Glossary of Terms:
Abstract of Judgment:
A summary of the essential provisions of a court judgment. When recorded, an abstract of judgment creates a lien on all of the real property of the judgment debtor in the county in which it is recorded.
Acknowledgment:
A formal declaration made before a duly authorized officer (usually a notary public) by a person who has executed an instrument that such execution is his or her act and deed.
Adjustable Rate Mortgage (ARM):
A mortgage in which the interest rate is adjusted periodically according to a preselected index. The terms, adjustment schedule and index to be used can vary based on the particular lender.
Agency:
A relationship created when one person (the principal) delegates to another (the agent) the right to act on his or her behalf in business transactions.
All-inclusive Trust Deed (wrap-around mortgage):
A financing technique that involves the creation of a new trust deed that includes the balance due on the existing note plus any new funds advanced.
American Land Title Association (ALTA):
A national association of title insurance companies, abstractors and agents. The association adopts standard title policy forms.
Amortization:
The process of paying off a debt in installments over a given period of time without a final balloon payment.
Annual Percentage Rate (APR):
An expression of the percentage relationship of the total finance charges to the total amount to be financed as required under the federal Truth-in-Lending Act.
Appraisal:
An opinion of the value of property resulting from an analysis of facts affecting market value.
Assessed Valuation:
The value that a taxing authority places upon real or personal property for the purpose of taxation.
Assumable:
A mortgage loan which can be transferred to another person without a change in the terms of the loan.
Balloon Payment:
The unpaid principal amount of a loan due on a specific date in the future. Usually the amount that must be paid in a lump sum at the end of the term.
Beneficiary:
The person who is entitled to receive funds or property under the terms and provisions of a will, trust, insurance policy or security instrument. In connection with a mortgage loan the beneficiary is the lender.
Beneficiary’s Statement:
The statement of a lender which gives the remaining principal balance due on a note and other information concerning the loan. It is usually obtained in escrow when the owner wishes to sell or refinance.
Bill of Sale:
An instrument by which title to personal property is transferred or conveyed.
Bona Fide Purchaser (BFP):
One who buys property in good faith, for fair value, and without notice of any adverse claims or rights of third parties.
Broker:
A person licensed to act as an agent for another in negotiating the sale or purchase of real property in return for a fee or commission.
Buydown:
A financing technique used to reduce the monthly payment for the home buying borrower during the initial years of ownership. Under some buydown plans, a residential developer, builder or the seller will make subsidy payments (in the form of points) to the lender that “buy down,” or lower, the effective interest rate paid by the home buyer, thus reducing monthly payments for a set period of time.
CC & Rs (Covenants, Conditions and Restrictions):
Limitations placed on the use and enjoyment of real property. These are found most often in condominiums and planned unit developments.
Chain of Title:
A chronological list of recorded instruments tracing title to land from the original owner to the present owner.
Cap:
The maximum which an adjustable rate mortgage may increase regardless of index changes.
Clear Title:
Title to property which is free from liens, defects or other encumbrances.
Closing:
The process of completing a real estate transaction during which the seller delivers title to the buyer in exchange for payment of the purchase price. Called a “settlement” in some areas.
Closing Costs:
Expenses, beyond the selling price, such as loan fees, title fees, etc. Paid when documents are executed and/or recorded and the sale is complete.
Closing Disclosure:
The Closing Disclosure Form will integrate the HUD-1 required by RESPA and the “final TIL” required under TILA. This form mixes the lender and settlement costs with loan terms and replaces the HUD line numbers with an alpha-numeric system. The form also breaks out the costs and includes section totals rather than “rolling them up” as was the case with the 2010 HUD-1. Because the form is a mixture of loan information/costs and settlement costs, communication and cooperation between the lender and closing agent will be necessary to complete the Closing Disclosure.
Closing Statement:
A summary, in the form of a balance sheet, showing the amounts of debits and credits to which each party to a real estate transaction is entitled upon closing.
Cloud on Title:
Any document, claim, unreleased lien or encumbrance, which, if valid, would affect or impair title to a property.
Commission:
Compensation due a real estate broker for acting on behalf of the principal.
Community Property:
A form of vesting title to property owned by a husband and wife during their marriage which they intend to own together. It is distinguished from separate property, which is property acquired before marriage, by separate gift or bequest, after legal separation, or which is agreed in writing to be owned by one spouse.
Comparables (Comps):
An abbreviation for comparable properties used for comparative purposes in the appraisal process.
Consideration:
A required element in all contracts by which something of value, including a promise, is exchanged for the act or promise of another.
Contingency:
Action conditioned upon a certain event. Acceptance of the terms of a contract based on something else happening or certain conditions being met.
Consumer Finance Protection Bureau (CFPB):
The regulatory agency created by the Dodd-Frank Act and charged with overseeing financial products and services that are offered to consumers.
Conveyance:
The transfer of title or an interest in real property by means of a written instrument such as a deed of trust.
Deed of Trust:
A security agreement creating a lien by which title to real property is transferred to a third-party trustee as security for an obligation owed by the trustor (borrower) to the beneficiary (lender).
Demand:
The lender’s statement of the amount due to pay off a loan.
Documentary Transfer Tax:
The tax, based on sales price, less loans which are being assumed, which is charged by the city and/or county on the transfer of real property.
Due-on-Sale-Clause:
A clause in a mortgage loan which gives the lender the right to demand payment in full when the property changes ownership. Not applicable to FHA or VA loans.
Earnest Money:
The cash deposit paid by a prospective buyer as evidence of good faith to bind a sale of real estate.
Easement:
A limited right or interest in land of another that entitles the holder of the right to some use, privilege or benefit over the land.
Encumbrance:
A claim, right or lien upon real property held by someone other than the owner.
Endorsement:
A rider attached to an insurance policy to expand or limit coverage. Also spelled indorsement.
Equity:
The value of a person’s interest in real property after all liens and charges have been deducted.
Escrow:
The process in which a disinterested third party holds money and documents for delivery to the respective parties in a transaction on performance of established conditions.
Exception:
A provision in a title insurance binder or policy which excludes liability for a specified title defect or an outstanding lien or encumbrance.
Fair Market Value:
An appraisal term for the price which a property would bring in a competitive market given a willing seller and willing buyer, each of whom has a reasonable knowledge of all pertinent facts, with neither being under any compulsion to buy or sell.
Fee Simple:
An estate under which the owner owns a complete interest in the property and is entitled to the unrestricted use and enjoyment of the property, including the right to dispose of the property.
Federal Home Loan Mortgage Corporation (FHLMC, Freddie Mac):
An agency that purchases conventional mortgages in the secondary mortgage market from depository institutions and Department of Housing and Urban Development (HUD) approved mortgage bankers.
Federal Housing Administration (FHA):
A division of the Department of Housing
Federal National Mortgage Association (FNMA, Fannie Mae):
A tax paying corporation created by Congress to support the secondary mortgage market. It purchases and sells residential mortgages insured by FHA or guaranteed by VA as well as conventional home mortgages.
Finance Charge:
A total of all costs imposed directly or indirectly by the creditor and payable either directly or indirectly by the customer, as defined by the federal Truth-in-Lending laws.
First Mortgage:
A mortgage on property that is superior in right to any other mortgage.
Fixed Rate Loan:
A loan on which the same rate of interest is charged for the life of the loan.
Fixture:
Personal property which is permanently attached to real property, and, as such, becomes part of the real property.
Grantee:
One to whom a grant is made. The purchaser of real property.
Grantor:
One who has made a grant. The seller of real property.
Hidden Defect:
An encumbrance on a title that is not apparent in the public records; for example, unknown heirs, secret marriages and forged instruments.
Impound Account:
An account held by a lender for the payment of taxes, insurance or other periodic debts against real property.
Joint Tenancy:
A means of ownership in which two or more persons own legal shares in real property. Upon the death of one tenant, his/her share passes to the remaining tenant(s) until the title is vested in the last survivor.
Legal Description:
A description by which property can be definitely located by reference to surveys or recorded maps.
