.

Below are the most common terms used in connection with the foreclosure process:

A Deed of Trust:
A Deed of Trust is the security for your loan. It is the document that is recorded in the public records.
A deed of trust contains three parties:

• The Trustor, which is the borrower
• The Trustee, which is an entity that holds “bare or legal” title
• The Beneficiary, which is the lender

The deed of trust is an instrument that identifies the following:

• Original loan amount
• Legal description of the property being used as security for the mortgage
• The parties
• Inception and maturity date of the loan
• Provisions of the mortgage and requirements
• Late fees
• Legal procedures
• Acceleration and alienation clauses
• Riders, if any, regarding such clauses as prepayment penalties or terms of an adjustable rate mortgage

Notice of Default:
Lenders file in the public records where the property is located a public notice called the Notice of Default. It states that the borrower is in default, behind in the mortgage payments, and if the payments are not paid up, the lender will seize the home. In California, lenders typically do not file a Notice of Default until the borrower is at least 60 days behind in making payments. Lenders must then wait 90 days. During that 90-day period, the borrower has the right to make up the back payments and reinstate the loan. After 90 days, the lender is required to publish a notice in the newspaper for 20 days and then may sell the property to the highest acceptable bidder on the courthouse steps. If no acceptable bid is received, the trustee then conveys the property to the lender.

Deed-in-Lieu of Foreclosure :
A potential option taken by a mortgagor (a borrower) to avoid foreclosure under which the mortgagor deeds the collateral property (the home) back to the mortgagee (the lender) in exchange for the release of all obligations under the mortgage.

Foreclosure:
Legal proceeding by which a borrower’s rights to a mortgaged property may be extinguished if the borrower fails to live up to the obligations agreed to in the loan contract. The lender may then declare the entire debt due and owing and may seek to satisfy it by foreclosing. Foreclosure is commonly by a court-decreed sale of the property to the highest bidder, who is often the lender.

As we all know, foreclosures continue to be in the news and continue to dominate the market. This means that REALTORS, struggling homeowners, and potential buyers need to have information about the process and terms of foreclosure in order to make important decisions about the sale or purchase of a property.

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This is the second article (see the first one here) in our series on the specific terms and phrases you can encounter during a real estate transaction. The language of escrow and the real estate transaction doesn’t need to be a stumbling block; once you know the terms, these words become what they are meant to be – valuable tools to help smooth the road to a successful transaction.

Contingency

This is a clause in the sales contract that says something must happen before the sale goes through. The sale is contingent on this event, in other words. Common contingencies are the arrangement of financing, a successful home inspection or wood pest inspection, or a roofing or sewer report. Negotiate contingencies carefully, as they can cause the failure of a deal.

FIRPTA

The Foreign Investment in Real Property Tax Act of 1980 is important if you are buying a property from a person or corporation that is not US-resident. It is up to you to find out if the seller is a foreigner. FIRPTA rules state that the buyer must withhold 10% of the realized sale price for tax purposes. A common exception is if you are buying a personal residence for under $300,000. Talk to your broker or escrow officer, who will know all the details.

Cal-FIRPTA

The California version of FIRPTA, this legislation requires the withholding of a percentage of the sales price for most California real estate transactions. Talk to your realtor or escrow officer to get a full explanation of how this law affects your transaction.

Easement

An easement is an allowance, written into the property’s title, for another person or company to have access to a portion of the land for some purpose. Often an easement allows access to power lines or utilities running through the property. A registered easement gives the other party legal access, and restricts what the owner can do on that piece of the property.

Encroachment

An encroachment is any structure or physical thing that intrudes on somebody else’s space. This could be a neighbour’s building or fence encroaching on your land, your building or other structure encroaching on your neighbour, or your structure encroaching on city or state property. Encroachments must be agreed upon before building, resolved if discovered, or removed if objected to.

Watch for more terminology posts in the months ahead.

CV Escrow continues our strong commitment to the Desert.  On behalf of everyone in the company I am pleased and proud to announce the opening of a new Palm Springs office.  This addition to our service locations enhances our ability to provide personal service to the area’s real estate community.

Our Office Manager and Escrow Officer is Julie Eckstrom.  She is a SoCal native who has lived and worked in the Coachella Valley since 1985, where she has built many outstanding relationships with area Realtors.  Working in escrow since 1976, her strong skills in project management, in team management and in the technical details of escrow put her in a great position to help Realtors with all of their escrow needs.  “Throughout my career”, Julie noted, “I’ve been fortunate to work on projects and develop expertise in many kinds of escrows including sales, commercial, Indian lease land, loan, REO and short sale transactions.”

Please feel welcome to stop by to see Julie and to share with her your thoughts on how she can help you.  She can be reached at:

CV Escrow, Palm Springs Office (map)
850 N. Palm Canyon Drive
Palm Springs, CA 92262

Phone: 760.325.7314
Fax:  760.325.7324

Email: jekstrom@coachellavalleyescrow.com

Concurrent closings are a common escrow situation where a client is conducting two real estate deals, and wants them both to close on the same day. It sounds like a simple, straightforward matter of timing; in reality, the request for a concurrent close can be a difficult and stressful affair for all concerned. It’s like trying to line up two flocks of ducks at the same time.

