Prac pp chp 10

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18. Apr 2016

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Prac pp chp 10

  1. Chapter 10 Escrow How to Navigate the Journey
  2. I. The Escrow Procedure
  3. The Escrow Procedure  An escrow is the processing, by a neutral party, of the paperwork and money involved in a sale or other real estate transaction  The purpose of an escrow is to assure that the appropriate parties perform the terms of the contract  An ESCROW is created when a new written agreement instructs a neutral third party to hold funds and proceeds only when all the agreed to conditions have been performed
  4. A. Requirements For a Valid Escrow  The Escrow Act is found in the Financial Code  The three requirements for a valid escrow are:  Signed escrow instructions, forming a binding contract between two or more parties: usually a buyer and seller  A neutral party, which is the escrow company, acting as a dual agent of the buyers and seller  Conditional delivery of funds and documents, after all the conditions in the escrow are met  When escrow closes, dual agency changes to separate agency
  5. B. Escrow Holder  An escrow holder can be:  A corporation  An attorney  A real estate broker acting as a real estate agent in the transaction  A NEUTRAL DEPOSITORY is an escrow business conducted by a licensed escrow holder  An ESROW OFFICER, HOLDER, or AGENT, though not licensed by the state, is an employee of a licensed escrow company who acts as the agent
  6. Requirements (cont.)  In Northern California, the majority of escrows are handled by escrow departments of title insurance companies which are governed by the Insurance Commissioner  In Southern California, many escrows are handled by independent escrow companies which, by law, must be incorporated and are governed by the Commissioner of Corporations
  7. The complete sequence of events in a escrow is:  Preliminary title search and report  Lender’s demand  Request for new loan documents  Completion of conditions and depositing of funds  Adjustments and prorations  Transfer of existing policies, or creation of new ones  Recording and issuing of title policy  Disbursement of funds  Escrow statement sent to each party
  8. C. Real Estate Brokers Can Conduct Escrows  A broker can handle escrows for a fee only if the broker is acting as a real estate agent or principal in that transaction  All written escrow instructions executed by a buyer or seller must contain a statement, in not less than 10-point type, that includes the licensee’s name and the fact that he or she is licensed by the Department of Real Estate
  9. II. How Escrows Work
  10. A. Fax Purchase Agreement to Escrow  The last page of the Purchase Agreement contains an acknowledgement for receipt of the completed agreement  Once the California Residential Purchase Agreement and Joint Escrow Instructions form has been filled out and executed, you will fax or deliver it to the escrow company
  11. B. Follow-through Checklist  Always follow-up on your escrows  To keep track of the escrow process, you’ll want to use an agent/broker escrow checklist
  12. C. Opening Escrow  When opening escrow, always double-check the spelling of names and the addresses  If it’s available, provide escrow with the property profile, obtained from the title company, when you open escrow
  13. D. Escrow Rules  Once the escrow instructions have been drawn, neither party may change them without written agreement of the other party  If a dispute should arise and the parties cannot agree to terms, an escrow company will bring an INTERPLEADER ACTION to let the courts determine where the money or consideration goes
  14. E. Who Selects the Escrow Company?  A real estate licensee is prohibited by law from receiving any “kickback” for solicitation of escrow business  Either the buyer or seller can choose the escrow company  Death does not cancel an escrow; it is binding on the heirs because of the prior, agreed-to contract
  15. F. Escrow Instructions  ESCROW INSTRUCTIONS are formal instructions drawn from the information contained in the original agreement, usually the signed purchase contract  All parties to the escrow should read the escrow instructions very carefully, and should sign them only after every detail is absolutely correct and the terms meet with their approval
  16. G. Financing is An Important Aspect of Escrow  Most escrows for the sale of a home include obtaining a new loan and the payoff or assumption of the old loan  The PAYOFF DEMAND STATEMENT is a formal demand statement from the lender that details the amounts owed, as calculated by the lender, for the purpose of paying off the loan in full  A BENEFICIARY’S STATEMENT is a demand statement by a lender, under a deed of trust, that provides information, such as the unpaid balance, monthly payments, and interest rate, necessary if the loan is to be assumed
  17. H. Escrow Example
  18. I. Closing Date is the Date of Recordation  Closing is the process of signing, transferring of documents, and distribution of funds  When time is not specified, the escrow will close by mutual consent or within a reasonable period  The CLOSING DATE is the date that the documents are recorded
  19. III. Proration