Lien:
A recorded document which claims an interest in real property as security to a debt owed. Such liability may be created by contract such as a deed of trust, or by court judgment.
Lis Pendens:
Legal notice that a lawsuit is pending. Also called notice of action.
Loan Estimate:
The Loan Estimate Form will replace the separate disclosures required under the TILA, called the “initial TIL” and Real Estate Settlement Procedures Act (RESPA), known as the Good Faith Estimate or “GFE”.
Loan to Value Ratio:
The ratio of the mortgage loan’s principal to the property’s appraised value or its sales price, whichever is lower
Market Value:
An appraisal term denoting the highest price that a buyer, willing but not compelled to buy, would pay and the lowest a seller, willing but not compelled to sell, would accept.
Mechanic’s Lien:
A lien on real estate which secures the payment of debts due to persons who perform labor or services or furnish materials incident to the construction of buildings and improvement on real estate.
Metes and Bounds:
A form of land description in which boundaries are described by courses, directions, distances and monuments.
Mortgage:
A legal document used to secure the performance of an obligation.
Notarization:
The certification by a notary public that a person signing a document has been properly identified. Notarization does not certify the content of a document, only validity of signature.
Perfecting Title:
Process involving the elimination of any adverse claims against title.
PITI:
Refers to principal, interest, taxes and insurance, the four major components of a usual monthly mortgage payment.
PITI Ratio:
The principal, interest, tax and insurance payment-to-income ratio. Used in mortgage lending decisions.
Points:
A fee charged by the lender to fund a loan, in addition to and separate from other fees charged. One point equals one percent of the amount of the loan.
Principal:
The sum of money outstanding upon which interest is payable. Also refers to one who is served by an agent.
Private Mortgage Insurance (PMI):
Insurance written by a private mortgage insurance company protecting the mortgage lender against loss occasioned by a mortgage default and foreclosure.
Proration:
The method used in dividing charges into that portion which applies only to a party’s ownership up to a particular date.
Qualification:
The process of reviewing a prospective borrower’s credit and payment capacity prior to approving a loan.
Quitclaim Deed:
A deed relinquishing all interest, title or claim in a property by a grantor. Accomplished without representing that such title is valid, nor containing any warranty or covenants of title.
Real Estate Settlement Procedures Act (RESPA):
A federal statute requiring disclosure of certain costs in the sale of residential, improved property which is to be financed by a federally insured lender.
Reconveyance:
The conveyance to the landowner of the title, held by a trustee under a deed of trust, when the performance of the debt is satisfied.
Recordation:
Involves filing for record in the office of the county recorder for the purpose of giving constructive notice of title, claim or interest in real property.
Record Owner:
The owner of property as shown by an examination of the public record.
Statement of Information (SI):
A confidential information statement completed by the buyer, seller and borrower in every transaction where a policy or policies of title insurance are requested. Allows the title company to competently search documents affecting the property to be insured, documents which may not refer to said property. Allows title companies to differentiate between parties with similar names when searching matters such as liens and court decrees.
“Subject To” Clause:
A clause in a contract of sale setting forth any contingencies or special conditions of purchase and sale, such as an offer made and accepted subject to financing, securing certain zoning or similar requirements.
Subordination Agreement:
An agreement under which a prior or superior lien is made inferior or subject to an otherwise junior lien.
Tax Lien:
A statutory lien imposed against real property for nonpayment of taxes.
Tenancy in Common:
Co-ownership in a property by two or more persons, each of whom has an undivided interest in the whole property.
Title Plant:
The information warehouse of a title company in which it has accumulated, and is constantly updating title records of properties in its area which it can use to search title to real property.
Trustee:
A person who holds title in trust for the benefit of another. In a deed of trust the trustee is the person named to hold title in trust for the benefit of the lender until the loan is paid off.
Trustor:
The borrower under a deed of trust. One who deeds their property to a trustee as security for repayment of a loan.
The Dodd-Frank Act:
Fully known as the Dodd-Frank Wall Street Reform and Consumer Protection Act is a United States federal law that places regulation of the financial industry in the hands of the government.
Uniform Settlement Statement:
The standard HUD Form 1 required to be given to the borrower, lender and seller at, or prior to, settlement.
Unmarketable Title:
Title which contains defects that would allow a purchaser to be released from his obligation to purchase.
Vesting:
Denotes the manner in which title is held. Examples of common vestings are: Community Property, Joint Tenancy and Tenancy in Common.
Veterans Administration (VA):
VA has power and authority to guarantee or insure payment of loans made to veterans by private lending institutions. This function is similar to that of FHA. VA also makes direct loans to veterans in non-urban areas where private loan funds are not available.
More Resources
Over the years, we have collected a lot of valuable tidbits that help us understand what it means to take you from contract to close of escrow.
And now, we can share those pearls of wisdom with you...here:
The process
→ Quick Tip: Every transaction is different. But here’s a general guideline to follow from the time the contract is accepted to close of escrow.
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The Process
→ Quick Tip: Every transaction is different. But here’s a general guideline to follow from the time the contract is accepted to close of escrow.
RATIFIED CONTRACT
Check dates with calendar, Study contract terms, Share affiliate contact info with other agent.
REPORT THE SALE
Turn file in to Broker, L/A changes status on MLS L/A sends contract to title, B/A send contract and prelim to lender.
DEPOSIT CHECK
B/A delivers buyers deposit check to title, title disburses receipt to all parties.
DISCLOSURES
L/A provides seller disclosures and reports to B/A, B/A reviews and obtains Buyer signatures, B/A copies and returns originals to L/A.
INSPECTIONS
Responsible party orders inspections, confirms access and notifies other agent of scheduled time. Inspections are performed and reports are disbursed. Responsible party confirms billing is processed correctly.
CONTINGENCIES
B/A meets with Buyer and Lender to confirm removal status, Buyer signs removal form, B/A sends removal to L/A, L/A updates MLS to no show status and home warranty is ordered.
REPAIRS
Any repairs to be done prior to close are now authorized and scheduled by the responsible party, the work is then performed, and completion/clearance reports are disbursed.
FILE AUDIT
Audit file for anything missing, send to title for signatures in escrow, verify escrow file, make sure they have all reports and invoices to be paid thru escrow, confirm terms, send title commission demand, and schedule buyer final walk thru or get waiver.
BUYER LOAN DOCS
B/A follows up with Lender on doc status, Lender sends docs to title, title then notifies B/A once docs are received. B/A schedules buyer sign off appt with title, B/A reviews title’s estimated closing costs, title signs off Buyer and informs Buyer how much money is needed to fund. Title packages signed loan docs back to the Lender for review of final conditions, funder reviews loan file and puts in line to fund.
SELLERS LOAN PAYOFF
L/A confirms with title that payoff figures are in and obtains an estimated net sheet. L/A schedules the seller sign off appt with title, title signs off seller and finds out how they wish to obtain their proceeds.
FUNDING/RECORDING
Title will confirm once all funds are received by lender and buyer the day before close of escrow. The day of closing, title will confirm recording of the deed. B/A to obtain all keys and deliver possession to the Buyer.
CLOSE OUT FILE
Obtain closing package from title and commission check from Broker, obtain any documents you asked to have signed in escrow to complete your file. L/A reports close to MLS. Make closing package for client records.
Emotional Stages of a Sale
Stages of a Sale
The Process
→ Quick Tip: Every transaction is different. But here’s a general guideline to follow from the time the contract is accepted to close of escrow.
RATIFIED CONTRACT
Check dates with calendar, Study contract terms, Share affiliate contact info with other agent.
REPORT THE SALE
Turn file in to Broker, L/A changes status on MLS L/A sends contract to title, B/A send contract and prelim to lender.
DEPOSIT CHECK
B/A delivers buyers deposit check to title, title disburses receipt to all parties.
DISCLOSURES
L/A provides seller disclosures and reports to B/A, B/A reviews and obtains Buyer signatures, B/A copies and returns originals to L/A.
