Home Buyers and Sellers Handbook

Transcription

1 Home Buyers and Sellers Handbook Contains Important Information on: Getting Financing Common Ways of Holding Title Understanding Title & Escrow Closing Costs The Language of Real Estate Our Experience - Your Advantage

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3 Table of Contents 01. Old Republic Title Company Information History.... Our Promise Services We Provide Getting Started Buyers Getting Financing.... Selecting An Agent Common Ways Of Holding Title Sellers Selecting An Agent Shopping & Showing Buyers.... Sellers Showing The Exterior Showing The Interior Home Comparison Chart The Offer Process 07 Offers And Counter Offers Earnest Money Negotiations Inspections Title Insurance Title Insurance - What Is It? Types Of Title Insurance (Policies) Title Companies - What They Handle... Why You Need Title Insurance Risks covered By Title Insurance Refinancing: Why Lender s Require Title Insurance..... Frequently Asked Questions Escrow and Closing Opening The Escrow... What The Title & Escrow Company Does... What The Escrow Holder Does Escrow Instructions And Your Closing Reminders... Taking Ownership... Moving Checklist Closing Costs Common Property Taxes... Guide To California Closing Costs Additional Closing Costs.... Mello-Roos (CA)... Supplemental Tax... Tax Proration... Tax Calendar The Language of Real Estate Notes Discount Rates Table of Contents

4 Contact Information Real Estate Agent Title & Escrow Name: Name: Company: Company: Old Republic Title Address: Address: City/State/Zip: City/State/Zip: Phone: Phone: Fax: Fax: Contact Information Name: Company: Address: City/State/Zip: Phone: Fax: Contact Information Name: Company: Address: City/State/Zip: Phone: Fax: 00 Contact Information Name: Company: Address: City/State/Zip: Phone: Fax: Contact Information Name: Company: Address: City/State/Zip: Phone: Fax: Table of Contents

5 Old Republic Company Informat ion 01Company History Formed in 1969 in California, Old Republic Title Holding Company (ORTHC) is part of the Old Republic Title Insurance Group (ORTIG) of companies. ORTIG is one of the nation's largest title insurance groups operating in forty-nine (49) states including Nevada, Washington, Arizona, Hawaii, the District of Columbia and Puerto Rico through a network of Company-owned offices, subsidiaries, authorized agents and approved attorneys. ORTIG is committed to being the most financially sound title insurance group in the industry. It is proud to state that since financial ratings have been issued for title insurance companies, no group has equaled its consistent overall high ratings. These ratings reflect the group s consolidated operating performance and strategic relationship with its parent company, Old Republic International Corporation (NYSE: ORI) and its excellent capitalization, good liquidity, sound investment strategy, reserve adequacy market position and operating performance. Old Republic has established departments and separate companies to assist our clients. The services by these specialized departments include Builders/Developers Services, Subdivision/DRE Processing, Relocation Division, HUD/FHA/Government-Assisted Housing Services, Commercial Services and Lender Services. Other specialized services provided by sister companies include Old Republic Exchange Company (OREXCO, 1031 Exchange) Old Republic Surety Corporation and Old Republic Home Facilitator Protection Company, Inc. 01 Company Information

6 Our Promise "We increase the value of real estate transactions for all participants by identifying, underwriting and managing each transaction with the highest standards of technical skill, client service and professional integrity." Services We Provide Our products and services have been developed to address four important aspects of the real estate transfer process: information, ownership, asset management and commitment. In each area we've created the tools and resources needed to ensure the most risk-free, expedient closing possible. 1. Information Services The best real estate closings begin with good information. We own & subscribe to industry-leading information systems for the most current market information, including property profiles, farm reports and mortgage records - much of which we access in real time online. We have access to secure Internet-based databases with millions of public real estate records and documents; we can prepare and deliver preliminary reports and commitments electronically to multiple locations. We provide real estate professionals with the most current ownership information available through a variety of sources to assist them in selling property and locating the next opportunity. We provide a variety of real estate insurance products to national lenders ranging from full ALTA policies to limited coverage policies. 2. Title Services Insured ownership is at the heart of every transaction. We work to remove any recorded encumbrances which are inconsistent with the terms of the transaction. We offer traditional, fully-insured products like ALTA policies as well as innovative products and insurance policies in the refinance, second mortgage and equity markets. We respond quickly to unique circumstances with flexible, creative approaches to title insurance. 3. Escrow Services The careful management of assets ensures a smooth transaction. We coordinate and process the entire real estate and mortgage closing procedure. Our services include: document gathering, HUD-1 preparation, loan funds disbursement, escrow withholding and document recording with the appropriate government authority - all done in accordance with our clients' instructions. We serve as a neutral third party working to benefit the entire transaction and the parties involved. Our escrow personnel are proficient at complying with complicated escrow instructions. 4. Customer Service Ongoing commitment contributes to long-term success. 02 Company Information We offer the best customer service in the industry. Our network of professionals is complemented by online customer support that's available 24 hours a day, 7 days a week with resources and answers to common questions. We have web-based tools for our employees and their clients who need to place orders for bundled services. These tools allow the client team to create orders, track status, update information and monitor status around the clock.