  20. Proration  Property taxes, interest, fire insurance, and rents are prorated, but not title insurance or non-recurring fees  PRORATION is the process of proportionately dividing expenses or income to the precise date that escrow closes, or any other date previously agreed upon  All escrow companies use 30 days as a base month  The two rules of prorations are:  Date escrow closes  Date item is paid
  21. IV. Termites and Other Problems
  22. A. Structural Pest Control Certification Report  A Structural Pest Control Certification Report is usually a condition of the escrow  Pest control reports are NOT required by law, but many lenders will require them  The best time for a seller to have a termite report issued is before putting the home on the market
  23. B. Broker Maintains Pest Control Documentation  The Civil Code requires that the broker shall deliver a copy of the Structural Pest Control Certification Report and Notice of Work Completed to the buyer if such a report is a condition of the deposit receipt  If more than one broker is acting as an agent, the selling broker shall deliver the required documents to the buyer, who needs to sign them
  24. V. Fire Insurance
  25. A. Fire Insurance…A Must!  Fire insurance is very inexpensive compared to the possible dollar loss due to fire  The CALIFORNIA STANDARD FORM FIRE INSURANCE POLICY insures the dwelling against:  Fire  Lightning  Additional coverage can be obtained to cover:  Perils of windstorm  Explosion  Hail  Aircraft  Smoke  Riot  Vehicles not attributed to a strike or civil commotion
  26. B. Fire Insurance Proration  When purchasing property, a buyer usually obtains a new policy  If the seller has filed an insurance claim during the previous five years, he must disclose this to the buyer in writing
  27. VI. Title Insurance
  28. A. Chain of Title • This is the recorded public history of a property • TITLE PLANT is all information about people and their real property which is stored in computers at the county recorder’s office
  29. B. Title Insurance  Because many things outside the public record can affect the legality of title, title insurance functions to protect the insured  Title insurance also insures the lender against losses that result from imperfections in title
  30. C. Preliminary Title Report  The first step in a title search is the ordering of the preliminary title report  A PRELIMINARY TITLE REPORT is a report showing the condition of title before a sale or loan transaction  State law requires that buyers acknowledge receipt of the preliminary title report  The report consists of:  The name of the owner and description of the property  A list of any outstanding taxes, bonds, or other assessments  The identity of any covenants, conditions, or restrictions  Any recorded liens or other encumbrances that must be eliminated before an loan is made
  31. VII. Types of Title Insurance Policies
  32. A. California Land Title Association  In California, the standard title insurance policy is the CLTA  This standard policy protects against:  someone else who owns a recorded interest in your title  a document not properly signed  forgery, fraud, duress, incompetency  defective recording of a document  unmarketability of title  restrictive covenants  lack of a right of access to and from the land
  33. B. American Land Title Association  Most lenders require extended coverage or an ALTA policy  This ALTA policy is an extended coverage policy that insures against many exclusions in the standard cover policy  An ALTA policy is a lender’s policy
  34. C. ALTA-R  The ALTA-R POLICY is recommended by title companies for one-to-four unit owner-occupied residential dwellings  This policy does NOT require a survey of property lines and gives the buyer more coverage for the same price
  35. D. Who Pays Title Insurance Fees?  The title insurance fees are part of the escrow closing costs  In Southern California, it is customary for the seller to pay the fees  In Northern California, it is usually paid for by the buyer
  36. E. Title Insurance Disclosure  In any escrow transactions for the purchase of real property where a title insurance policy will NOT be issued to the buyer, the buyer MUST sign and acknowledge a disclosure statement stating that it may be advisable to obtain title insurance
  37. VIII. Real Estate Settlement Procedures Act
  38. RESPA  RESPA allows borrowers to shop for settlement services  The law covers first loans on one-to-four unit residential dwellings  RESPA is a law that states that the closing settlement costs of a real estate transaction MUST be made known to the borrower, on or before the settlement date
  39. IX. California Escrow Association
  40. California Escrow Association  The California Escrow Association has developed a statewide program to promote professional service and educational opportunities for its members
  41. Chapter Summary • Escrow Procedure • Requirements of a Valid Escrow • Escrow Holder • Real Estate Brokers Can Conduct Escrows • How Escrow Works • Fax Purchase Agreement • Follow-through Checklist • Opening Escrow • Escrow Rules • Who Selects the Escrow Company? • Escrow Instructions • Financing • Closing Date • Proration • 30 day months • Termites and Other Problems • Structural Pest Control Certification Report • Fire Insurance • Prorated • Title Insurance • Chain of Title • 4 functions • Prelim Report • Types of Title Insurance • CLTA • ALTA • ALTA-R • RESPA • California Escrow Association