INSPECTIONS
Responsible party orders inspections, confirms access and notifies other agent of scheduled time. Inspections are performed and reports are disbursed. Responsible party confirms billing is processed correctly.
CONTINGENCIES
B/A meets with Buyer and Lender to confirm removal status, Buyer signs removal form, B/A sends removal to L/A, L/A updates MLS to no show status and home warranty is ordered.
REPAIRS
Any repairs to be done prior to close are now authorized and scheduled by the responsible party, the work is then performed, and completion/clearance reports are disbursed.
FILE AUDIT
Audit file for anything missing, send to title for signatures in escrow, verify escrow file, make sure they have all reports and invoices to be paid thru escrow, confirm terms, send title commission demand, and schedule buyer final walk thru or get waiver.
BUYER LOAN DOCS
B/A follows up with Lender on doc status, Lender sends docs to title, title then notifies B/A once docs are received. B/A schedules buyer sign off appt with title, B/A reviews title’s estimated closing costs, title signs off Buyer and informs Buyer how much money is needed to fund. Title packages signed loan docs back to the Lender for review of final conditions, funder reviews loan file and puts in line to fund.
SELLERS LOAN PAYOFF
L/A confirms with title that payoff figures are in and obtains an estimated net sheet. L/A schedules the seller sign off appt with title, title signs off seller and finds out how they wish to obtain their proceeds.
FUNDING/RECORDING
Title will confirm once all funds are received by lender and buyer the day before close of escrow. The day of closing, title will confirm recording of the deed. B/A to obtain all keys and deliver possession to the Buyer.
CLOSE OUT FILE
Obtain closing package from title and commission check from Broker, obtain any documents you asked to have signed in escrow to complete your file. L/A reports close to MLS. Make closing package for client records.
Real estate is an emotional business. Moving is one of the most stressful experiences an individual or family can go through. it is important to recognize this and be supportive, understanding and responsive.
As team members progress through the escrow together, due to inside and outside influences each may experience different emotions or stages as a response to stress. Not only the buyer and seller experience these stages. The rest of the team can also experience them. Understanding these stages helps you to determine when to request and negotiate.
There are four emotional stages:
1. Euphoria
The first emotional stage of the escrow team is the euphoric or “honeymoon” stage. The team is excited and enthusiastic. The buyer is happy to have found the home he or she has bee looking for. The seller is relieved to have found a buyer for his or her home and can now move ahead with plans. The agents and lender are happy because it means they soon will be paid for their services! The escrow officer is happy because it increases his or her number of closings. The team is willing to extend themselves and work out problems and negotiate at this stage. The euphoric stage is an excellent time to get disclosures signed, work out details such as possession date and time, removal of contingencies and repair requests.
2. Depression, or Second-Guessing
The second stage is depression, or second guessing. In the third week of the escrow, the buyer and seller may become fatigued. They have been burning the candle at both ends-coordinating the sale or purchase plus working or participating in their daily life activities. The buyer and seller are less focused and take more time to respond. They may even second-guess their decision. The rest of the team may also experience second-guessing especially if small, symptomatic problems begin occurring during the escrow. You will find the team struggling to cooperate and individuals beginning to retreat from the team approach.
3. Anger/Denial
The third stage is anger/denial. If the escrow process is not going well, you will find team members experiencing these emotions. The buyer or seller may refuse to negotiate and/or threaten to cancel the escrow. The agents are impatient and do not want to deal with problems. The lender is slow to return your calls. Frequently, the team members are looking for a scapegoat instead of focusing on solving problems together. Compounding this is the fact that the buyer and seller may be exhausted, and at the same time are trying to pack and make moving arrangements. The third and second stages are NOT good time to negotiate and ask for paperwork to be signed. When a team member is in the third stage, it’s a good idea, if possible, to allow him/her a short “cooling off” period to allow the individual and team to back off and regroup.
4. Acceptance
The fourth and final stage is the stage of acceptance. This is where team members do what it takes to close the deal. The buyer and seller will sign whatever is needed to “get it over with”. The agent and lender may even be willing to help pay for some additional costs. The escrow officer and coordinator are also willing to perform extra duties to close escrow. Some agents use this stage and extreme time constraints to gain cooperation from their clients.
However, the best time for buyers and sellers to make decisions is during the Euphoric stage when they have the time and energy to review documents and reports and make good decisions for their future.
Not everyone experiences all of the stages or in any specific order. These stages are simply guidelines for you to increase your awareness of where the team may be emotionally at any given time during the escrow. There is no guarantee of how long each stage will last, which stage will come first, or if team members will experience all stages. Be aware that these are coping mechanisms used to deal with stressful situations!
Property Condition
How High Tech Is Your Home?
If the latest technology or entertainment options are important in your new home, add the following questions to your buyer’s checklist.
1. Are there enough jacks in every room for cable TV and high-speed Internet hookups?
2. Are there enough telephone extensions or jacks?
3. Is the home prewired for a home theater or multi-room audio and video?
4. Does the home have a local area network for linking computers?
5. Does the home already have wiring for DSL or other high-speed Internet connection?
6. Does the home have multizoning heating and cooling controls with programmable thermostats?
7. Does the home have multi-room lighting controls, window-covering controls, or other home automation features?
8. Is the home wired with multi-purpose in-wall wiring that allows for reconfigurations to update services as technology changes?
Hidden Home Defects to Watch For
No home is flawless, but certain physical problems can be expensive. Watch for:
1. Water leaks. Look for stains on ceilings and near the baseboards, especially in basements or attics.
2. Shifting foundations. Look for large cracks along the home’s foundation.
3. Drainage. Look for standing water, either around the foundation of the home of in the yard.
4. Termites. Look for weakened or grooved wood, especially near ground level.
5. Worn roofs. Look for broken or missing copings and buckled shingles as well as water spots on ceilings.
6. Inadequate wiring. Look for antiquated fuse boxes, extension cords (indicating insufficient outlets), and outlets without a place to plug in the grounding prong.
7. Plumbing problems. Very low water pressure, banging in pipes.
10 Questions to Ask a Home Inspector
1. What are your qualifications? Are you a member of the American Association of Home Inspectors?
2. Do you have a current license? Inspectors are not required to be licensed in every state.
3. How many inspections of properties such as this do you do each year?
4. Do you have a list of past clients I can contact?
5. Do you carry professional errors and omission insurance? May I have a copy of the policy?
6. Do you provide any guarantees of your work?
7. What specifically will the inspection cover?
8. What type of report will I receive after the inspection?
9. How long will the inspection take and how long will it take to receive the report?
10. How much will the inspection cost?
What Your Home Inspection Should Cover
1. Siding: Look for dents or buckling
2. Foundations: Look for cracks or water seepage
3. Exterior Brick: Look for cracked bricks or mortar pulling away from bricks
4. Insulation: Look for condition, adequate rating for climate
5. Doors and Windows: Look for loose or tight fits, condition of locks, condition of weatherstripping
6. Roof: Look for age, conditions of flashing, pooling water, buckled shingles, or loose gutters and downspouts
7. Ceilings, walls, and moldings: Look for loose pieces, drywall that is pulling away
8. Porch/Deck: Loose railings or step, rot
9. Electrical: Look for condition of fuse box/circuit breakers, number of outlets in each room
10. Plumbing: Look for poor water pressure, banging pipes, rust spots or corrosion that indicate leaks, sufficient insulation
11. Water Heater: Look for age, size adequate for house, speed of recovery, energy rating
12. Furnace/Air Conditioning: Look for age, energy rating; Furnaces are rated by annual fuel utilization efficiency; the higher the rating, the lower your fuel costs. However, other factors such as payback period and other operating costs, such as electricity to operate motors.
13. Garage: Look for exterior in good repair; condition of floor-cracks, stains, etc.; condition of door mechanism
14. Basement: Look for water leakage, musty smell
15. Attic: Look for adequate ventilation, water leaks from roof
16. Septic Tanks (if applicable): Adequate absorption field capacity for the percolation rate in your area and the size of your family
17. Driveways/Sidewalks: Look for cracks, heaving pavement, crumbling near edges, stains
How Comprehensive Is Your Home Warranty?