7 Getting Started 02Buyers Homeownership is the American Dream and you are about to embark on an exciting process. Mortgage rates are currently favorable and there are an increasing number of mortgage options to make the dream a reality for you. One of the main advantages of home ownership over renting is that your interest payments are tax deductible (ask your tax advisor for more detail). Further, your home will be one of your largest assets and most likely will appreciate in value over the life of your ownership. There are a lot of decisions ahead of you. Please use this as a guide to help you throughout this process. Getting Financing If you plan to finance your home purchase, start the mortgage loan process well before buying a home, even before the bidding process. Check out loan options that best suit you. Talk to your financial institution, mortgage companies and/or savings and loan institutions to look at what kinds of loans are available and to compare rates If you are a first time home buyer you may qualify for mortgage programs with little money down, low interest rates or federal programs that give beneficial rates When you have settled on a type of loan and a loan institution, get pre-approved and get a pre-approval letter. To do this a loan officer will review your credit files and discuss with you how much you can borrow. This will help you know the price range you can consider when shopping Having a reduced debt load and a good credit history will be helpful in getting a better loan rate. You may wish to discuss with your financial institution if there are any ways you can improve your credit score to get a better rate Show your pre-approval letter to your real estate agent when you begin shopping for a home 03 Getting Started

8 Selecting an Agent Most homebuyers enlist the services of a real estate agent or broker to help them with this complex transaction. A real estate agent is a person licensed by the state to handle real estate sales. A broker, also licensed by the state, is the person who may own a real estate company or has overall responsibility for the agent's actions. The buyer's agent is generally paid a commission or percentage of the sale by the seller. This person can research homes in your price range and with your specific needs in mind. Agents can preview the homes for you narrowing the list for you to see. They will assist you in negotiations when you are ready to make an offer on a house. The agent will write up a contract that presents your offer and any conditions you require. The agent presents the offer to the seller or their agent and negotiates any counter offers between you and the seller. Common Ways of Holding Title Title to real property may be held by individuals, known as Sole Ownership, or by two or more individuals, known as Co-Ownership. Examples of the common vesting cases of Sole and Co-Ownership are listed below. (*ownership varies by state - check with your escrow holder/closer or attorney) 1. Sole Ownership A Single Man/Woman: A man or woman who has not been legally married. 2. Unmarried Man/Woman A man or woman who has previously married and is now legally divorced. 3. Married Man/Woman, as His/Her Sole and Separate Property A married man or woman who wishes to acquire title in his or her name alone. (The title company insuring title may require the spouse of the married man or woman acquiring title to specifically disclaim or relinquish his or her right, title and interest to the property. This establishes that it is the desire of both spouses that title to the property be granted to one spouse as that spouse s sole and separate property.) 4. Co-Ownership A property owned by two or more persons. 04 Getting Started a. Community Property A form of vesting title to property owned by a husband and wife during their marriage which they intend to own together. Community Property 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.

9 In California, real property conveyed to a married man or woman is presumed to be Community Property unless otherwise stated. Since all such property is owned equally, husband and wife must sign all agreements and documents transferring the property or using it as security for a loan. Under Community Property each spouse has the right to dispose of one half of the Community Property, by will. b. Community Property with Right of Survivorship A form of vesting title to real property owned by a husband and wife during their marriage which they had intended to own together. This form of holding title shares many of the characteristics of Community Property but adds the benefit of the Right of Survivorship similar to title held in Joint Tenancy. There may be tax benefits for holding title in this manner. On the death of a spouse the decendant s interest ends and the surviving spouse owns the property by survivorship and owns the property in severalty. c. Joint Tenancy A form of vesting title to property owned by two or more persons, who may or may not be married, in equal interest, subject to the Right of Survivorship in the surviving joint tenant(s). Title must have been acquired at the same time, by the same conveyance, and the document must expressly declare the intention to create a Joint Tenancy estate. When a joint tenant dies, title to the property is automatically conveyed by operation of law to the surviving joint tenant(s) (Therefore, Joint Tenancy is not subject to disposition by will). d. Tenancy in Common A form of vesting title to property owned by any two or more individuals in undivided fractional interests. These fractional interests may be unequal in quantity or duration and may arise at different times. Each tenant in common owns a share of the property, is entitled to a comparable portion of the income from the property and must bear an equivalent share of expenses. Each Co- Tenant may sell, lease or will to his or her heir(s) that share of the property belonging to him or her. 5. Corporation A legal entity created under State law consisting of one or more shareholders but regarded under law as having an existence and personality separate from such shareholders. 6. Partnership An association of two or more persons who carry on business for profit as Co-Owners as governed by the Uniform Partnership Act. A partnership may hold title to real property in the name of the partnership. 05 Getting Started