Reasons For Concurrent Closings

A client may ask for concurrent closings for several reasons. Perhaps they are buying a new house, and using the proceeds from selling their current house to pay for it. Perhaps it’s a business deal with a need for close timing. Perhaps they are involved in a 1031 exchange, and the timing of the closings has strong financial implications. For whatever reason, the less time between the closing of the two deals, the more the client benefits.

The challenge in executing a concurrent closing arises because any real estate transaction involves a multitude of agencies and stakeholders. Title agencies must work through the process of transferring title; spouses, business partners, or other parties with an interest in the property need to be consulted; lenders have approval processes that depend on other paperwork being completed in a timely manner. In short, the escrow officer works an impressive feat of organization and coordination in a concurrent close.

It May Be Out Of Escrow’s Hands

The escrow officer is the director of the two transactions. The escrow officer makes sure people have the right information and forms at the right times, follows up to ensure timely completion of the paperwork, and does whatever is necessary to keep things on track. The plain fact is, however, that a concurrent close runs across many desks besides the escrow officer.

There are ways that a buyer can streamline the process, and help bring the timing of two concurrent transactions closer together. The two biggest considerations would be to have the same title company and the same escrow agency handling both transactions. This opens the possibility for workers in the same office to coordinate their efforts, to the buyer’s benefit. Having the same lender will help, too. Keeping the sale and escrow considerations as simple as possible give the transactions a better chance of coming to a concurrent close.

These are some ways to help make two related transactions close on the same day, or close together. However, because of a real estate sale’s inherent complexity and the number of agencies involved, no timing of a concurrent closing can be totally guaranteed.  Dealing with a professional, experienced and skilled escrow company can however help to effectively manage the transaction and meet the closing goals of all involved.

One of an escrow officer’s simpler jobs is calculating the amount of property tax that is payable by the buyer and the seller on any given real estate transaction. One of the agent’s tougher jobs can be explaining to the buyer why they may get an official property tax adjustment bill months after the sale is done. Let’s wade into the arithmetic and explain the situation.

Property Tax Defined

Every property gets assessed by the county assessment office every year, establishing the amount of tax due on that property. At the time of a sale, it’s a simple matter for the escrow agent to find out the property’s tax for the full year, and apportion the correct amount to the seller for the year to that date, and the right amount to the buyer for the remainder of the year.

Say, for example, the property tax of the year is $1200, and the transaction closes on May 1. The seller pays $400 for the first 4 months, and the buyer pays $800 for the last 8 months. These numbers show up on the closing statements.

Sale Triggers Assessment

The complication arises because a property sale triggers a new assessment. This assessment happens according to the schedule and timetable of the county assessment office; this means it could happen months after the transaction has closed, when the buyer has long since thought the sale over and done with.

When it eventually occurs, the property has a new assessed value – and a new tax burden – retroactive to the date of the sale. It might be more or less than what the buyer paid on the closing statement, but chances are good that it will be different. Therefore, the assessment office will issue an adjustment notice. If it’s a tax increase, the buyer needs to pay more. If it’s a decrease, each county handles the situation differently. Check with the links below for your own area’s procedures.

Escrow Works With The Numbers

The escrow officer’s job with prorating property tax is just to work with the existing numbers. They use the property tax amount provided to them by title at the time of the escrow (the current property tax amount).  They take this current tax information and allocate the charges to the parties accordingly.

That’s why, in an appreciating market, a buyer can get an additional tax bill, months after the sale, when they thought it had already been covered. And that is why, in a depreciating market, the potentially reduced taxes on the home cannot be determined and applied at escrow.  For specific tax questions related to a particular parcel, further information can be gained by contacting your county’s tax recorders office:

• Riverside County
• Orange County
• Los Angeles County
• San Diego County

Real estate transactions, and the escrow processes that make then happen, sometimes have a level of industry jargon that can be confusing or intimidating to buyers and sellers who aren’t familiar with the meaning behind the words.

This is the first in a series of definitional posts designed to better inform buyers and sellers about the escrow process and the terminology used during the course of a transaction.

Escrow

The escrow procedure, at its core, is where a neutral, trusted third party holds onto an item for sale until something happens, usually until the buyer pays the seller. As real estate transactions have grown in complexity, so has the business of escrow. Now an escrow agent watches over all the details of the sales agreement, facilitates the transaction paperwork, and coordinates the interests of many different parties with an interest in the sale. They also make sure that the seller gets their proceeds, and the buyer gets their title, when all is said and done. For a detailed explanation of escrow, see this earlier post.

Deed of Trust

In many states, including California, this document takes the place of a mortgage. The Deed of Trust places a property’s title in the hands of a Trustee, usually a title company, along with the specifics of the buyer’s loan and repayment provisions. If the owner defaults on the loan, the Trustee has the legal right to foreclose, and give the lender the proceeds. When the loan is paid off, the Trustee reconveys the title to the owner.