Check your home warranty policy to see which of the following items are covered. Also check to see if the policy covers the full replacement cost of an item.
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Plumbing
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Electrical Systems
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Water Heater
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Furnace
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Heating Ducts
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Water Pump
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Dishwasher
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Stove/Cooktop/Ovens
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Microwave
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Refrigerator
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Washer/Dryer
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Swimming Pool (may be optional)
Taxes
5 Property Tax Questions You Need to Ask
1. What is the assessed value of the property? Note that assessed value is generally less than market value. Ask to see a recent copy of the seller’s tax bill to help you determine this information.
2. How often are properties reassessed and when was the last reassessment done? Generally taxes jump most significantly when a property is reassessed.
3. Will the sale of the property trigger a tax increase? Often the assessed value of the property may increase based on the amount you pay for the property. And in some areas, such as California, taxes may be frozen until resale.
4. Is the amount of taxes paid comparable to other properties in the area? If not, it might be possible to appeal the tax assessment and lower the rate?
5. Does the current tax bill reflect any special exemptions that you might not qualify for? For example, many tax districts offer reductions to those 65 or over.
Tax Calendar
NOVEMBER
1st: 1st Installment due
DECEMBER
10th: 1st Installment Delinquent
JANUARY
1st: Lien Date
FEBRUARY
1st: 2nd Installment Due
APRIL
10th: 2nd Installment Delinquent
15th: Last day to file for homeowners exemption!
JULY
1st: Beginning of fiscal tax year
OCTOBER
Last Week of the Month: Tax bills mailed out
Financing
“The loan is approved!” Words dear to the heart of a buyer. However, they can mean so many things. In order to understand lender language, it is important to understand the lending process.
Lending Institutions
A prospective buyer typically requires some sort of financing to purchase property. The mist often used institutions for lending are mortgage companies (commonly known as mortgage brokers) and a portfolio lender or bank.
A loan officer of a mortgage company takes the buyer’s loan application and “farms it out” to different mortgage bankers or loan institutions for review and hopefully approval. A bank is a direct lender and takes an application directly from the buyer.
A mortgage broker representing a buyer in locating the right loan can be advantageous because they have more options for obtaining loan approval when the buyer has shaky credit, poor income scores or little down payment. The advantage of using a bank directly is that the buyer is dealing directly with the lending institution.
During the escrow period, the buyer should refrain from charging anything on credit cards and taking out ew loans for large items such as cars or furniture. She/he should keep the money that will be used for the down payment in the bank so a bank record can be obtained for lender documentation purposes. The bank is sensitive to “paper trails”. That is, they want to know where the buyer’s money for the down payment is coming from. So it cannot be cash!
Pre-Qualification vs. Pre-Approval
When a buyer contacts a mortgage broker or a bank, the officer will interview over the phone regarding income and debts and will pull or order a credit report. Based upon this information, plus a written application, he/she may be able to offer the buyer a pre-qualification. This is not a loan commitment.
A pre-approval has progressed several steps further into the process. The officer requests comprehensive documentation from the buyer and submits it along with the buyer’s loan application, to the underwriting department (the people hired to look at all loan applications and approve or disapprove them). If the loan application is approved, it is always with conditions. There may be more conditions but never less than two, which always includes the review and approval of the appraisal and the preliminary title report.
The pre-qualification letter and pre-approval letter should contain the following information:
1. Loan amount
2. Sales price of the home
3. Credit report reviewed
4. Conditions required
Prior to Document & Prior to Funding Conditions
Let’s talk about prior to document conditions. This is a statement used by the underwriter of the lending institution to offer conditional approval. It means: “We are approving the loan and will prepare the documents to be delivered to title when the loan officer and buyer have completed and submitted the following conditions.
Prior to funding conditions means the lender or bank will fund the loan after another set of conditions have been completed, submitted or satisfied. Usually the prior to funding list is provided to the escrow officer along with the loan documents when they are delivered to title. Always ask the loan officer and escrow officer what these conditions are to help gauge how the loan is progressing and allow you to anticipate unforeseen delays. Prior to funding conditions should be minor conditions, nothing that takes considerable research or time to satisfy.
Timeframes
When an offer is accepted on a property, there is usually a timeframe specified for the loan to be approved, and the loan contingency to be removed by the buyer. It is critical that the loan officer is aware of this timeframe, so he/she knows how much time has been allotted to obtain approval. When the loan is approved, and the buyer must address the contingency in writing. One of the most common reasons escrows falter is because of the inability of the buyer to remove the financing contingency in a timely manner. If the officer is not aware that an offer has been accepted, the agent is too busy to fax the contract, and the buyer is too busy to provide the documentation needed for approval, this timeframe can pass quickly without an approval! Loan officers are frequently the last to know what’s going on, because the rest of the team members tend to forget to communicate. Lenders should be first to receive information or tools, so they can immediately begin processing the loan. As soon as the offer is accepted, contracts should be sent to the lender along with escrow information.
Credits
Credit is money paid from the seller to the buyer for different items, such as helping the buyer with closing costs, or perhaps in lieu of certain repairs. The lender officer needs to know about these credits as soon as possible. Some lenders limit the amount of credit allowed or don’t permit any credits at all. If the lender does not allow a credit to be paid to the buyer through escrow, there are other ways to accomplish this. For example, the seller can pay a tradesperson directly if the credit is for repairs.
Frequently, credits are added after the inspection contingency period. When this happens, you must inform the lending officer right away and ask:
1. Will the bank allow the credit?
2. If yes, does it need to be in the form of a non-recurring or recurring closing cost?
3. If yes, does the bank require an addendum indicating this?
A sample of an addendum for additional credit should read: “Seller to credit buyer $500 total at close for non-recurring closing costs”.
Non-recurring & Recurring Closing Costs
These items help explain where and how credits from the seller’s proceeds will be applied to the buyer’s transaction. Non-recurring costs include items in which the buyer is charged one time such as loan fees, title insurance, and escrow fees. Recurring fees are those that are charged repeatedly to the buyer, such as property taxes, mortgage payments and fire insurance premiums. Why does the bank care whether or not the credit is applied to recurring or non-recurring closing costs? Because these are the lender guidelines FNMAE and HUD have created.
Loan Lock & Doc Expiration Date
The buyer’s loan officer locks an interest rate commitment for the buyer. This is a commitment that the buyer and lender must abide by in a fluctuation and constantly changing financial market. The buyer typically pays for this lock through a fee or interest rate. Locks are usually good for 15,30,45, and 60 days. The longer the lock, the more expensive it is for the buyer to obtain. If the escrow fails to close within the lock timeframe, two things can happen. The loan locj expires and the buyer has to renegotiate a new interest rate and re-lock in. This can be detrimental to the transaction if the interest rates have gone up and the buyer can no longer afford the loan. Or the buyer can pay an additional fee to extend the lock until the escrow closes.
Loan documents are time sensitive. They are only valid for a couple weeks. If the escrow does not close on time, the lender’s commitment and documents can expire. New loan docs must then be prepared and delivered to title for the buyer’s signatures. This can cause disappointing delays in closing, and costly extensions of closing dates and moves.
A good lending officer will allow the team at least two weeks leeway after the anticipated close of escrow before the lock and docs expire. If you are aware of a delay in close, always contact the lending officer immediately and ask him/her when the lock and docs expire.
Loan Contingency
When the loan is approved, all prior to doc conditions should be approved and signed off on by the underwriter. This includes the preliminary title report and appraisal report. Removing the loan contingency means that the buyer ensures the seller that the lender has made a firm loan commitment and that loan documents will be prepared and delivered to title. What happens if the buyer removes the loan contingency, but the loan is not approved? He/she risks losing a deposit and/or increased deposit to the seller for failure to perform! To be absolutely certain that the loan is approved, the loan officer should receive the approval in writing from the back and issue an approval in writing to the agent.