10 Sellers 7. Trustees of a Trust A trust is an arrangement whereby legal title to property is transferred by the grantor to a person called a trustee, to be held and managed by that person for the benefit of the people specified in the trust agreement, called the beneficiaries. 8. Limited Liability Companies (L.L.C.) This form of ownership is a legal entity and is similar to both the Corporation and the Partnership. The operating agreement will determine how the L.L.C. functions and is taxed. Like the corporation, its existence is separate from its owners. *In cases of Corporate, Partnership, L.L.C. or Trust Ownership, required documents may include corporate articles and bylaws, partnerhsip agreements, L.L.C. operating agreement and trust agreements and/or certificates. Selling a home is a lot of work, but there are many reasons why you should use an agent: Agents will assist you with negotiations with the buyer Agents know the market and can help you set a reasonable price Agents have better resources for locating buyers and information on recent sale prices of homes around you Agents have a broader range of advertising options Agents can screen for buyers who are financially able to purchase your home Agents are unemotional about the sale Agents save you time 06 Getting Started

11 03 Shopping & Showing Buyers You will be looking at a lot of houses and it's easy to forget after awhile what you liked or didn't like about each home. In order to keep track during your house hunting, use the Home Comparison Chart we have provided you on the opposite page. Sellers Preparing your house to sell can make a big difference in how your house is perceived by a potential buyer. First impressions are lasting -- having your house in good condition could get you a higher price for the property and help to sell it faster. Showing the Exterior Keep hedges trimmed Make sure your lawn and landscape is nicely manicured and weeded Check the foundation steps, walkways, walls and patios for cracks Inspect for peeling paint and fix Clean gutters Paint the front door Make sure the fence is in good condition Make sure that your doorbell works Touch up or repaint, preferably in neutral colors Showing the Interior Clean the kitchen and bathrooms very well Remove any excess clutter or large furniture - (this includes the garage) Fix cracked windows, stained ceilings, wall marks Keep counter tops cleared Clean or replace carpeting Clean every room of the house - display utility spaces - attic, closets Repair any holes in the walls, wallpaper, paint Inspect and repair the plumbing, heating, cooling, alarm systems Open draperies and curtains for natural light Repair sticking doors, windows, drawers, dripping faucets, replace lightbulbs etc. 07 Shopping & Showing

12 Home Comparison Chart HOUSE A HOUSE B HOUSE C HOUSE D Address Neighborhood Price Age Square Footage # of Bedrooms # of Bathrooms Garage Roof Condition Overall Condition Other Amenities Rating Notes: 08 Shopping & Showing

13 04 The Offer Process Offers and Counter Offers So, you've found it -- that perfect house that fits all your criteria and your price range and you're ready to make an offer! You and your real estate agent can discuss what is the best offer to make. Sometimes it is ok to make an offer that is lower than the asking price, but if you are in a hurry to buy, your heart is set on this house or you know there are other offers on the table, you may want to offer the full asking price. Your agent can help you decide. Your agent will write up an offer and present it to the sellers agent or the seller with your terms and conditions. At this point you will want to make a down payment called earnest money. Earnest Money Once you've determined your offering price you'll need to decide on the size of deposit to make with your offer. This earnest money deposit should show the seller you are serious, but not so large you are placing significant funds at risk because sometimes negotiations can take awhile and your funds are tied up during that time. Still it depends, like your offer, on the kind of market you are in and your agent should be able to help you decide the size of the deposit that is appropriate. Negotiations Now that you have sent your offer and your earnest money deposit you will begin the negotiation stage with the seller or their agent. Generally, your agent will handle this phase and advise you of any demands of yours the seller has rejected or the demands they may be making on you. Once your negotiation is complete and your final offer is accepted you will enter into the next phase, which is the escrow phase. 09 The Offer Process

14 Some things that will be negotiated include: Final sale price The inspections to be done Who will pay what closing costs When the closing date will be and when the transfer of ownership will occur Special considerations of things to be included or excluded from the sale Special considerations such as carpet replacement or roof repair that are not part of an inspection Inspections You may want to consider the following types of inspections to be requested as part of your negotiations. Once an offer is accepted the inspections can be done and any findings will be resolved before closing. Note: these vary by state and by county - check with your agent for more details about the inspection and costs. Structural Pest Control Inspection "Termite Report" - conducted by a licensed inspector - termite damage, pest report which analyzes the wood damage that may be present including fungi or "dry rot". Physical Inspection Typically done by a general home inspector, a physical inspection is a visual review of the overall condition of the property. Geological Inspection Evaluates the soil conditions at the home. Typically done by a geotechnical engineer, it involves physically inspecting the property and researching past geological activity in the area. Other inspections: Property hazard disclosure report Hazardous materials Well and septic Water conservation Structural engineering Chimney inspection Heating and air conditioning Zoning and building permit compliance Energy audit Roof inspection Pool/spa inspection 10 The Offer Process