Lien

This is a legal claim on a property by someone the owner owes money to. In real estate transactions, the lender will attach a lien to the property title, saying any money from sale of the property will first be used to pay off the loan.

Prorations

In a real estate deal, the escrow agent will need to figure out the buyer’s and seller’s portions of expenses that get paid according to a certain date – eg taxes, interest or utility bills. The agent will pro-rate the expense, doing the arithmetic based on the transaction’s closing date.

Grant Deed

This is the actual document of the real estate sale. It states that the seller, or Grantor, is selling the property to the buyer, or Grantee. It states the specifics of the property, and that the seller has revealed any liens or encumbrances. The Grant Deed is usually notarized and recorded.

HUD-1 Statement

This is the Department of Housing and Urban Development’s official settlement form, used in most real estate transactions to detail exactly what settlement costs occur in the sale, and whether the buyer or the seller is paying them. You get this form at or shortly before the closing. It represents a complete accounting of every cost of the transaction.

Title Insurance

This is an insurance policy for buyers that protects them against unanticipated defects in the property title. These could be anything from hidden liens, ex-spouses, unrevealed heirs, or recording errors, to forgery. Title insurance policies carry different specifics and exceptions, so examine yours carefully.

Additional terminology will be defined in future posts.  If you have a term you would like clarified or definied, leave us a note in the comments section of this post.

Escrow fees are part of a deal’s closing costs. Let’s explore the typical fees that can show up on a buyer’s closing statement, and help to avoid future cases of sticker shock.

Buyer’s Escrow Costs

Escrow Fees

This is the fee for the escrow service itself, usually a certain amount per $1000 of the sale price. With the escrow fee you are paying to make sure:

• The escrow agent is properly licensed in your state
• They have the knowledge, training and expertise to handle supplemental and unusual escrow situations
• Your escrow process follows all applicable laws, and the sale will be legal and valid
• The escrow agent is an independent third party, competent and trustworthy to caretake and disburse your money.

Loan Tie-in Fee

This fee provides for the escrow company’s time and supplies to print out lender documentation, comply with various lender requirements, and fill out and submit the forms and applications requested by lenders to facilitate the transaction.

E-Document Fee

More and more documents are being sent to escrow companies over the Internet, however they still need to be printed out in order to be archiveable and useful. This fee helps to defray document printing costs.

Processing Fee

Very few escrow situations come without any supplemental or unusual needs. Spouses, ex-spouses, grantees, trustees, business partners, extra government agencies or authorities, all may need to be dealt with in order to facilitate the escrow. All of these contacts take time and documentation. Most escrow companies include one or two added contacts in their escrow fee; a significant number of added contacts will result in a processing fee.

Archive Fee

Legal escrow documents need to be stored by the escrow company for a minimum of five years. This fee helps with the storage and retrieval of the large volume of paperwork involved.

Seller’s Escrow Costs

The seller’s closing statement contains escrow costs as well. The seller will have the same Escrow fee as the buyer, the same Processing and E-Document fees, and an Archive fee.

Closing costs from the escrow company are not a mystery, and don’t need to be a surprise, either. With a little bit of preparation and a phone call or two, both buyers and sellers can know in advance what their closing costs will be, and clear a potential obstruction on the way to a completed sale.

It’s important to remember that additional procedures and processes may be required when selling or representing leasehold property. These procedures can extend the time needed for escrow.

You might need additional time if:

1. The Lessor, or Agent for the Lessor, is out of town. Escrow is often at the mercy of the Lessor/Agents day to day schedule and/or other obligations. Executing the necessary documents that are required may not be a priority.
2. Several Lessors use either Fey’s Canyon Financial or Joanne Allen & Associates to act as agents for their transactions. Each of these leases, and thereby the Agents who manage them, have many requirements, including reviewing and approving specific loan documentation, title report, contract, insurance, etc.. Fulfilling all of these additional requirements will add at least 3-5 days to your process, no matter how organized you are.
3. If you are obtaining a loan, it may be more complicated than a non-lease land transaction. In a standard transaction, the loan itself is the most complicated part of the process.  In an Indian Leased Land transaction, there may be loan restrictions imposed by the lease, which may dictate how much down payment is required, the length of the loan, and insurance liability requirements.    Their protocol may or may not require signing additional documents which will then be returned for the Lessor to review and approve. Obviously, this can add days onto the process.
4. The Buyer resides, or is presently located, outside of the country. In this instance, the timing can be delayed due to notary, going through the U.S. Consulates office, etc. Other issues may be present. What’s most important to know is that in this situation, even if it is an all cash deal, you won’t be able to have a rapid closing (5 days, for example) you won’t be able to within 5 days.
5. If the property is in foreclosure and owned by a Bank, the Bureau of Indian Affairs has additional requirements that can delay the process.

In subsequent posts, we’ll address the specific items or situations – rather than simply the process itself – that add more time to your escrow transaction time.