Always remind the loan officer two days prior to the loan approval due date, and confirm that the appraisal report is complete, and that it came in at value of the purchase price. If it does not, then the buyer must decide whether to come up with the difference in price, renegotiate the purchase price down to the appraised value, or not remove contingencies and walk away.
Table Funding
Portfolio lenders manage their own loans. Instead of waiting to wire the money into escrow the day before close, the lender may include a check for the amount of the loan with the buyer’s closing papers. An advantage of this procedure is that you don’t worry about missed wires that can delay the closing. However, the lender may require the buyer to sign loan documents on one particular day very close to the closing date. This signing date may not be revealed until the last minute, because they will not send out the documents to title until 2 or 3 days prior to close!The buyer must be “on call” and available to sign the papers when needed.
Appraisal
Typically, the appraiser should contact the agent within 1 working day of the lender ordering the appraisal. The timeframe for the appraiser to complete the report and submit it to the lender should be no more than 2 days. Occasionally, the loan officer forgets to order the appraisal promptly or the appraiser forgets to call to schedule the appointment. Friendly reminders always help to keep the loan process moving smoothly.
When a buyer has excellent credit and is placing a large down payment on the property, the bank may order a drive-by appraisal. The appraiser conducts an exterior visual inspection without the formality of an interior inspection with measurements.
The appraisal inspection and report must be completed and submitted to underwriting prior to the loan contingency removal date. Sometimes the buyer’s agent or buyer asks the lender to delay ordering the appraisal until after the inspections have been completed. The reason for this is that the buyer is required to pay the appraisal fee. If the buyer is concerned about the inspections, this saves an additional expense if a decision is made to cancel the escrow. Just make sure to write your contract accordingly to allow time for the inspections and appraisal.
If the appraiser is having problems “comping out” the property, he/she should contact the agent promptly. IT is typically the listing agent’s responsibility to locate comps that will support the sales price. If you’re concerned about the property not appraising at full value, have the sellers prepare a list with costs of upgrades for the appraiser to consider.
The Loan Documents
The timing and delivery of loan docs is critical to the closing date. If loan docs are delivered too early to title and the closing date is delayed, the loan docs may expire. If delivered too late, it can delay closing as described below.
When the lending institution has committed to providing a loan to the buyers, the loan docs must be prepared and delivered to title for the buyer to sign. An important question to ask is “How much time is the lender requesting for underwriting approval of the signed loan docs and any prior to funding conditions?” Every bank varies, some only need 1 day, others need up to 72 hours after receipt of the documents. You may have a problem if the loan docs arrived at title 3 days prior to close and the signed docs were not returned back to the bank until 2 days prior to close! There is not much you can do to change this. You should prepare your client and the rest of the team for the worst-case scenario.
8 Steps to Getting Your Finances in Order
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Develop a family budget. Instead of budgeting what you’d like to spend, use receipts to create a budget for what you actually spent over the last six months. One advantage of this approach is that it factors in unexpected expenses, such as car repairs, illnesses, etc., as well as predictable costs such as rent.
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Reduce your debt. Generally speaking, lenders look for a total debt load of no more than 36 percent of income. Since this figure includes your mortgage, which typically ranges between 25 percent and 28 percent of income, you need to get the rest of installment debt-car loans, student loans, revolving balances on credit cards-down to between 8 percent and 10 percent of your total income.
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Get a handle on expenses. You probably know how much you spend on rent and utilities, but little expenses add up. Try writing down everything you spend for one month. You’ll probably see some great ways to save.
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Increase your income. It may be necessary to take on a second, part-time job to get your income at a high-enough level to qualify for the home you want.
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Save for a downpayment. Although it’s possible to get a mortgage with only 5 percent down-or even less in some cases-you can usually get a better rate and a lower overall cost if you put down more. Shoot for saving a 20 percent downpayment.
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Create a house fund. Don’t just plan on saving whatever’s left toward a downpayment. Instead decide on a certain amount a month you want to save, then put it away as you pay your monthly bills.
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Keep your job. While you don’t need to be in the same job forever to qualify, having a job for less than two years may mean you have to pay a higher interest rate.
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Establish a good credit history. Get a credit card and make payments by the due date. Do the same for all your other bills. Pay off the entire balance promptly.
8 Ways to Improve Your Credit
Credit scores, along with your overall income and debt, are a big factor in determining if you’ll qualify for a loan and what loan terms you’ll be able to qualify for.
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Check for and correct errors in your credit report. Mistakes happen, and you could be paying for someone else’s poor financial management.
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Pay down credit card bills. If possible, pay off the entire balance every month. However, transferring credit card debt from one card to another could lower your score.
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Don’t charge your credit cards to the maximum limit.
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Wait 12 months after credit difficulties to apply for a mortgage. You’re penalized less for problems after a year.
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Don’t purchase big-ticket items for your new home on credit cards until after the loan is approved. The amounts will add to your debt.
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Don’t open new credit card accounts before applying for a mortgage. Having too much available credit can lower your score.
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Shop for mortgage rates all at once. Too many credit applications can lower your score, but multiple inquiries from the same type of lender are counted as one inquiry if submitted over a short period of time.
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Avoid finance companies. Even if you pay the loan on time, the interest is high and it will probably be considered a sign of poor credit management.
5 Factors That Decide Your Credit Score
Credit scores range between 200 and 800. Scores above 620 are considered desirable for obtaining a mortgage. These factors will affect your score.
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Your payment history. Whether you paid credit card obligations on time.
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How much you owe. Owing a great deal of money on numerous accounts can indicate that you are overextended.
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The length of your credit history. In general, the longer the better.
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How much new credit you have. New credit, either installment payments or new credit cards, are considered more risky, even if you pay promptly.
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The types of credit you use. Generally, it’s desirable to have more than one type of credit-installment loans, credit cards, and a mortgage, for example.
10 Things a Lender Needs From You
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W-2 forms or business tax return forms if you’re self-employed for the last two or three years for every person signing the loan.
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Copies of one or more months of pay stubs from every person signing the loan.
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Copies of two to four months of bank or credit union statements for both checking and savings accounts.
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Copies of personal tax forms for the last two to three years.
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Copies of brokerage account statements for two to four months, as well as a list of any other major assets of value, e.g., a boat, RV, or stocks or bonds not held in a brokerage account.
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Copies of your most recent 401(k) or other retirement account statement.
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Documentation to verify additional income, such as child support, pension, etc.
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Account numbers of all your credit cards and the amounts of any outstanding balances.
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Lender, loan number, and amount owed on other installment loans-student loans, car loans, etc.
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Addresses where you lived for the last five to seven years, with names of landlords, if appropriate.
Moving
What Not to Overlook on a Final Walk-through
Be sure that:
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Repairs you’ve requested have been made. Obtain copies of paid bills and any related warranties.
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All items that were included in the sale price-draperies, lighting fixtures-are still there.
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Screens and storm windows are in place or stored.
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All appliances are operating.
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Intercom, doorbell, and alarm are operational.
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Hot water heater is working.
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HVAC is working.
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No plants or shrubs have been removed from the yard.
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Garage door opener and other remotes are available.
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Instruction books and warranties on appliances and fixtures are there.
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All personal items of the sellers and all debris have been removed.
Tips for Packing Like a Pro
1. Develop a master “to do” list so you won’t forget something critical.
2. Sort and get rid of things you no longer want or need. Have a garage sale, donate to a charity, or recycle.
3. Don’t throw out everything. If your inclination is to just toss it, ask yourself how frequently you use an item and how you’d feel if you no longer had it.
4. Pack like items together. Put toys with toys, kitchen utensils with kitchen utensils.
5. Decide what if anything you plan to move yourself. Precious items, such as family photos, valuable breakables, or must-haves during the move, should probably stay with you.
6. Use the right box for the item. Loose items encourage breakage.
7. Put heavy items in small boxes so they’re easier to lift. Keep weight under 50 lbs. if possible.
8. Don’t over-pack boxes and increase the chances they will break.
9. Wrap every fragile item separately and pad bottom and sides of boxes.
10. Label every box on all sides. You never know how they’ll be stacked and you don’t want to have to move other boxes aside to find out what’s there.
11. Use color-coded labels to indicate which room each item should go in. Color-code a floor plan for your new house to help movers.
12. Keep your moving documents together, including phone numbers, driver’s name, and van number. Also keep your address book handy.
13. Back up your computer files before moving your computer.
14. Inspect each box and all furniture for damage as soon as it arrives.
15. Remember, most movers won’t take plants.
Tips for Holding a Yard Sale
Hold a yard sale to reduce the clutter in your home and get rid of items you don’t want to move.
1. Check with your city government to see if you need a permit or license.
2. See if neighbors want to participate and have a “block” sale to attract more visitors.
3. Advertise. Put an ad in free classified papers, and put up signs and balloons at major intersections and in stores near your home.
4. Price items ahead and attach prices with removable stickers. Remember, yard sales are supposed to be bargains, so don’t try to sell anything of significant value this way.
5. Check items before the sale to be sure you haven’t including something you want by mistake.
6. Keep pets away from the sale.
7. Display everything neatly and individually so customers don’t have to dig through boxes.
8. Have an electrical outlet so buyers can test appliances.
9. Have plenty of bags and newspaper for wrapping fragile items.
10. Get enough change, and keep a close eye on your cash.
Moving Tips for Sellers
1. Give your forwarding address to the post office, usually two to four weeks ahead of the move.
2. Notify your credit card companies, magazine subscriptions, and bank of the change of address.
3. Develop a list of friends, relatives, and business colleagues who need to be notified of the move.
4. Arrange to have utilities disconnected at your old home and connected at your new one.
5. Cancel the newspaper.
6. Check insurance coverage for moved items. Usually movers only cover what they pack.
7. Clean out appliances and prepare them for moving, if applicable.
8. Note the weight of the goods you’ll have moved, since long-distance moves are usually billed according to weight. Watch for movers that use excessive padding to add weight.
9. Check with your condo or co-op about restrictions on using the elevator or particular exits.
10. Have a “first open” box with the things you’ll need most-toilet paper, soap, trash bags, scissors, hammer, screwdriver, pencils and paper, cups and plates, water, snacks, and toothpaste.
Plus, if you’re moving out of town:
1. Get copies of medical and dental records and prescriptions for your family and your pets.
2. Get copies of children’s school records for transfer.
3. Ask friends for introductions to anyone they know in your new neighborhood.
4. Consider special car needs for pets when traveling.
5. Let a friend or relative know your route.
6. Carry traveler’s checks or an ATM card for ready cash until you can open a bank account.
7. Empty your safety deposit box.
8. Put plants in boxes with holes for air circulation if you’re moving in cold weather.
6 Items to Have on Hand for the New Owners
1. Owner’s manuals for items left in the house.
2. Warranties for any items left in the house.
3. A list of local service providers-the best dry cleaner, yard service, etc.
4. Garage door opener.
5. Extra sets of house keys.
6. Code to burglar alarm and phone number of monitoring service if not discontinued.
Disclosures
California was one of the first states to provide laws for real estate professionals to protect the general public and consumers. The primary goal of these laws is to provide retain the disclosure to the buyer, and establish standardized reached an agreement with regard to a purchase.
Let’s start at the beginning of the listing period. The real estate agent must have the seller signed several contracts and disclosures. The following are descriptions of California contracts and disclosures:
Disclosure Regarding Real Estate Agency Relationships
The real estate agent is required by law to disclose agency in relationships to the seller this form helps the age in discuss with the seller different types of age and representation.
Residential Listing Agreement
There are several wasting agreements, but this is the most commonly used. Police sting of green meant is an agreement between the seller and agents to market or sell the property for a commission being. The listing agreement specifies when the property is to be actively marketed and in one manner. It also specifies expiration date for the listing agreement, the listing prize, commission agreement and dispute resolution clauses.
The Sellers Advisory
A form exploiting the seller’s responsibility of disclosure and the process of selling.
Sellers Affidavit of Non-Foreign Status
The internal in state revenue service’s require a buyer to have the seller complete a firpta form prior to close of escrow. This form is used for the purpose of tracking and taxing the sellers net proceeds if the money will be taken out of California or the united states. IRS will not tax and the out of state seller who has lived in California within the last two years prior to selling. But there is an IRS exemption form provided by the title company that the seller must complete to qualify. Many title companies include the firpta for the seller to complete along the way of closing papers, but always check with the title company to be sure. If the seller does not complete this form prior to close, and agent could potentially be liable up to the amount of agents compensation and the buyer could be liable for the actual amount of tax owed by the seller.
It’s a good idea for the agent to complete disclosures at the time of the listing appointment. Each office must abide by the disclosures specified in the purchase agreement contract, and additionally, may have their own office disclosures for the seller to complete. These disclosures are for the buyer to review. Below is an explanation of each disclosure. All parties must sign, the initial and date each form. The disclosures must be delivered to the buyer within the time specified in the purchase contract.
Mandatory Disclosures
Smoke Detectors Statement of Compliance
Seller verifies there is a working smoke detector inside the property.
Water Heater Statement of Compliance
California law mandates that all water heaters be strapped with two metal straps for earthquake safety. Earthquake kits for homeowners are available for purchase at most local hardware stores.
Lead-Based Paint Disclosure (for homes built prior to 1978)
There is a potential hazard that lead based paint may have been used on the house. This discloses the seller’s awareness of lead paint and explains the buyers right to an inspection to determine lead hazards.
Homeowners Guide to Earthquake Safety and Environmental Hazards
A booklet provided to the buyer and seller by their agent that explains in detail potential earthquake and environmental hazards. Buyer and seller must sign a form acknowledging receipt of this booklet. The receipt is attached to the back of the booklet.
Residential Earthquake Hazards Report Questionnaire
Discloses potential earthquake weakness in a home. Found on the back page of the earthquake safety and environmental hazards booklet.
Real Estate Transfer Disclosure Statement
This is a checklist disclosure that the seller completes addressing specific questions about the property. The agents must also complete the agents disclosure portion and sign. Both buyer and seller and initial pages one and two of the disclosure and both parties signed page three. The seller also signs page two of the disclosure. The buyer and seller should sign page three of the disclosure that acknowledge receipt after both agents have completed their disclosure portions.
There are additional mandatory disclosures, such as natural hazards disclosure, geological and environmental hazards report, mold disclosure, California tax disclosure, etc. Always check with your broker to ensure you are using disclosures of appropriate for your area. You should always understand that the buyers have the right to any and all information that is known to the seller or agent. Disclose, disclose, disclose.
There are additional disclosures that are not mandatory, but frequently used. So keep in mind your cooperative broker and may request additional forms be completed by your seller when you get into contract.
Additional (but not mandatory) Disclosures
Supplement to the TDS
A form that discloses additional information regarding the property condition.
Condominium Supplemental Disclosure Statement
A form that disclose this information regarding the common use area of the subdivision or complex within an hoa.
Arbitration Disclosure
Further explains arbitration and mediation procedures.
Agents Inspection Disclosure
Instead of, or in addition to completing the agents disclosure on page three of the TDS the buying or selling agent completes an additional or supplemental disclosure.
When a disclosure is first generated, it starts from the seller to the buyer. The buyer should sign this disclosure after the seller has completed and signed it. the buyer should never sign a blank disclosure, and then submit it to the seller to complete and sign.
Ok so, Who gets what?
S E L L E R – S I D E – C O P I E S
Listing Agreement
Purchase Contract
All State Mandated Disclosures
Agency Disclosures
TDS
SSC (required for PRDS contracts)
Lead Based Paint (if built prior to 1978)
Smoke Detector
Water Heater
Residential Earthquake Hazards Report (if built prior to 1960)
Receipt for Environmental Earthquake Hazards Booklet
NHD
Mold
Tree (required for San Jose city only)
Insurance (required on CAR contracts, when SSC is not provided)
Market Condition Advisory
Disclosure & Consent of Representation of More than One Buyer or Seller
FIRPTA
Seller Advisory
All Inspection Reports (ordered by seller)
Geological/Environmental Report
Preliminary Title Report
Buyer Pre-Approval Letter
Buyer Down Payment Funds (CAR contracts only)
Buyers Deposit Check & Receipt
Contingency Removal
Buyer’s Walk Thru Inspection
B U Y E R – S I D E – C O P I E S
Purchase Contract
All State Mandated Disclosures
Agency Disclosures
TDS
SSC (required for PRDS contracts)
Lead Based Paint (if built prior to 1978)
Smoke Detector
Water Heater
Residential Earthquake Hazards Report (if built prior to 1960)
Receipt for Environmental Earthquake Hazards Booklet
NHD
Mold
Tree (required for San Jose city only)
Insurance (required on CAR contracts, when SSC is not provided)
Market Condition Advisory
Disclosure & Consent of Representation of More than One Buyer or Seller
FIRPTA
Buyer Advisory
All Inspection Reports (ordered by buyer or seller)
Geological/Environmental Report
Preliminary Title Report
HOA docs
Appraisal Report
Buyer Pre-Approval Letter
Buyer Down Payment Funds (CAR contracts only)
Buyers Deposit Check & Receipt
Contingency Removal
Buyer’s Walk Thru Inspection
Home Warranty Order
E S C R O W – C O P I E S
Purchase Contract
Seller Social Security Number
Seller Loan Payoff Information
HOA Docs
1031 Exchange Information
L E N D E R – C O P I E S
All Parties Contact Information
Purchase Contract
Preliminary Title Report
Buyers Deposit Check & Receipt
Termite Report & Clearance (if requested)
Roof Report & Clearance (if requested)
Appraisal Report (acquired by lender)
Income & Asset Documentation (acquired by lender from Buyer)
Flood Cert (acquired by lender)
HOA Cert (sometimes on their own form)
Title & Escrow
Title companies act as a neutral third party to the transaction, to search for and remove clouds or flaws on title, and to provide title insurance.
Title insurance is required by most lenders to ensure that the property, when transferred to the buyer will be free of encumbrances or liens. It also guarantees the right of the current seller to transfer ownership or title to the new buyer. if an undisclosed lien comes up after the property has been transferred to the buyer, title insurance ensures the buyer and lender are not liable. Title insurance is paid once-at the time of purchase or refinance. It perpetuates as long as the buyer owns the property. With a purchase, the buyer usually incurs this cost.
There are different types of title insurance. Currently, CAR purchase agreement forms state that the highest coverage insurance (CLTA/ALTA) will be issued, if available. CLTA/ALTA covers the purchaser against known and unknown defects on title, such as mechanics liens. The CLTA or ALTA-R insurance only cover known defects.
The escrow officer needs the following information when escrow is opened:
1. The buyer and seller’s contact info
2. The lender’s contact info
3. Copy of the fully executed contract and any attachments
4. HOA contact info (if any)
5. Payoff information for the seller’s current loan (if any)
Title Report
Once escrow if opened, the escrow officer will order the title search at the “plant”. If this is a mobile home transaction, the escrow will not be opened until a contract is ratified, and the title search will not begin until the buyer’s deposit is received by title.
The plant is made up of a group of title research personnel whose job is to search old records on microfiche and county records that disclose liens, encroachments, bonds, and assessments.
The title company performs thus research for three reasons:
1. To ensure the lender they are loaning money against a property that is free and clear of liens.
2. For the title company when they issue title insurance.
3. To ensure that the buyer is purchasing the property free and clear.
Any lien must be researched by the escrow company to verify what the outstanding debt amount is and/or if it has been paid off. Multiple liens, or liens that have been transferred to a new lien holder, may require extended periods of time to research. Always notify the escrow officer of any liens you not on the Preliminary Title report to confirm they are following through with research.
Research on a property’s title typically takes five to ten working days to complete, and a preliminary title report is forwarded to all team members. The title company usually submits 3 copies to each agent to distribute to their client, broker, and file.
Most title companies have an “at a glance” checklist for the buyer and seller to review when they receive the title report. It is imparitive that your client reads this carefully and contacts the officer if any issues need addressing. This form is an early opportunity to identify problems that could make it challenging or impossible to close.
Because items can be overlooked, all team members should read the title report and look for the following:
1. Tax Liens
2. Mortgage Liens
3. Child Support or Mechanics Liens
4. Easements
5. Assessments & Bonds
6. Road Maintenance or Landscape Agreements
7. CC&R’s
8. Correct Property Address
9. Correct Spelling of the Buyer’s Name
10. Any Names on Title You Do Not Recognize
11. Trusts
Out of State Sellers
If a seller has lived outside of the state for more than 2 years, they may be subject to an out-of-state tax. Occasionally, a seller is exempt from this rule. If you know your seller falls under this 2 year rule, have the escrow officer send the seller a exemption form to complete for the IRS.
Power of Attorney
Occasionally, a buyer or seller will be out of the country, and use a Power of Attorney to sign closing papers. This give another individual the authority to sign on another individual’s behalf. This is most easily accomplished by having the title company where the escrow is opened, draft a POA. They are more apt to accept it when it’s their own form!
When a person signs on behalf of a trust, he or she must also sign listing papers and contract docs in the same manner. A POA begins whenever the POA designating document is signed. Therefore, it is not necessary that all contracts be signed in the same manner prior to execution. A POA can be implemented during an escrow for a spouse who is out of the country, disabled owner, etc.
1031 Tax Deffered Exchange
“Buyer to cooperate with seller’s 1031 Exchange at no cost or liability to buyer” or “Seller to cooperate with buyer’s 1031 Exchange at no cost or liability to seller“, are typical clauses within contract that clue you to an additional party involvement. The party is called a “facilitator” who manages the required paperwork and signs the closing papers.
You will see this disclosed by the buyer or seller on a purchase agreement. 1031 Exchanges are used for clients to exchange their income property for “like or similar” property within the limited time allotment. This “roll over” defers taxation to the replacement property.
The person who requests an exchange will need to locate an exchange company. The exchange company holds the sales proceeds to ensure it is exchanged and not pocketed by the client. The purchase agreement plus escrow info will need to be sent to the facilitator. The escrow officer will prepare closing docs for both the facilitator and the client to sign. All team members must be informed of this exchange. Ensure that a timely delivery of closing papers to the facilitator is being managed by the title officer.
Terms
Terms are instructions given to the escrow officer on who pays for what. Each agent prepares their terms and submits these to title. Terms can be found in the purchase agreement. Terms include: sales price, closing date, credits, and charges to the buyer and seller. Typically purchases from the seller to the buyer such as washer, dryer, refrigerator, and other personal items are not included in the terms of escrow.
After receiving the terms from both parties of the transaction, the escrow officer will prepare the closing papers for the buyer and seller to sign. The closing papers include escrow instructions and reports received by the escrow officer.
Always submit terms in writing. Make sure to allow sufficient time to double check your terms and give time to the escrow officer to prepare the docs before signing.
Settlement Statements
(click here for Closing Costs by County Chart)
Title offices are required by the government to provide an estimate settlement statement when the buyer and seller sign closing papers and a final settlement statement once recording has taken place. These are known as HUD1 statements. The HUD1 will break down all credits and debits for the seller and buyer. These are the terms you, the other agent, and the lender have submitted to the escrow officer as stipulated in the purchase agreement.
Have your client review the estimate settlement statement before signing the closing papers. Remind your client that the estimated statement is only an estimate. Final figures cannot be established until the escrow actually closes. However, they are usually within a couple hundred dollars of the final HUD1. Most escrow officers will “pad” the escrow-that is debit the buyer and seller an extra few hundred dollars for unanticipated charges. This prevents the buyer and seller from having to bring in additional money or sign documents at the last minute to close. Any overage amount will be refunded back to the appropriate parties after close of escrow. Remember a credit gives an amount to someone; a debit takes away. The key items you want to look at on the estimate are as follows:
SELLER
1. COE Date
2. Sales Price
3. Prepament penalty on loans
4. Unpaid taxes
5. Commissions paid to agents
6. Inspections and repairs
7. Credits to buyer
8. Rentback
9. HOA dues, transfer, and doc fees
10. Geological report
11. City and/or county transfer fees
12. Escrow & title fees
13. Net proceeds to seller
BUYER
1. COE Date
2. Sales Price
3. Deposits
4. Taxes
5. Loan fees
6. Inspections paid by buyer
7. Credits from seller
8. Seller’s rentback
9. HOA dues, transfer and doc fees
10. Escrow & title fees
11. Net amount buyer must bring into escrow to close
Sign Offs
Sign offs describe the act of the buyer and/or seller meeting with the escrow officer to sign closing papers. The buyer and seller usually sign separately.
The seller can sign closing docs before the loan docs are delivered to title IF the loan is not an FHA or VA loan. The buyer cannot sign closing docs until the loan docs are received by title from the lender.
The buyer usually needs to bring in the balance of the purchase money prior to the lender funding the loan. This money cannot be cash or personal check. The lender will not allow cash that is untraceable. A personal check requires too much time to clear the bank. The buyer has two choices. He or she can bring in a cashiers check OR can wire the funds from an account into the escrow account. The funds can come from a personal bank or savings account or from the proceeds of the sale of the buyer’s property, if applicable, which is being held n a second escrow account.
The seller must decide how to be paid from the proceeds of the sale. There are several choices. He or she can pick up the check from title on the day escrow closes, have the check delivered or mailed, or have the money wired into an account of their choice. For wire transfers, the seller needs to bring in a deposit slip from the account or escrow information when they sign closing papers and provide instructions to the escrow officer. Remember to remind individuals signing at title that they are required to have a valid photo id on hand to facilitate notarization.
Prorations
Prorations help to calculate charges on a day-by-day basis. Escrow officers use proration for calculating payment of property tax, HOA dues, plus mortgage payments. Always calculate using a thirty-day calendar.
Holdbacks
Holdbacks are funds withheld from the seller’s proceeds until something occurs. Typically the money is released at a later date, per mutual instructions by both agents.
Funding
Funding occurs when the bank wires the loan amount into the escrow account. The day before funding occurs, the escrow officer sends a request to the bank for funding figures. The officer receives a confirmation from the bank the next day indicating its intention to fund. Then, the wire transfer occurs.
Funding usually occurs the day before close. Banks do not want money held in an escrow account for more than a day without collecting interest. Funding usually occurs between 8am ad 4 pm. Occasionally the funding deadline is missed for a variety of reasons, so an attempt is made by the escrow officer and bank to fund the next business day. When this occurs, closing escrow is delayed. It’s a good idea to call the escrow officer to verify funding has taken place the afternoon prior to close.
Leins of against the property are paid when the property records. This is accomplished by using the buyers purchase money to pay off the means and the seller. If the transaction is in all cash offer, no funding takes place. The buyers simply brings in the funds prior to close. The buyers should bring in a cashier’s check, or make arrangements for a wire transfer. They should not bring in cash or a personal check that would cause an avoidable delays. The buyers funds must be in the escrow account prior to recording.
Recording
Recording takes place or occurs when a representative of the title of this goes to the county recorder’s office and deliver as the paperwork for the transaction to be recorded. Most recording offices have specific times during the day they are open to receive paperwork and perform recordings. Recording cannot take place unless the loan has funded and the buyers balance of payments have to be received. funding typically takes place one day prior to recording. specially recordings, where you fund and the record the same day are only allowed on the last day of the month. Most buyers do not want to find on Friday and record on Monday because they will pay interest on the loan over the weekend. Since they do not own the home until it records, buyers prefer closing any other weekday than Monday.
Occasionally, a recording is kicked back or declined by the recorder’s office for different reasons. The escrow officer will have to correct the problem, and then Resubmit it to the recording office, hopefully by the next day. Lenders do not like their money sitting in escrow for an extended period of time waiting to record. This is why funding usually takes place no more than one day before closing. If the recording is delayed, the bank may get frustrated and take the money back.
When recording has finally come, this is communicated to the escrow officer. He or she then contacts you and to inform you that escrow is closed. A package containing two copies of all signed escrow instructions and commission check we’ll be delivered or mailed to your office. The money is usually available within several hours of closing. Occasionally, the seller wishes to have their proceeds wired or directly deposited into his or her account. The seller simply leaves a copy of a checking deposit slip with the escrow officer when signing closing papers. Always check your closing papers for any checks, paperwork for letters intended for one of the other team members.
Coordinating Concurrent Closes
And concurrent close occurs when a buyer of a property close of escrow on a property owned and on a new property he or she is purchasing at the same time. Sometimes, concurrent closes can go back several transactions.
The chances of multiple properties closing on the same day are not great. Funding can be a problem if it needs to occur the day before close and a condition of funding is recording the buyers home. When presenting offers on a property, agents initially may not be privy to specifics on multiple concurrent closes. If your client is at the tail end of this type of multiple transactions, a delay could be eminent due to the domino effect. Additionally, when you have numerous escrows closing concurrently, the chances are significant something will cause a delay in one or more of the closings. Two decrease pressure on but team, agents should prepare their client four contention all delays and request a seller rent back after close during negotiations, or avoid concurrent closes. Try to close escrow during the middle of the week, not Friday. If a problem arises with recording, hopefully it can be solved by the next working day. Title offices, banks and county recorder’s are not open on weekends and holidays.
Tips on when to inform your escrow officer of a potential problem:
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If the property is currently held in trust, partnership or corporation or if the property will be transferred to a new trust, partnership or corporation.
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If the sellers and/or buyers are using a power of attorney
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If any of the sellers on title is incapacitated or deceased
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If one of the sellers and/or buyers has a change in marital status since signing the purchase agreement
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If the seller resides out of state
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If the seller and/or Buyer is participating in a 1031 exchange
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If the sellers and/or Buyer have been involved in bankruptcy within the last seven years
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If the seller has any Federal, state or county tax liens against them personally or against the property.
Common Ways of Holding Title
(click here to view Common Ways to Hold Title Chart)
Title to real property may be held by a single individual or entity, known as Sole Ownership, or by two or more individuals and/or entities known as co-ownership. Examples are:
Sole Ownership
Where one individual or entity is the sole owner of the realty.
1. A single individual who has not been legally married or registered as a Domestic Partner.
2. An unmarried man/woman is one who has previously been married and is now legally divorced.
3. Sole and separate refers to a married man/woman who is either married or a registered domestic partner who will hold title without a spouse or registered domestic partner.
Co-Ownership
Where two or more individuals or entities are the owners or the realty.
4. Community property is a form of co-ownership by a legally married husband and wife.
5. Community property with rights of survivorship is a form of co-ownership by a legally married husband and wife which includes the benefits of community property and that of joint tenancy.
6. Joint tenancy is a form of co-ownership by two or more individuals (none of which can be a partnership, limited liability company, or trustees of a trust) in equal shares, by a title created by a single transfer, when expressly declared in the transfer to be a joint tenancy. The joint tenants must derive their title at the same time from a single transfer, share identical interests and have equal rights of possession. On the death of one co-tenant, the survivor takes no new title but hold the entire estate under the original transfer.
7. Tenancy in common is a form of co-ownership with two or more individuals or entities. The interest of each individual or entity may or may not be state and may not be equal. a tenant in common has the right to deal with its interest as it sees fit-sell, hypothecate, lease, gift, etc.
Other Forms of Ownership:
8. Corporation-an artificial entity created under the authority of the laws of a state usually regarded separate from its shareholders.
9. Partnership-an artificial entity created under the authority of the laws of a state as an association of two or more individuals or entities to carry on, as co-owners, a business for profit.
10. Limited Liability Companies (LLC)-an artifial entity created under the authority of the laws of a state and can be considered a hybrid of a corporation and partnership.
11. Trust-a confidence in one person to hold and administer for the benefit of another. The legal title to realty is held by the trustee who may be an individual, and entity or both who manages the realty for the benefit of others called the beneficiaries.