15 05 Title Insurance What is Title Insurance? Title insurance insures title to a specific parcel of real property. In exchange for a premium paid, title insurance companies assume the risk that title to a parcel of real estate is as it is stated to be in the policy. A title insurance policy indemnifies the buyer or lender against losses suffered if title to the property is not as the policy states it to be. Types of Title Insurance (Policies): Owner s Policy: Insures the homebuyers of any type of real property against loss by reason of those matters covered under the policy of insurance for as long as they own the property. There are several versions of each policy. Consult with your Real Estate Professional to determine which policy is best for you. Lender s Policy: Insures the priority of the lender s security interest over claims that others may have in the property. Title Companies- What they handle Title companies provide services to buyers, sellers, real estate developers, builders, mortgage lenders and others who have an interest in the real estate transfer. Title companies make sure that the transfer of title takes place efficiently and that your interests as a home buyer are protected under the terms and conditions of the policy. Title insurance is different from many other types of insurances (casualty, auto, etc.). These other types of insurances assume risks by providing financial protection for losses arising from an unforeseen future event such as a fire, theft or accident. In (or with) title insurance, risks are examined and mitigated before the property changes hands. 11 Title Insurance

16 Why you need Title Insurance You need title insurance to be assured that the seller actually owns the property you are buying and that there were no other matters recorded against the property that were not disclosed to you in the Title Report. You are protected against these matters based on terms and conditions of the title insurance policy. Title insurance assures you that all the important steps in the recorded matters have been searched and examined and just due to that, your one time payment for title insurance has already paid for itself. Risks covered by Title Insurance: (Subject to insuring provisions and the conditions and stipulations) Someone else owns an interest in your title Someone else has rights affecting your title arising out of leases, contracts or options Someone else claims to have rights affecting your title arising out of forgery Someone else has an easement on the land Someone else has a recorded right to limit your use of the land Someone else has a recorded lien or encumbrance on your title You are forced to correct or remove an existing violation of any covenant, condition or restriction affecting the land Because of an existing violation of a subdivision law or regulation affecting the land: You are unable to obtain a building permit You are forced to correct or remove the violation Someone else has a legal right to, and does, refuse to perform a contract to purchase the land, lease it or make a mortgage loan on it You are forced to remove or remedy your existing structures, or any part of them, because any portion was built without obtaining a building permit You are forced to remove or remedy your existing structures, or any part of them, because they violate an existing zoning law or zoning regulation Your existing improvements made after the policy date, including lawns, shrubbery or trees, are damaged because of the future exercise of a right to use the surface of the land for the extraction or development of minerals, water or any other substance Someone else tried to enforce a discriminatory covenant, condition or restriction A document upon which your title is based is invalid because it was not properly signed, sealed, acknowledged, delivered or recorded The residence with the address shown is not located on the land 12 Title Insurance

17 Refinancing: Why Lender s Require Title Insurance Your lender will want to insure that your new loan is protected by title insurance - just as the original lender required. Even if you already purchased a lender's policy the policy still remains in force only during the life of the loan that was insured. So, if you refinance, the old loan is paid off and a new loan is issued with a new title insurance policy. You will not need to purchase a new homeowner's policy. Old Republic offers a discount or a short-term rate on refinanced transactions. Discounts with the same lender may apply - but check with your Old Republic Title Escrow Officer for details. Frequently asked questions about Title Insurance Q. WHAT DOES TITLE INSURANCE INSURE? A. Title Insurance offers protection against claims resulting from various defects (as set out in the policy) which may exist in the title to a specific parcel of real property effective on the issue date of the policy. For example, a person might claim to have a deed or lease giving them ownership or the right to possess your property. Another person could claim to hold an easement giving them a right of access across your land. Yet another person may claim that they have a lien on your property securing the repayment of a debt. That property may be an empty lot or it may hold a 50-story office tower. Title companies work with all types of real property. Q. HOW MUCH CAN I EXPECT TO PAY FOR TITLE INSURANCE? A. This point is often misunderstood. Although the title company or escrow office usually serves as a meeting ground for closing the sale, only a small percentage of total closing fees are actually for title insurance protection. Your title insurance premium may actually amount to less than one percent of the purchase price of your home and less than ten percent of your total closing costs. The title policy is good for as long as you and your heirs own the property with the payment of only one premium. Q. WHO WILL PAY FOR TITLE INSURANCE CHARGES, THE BUYER OR THE SELLER? A. Surprisingly, "who pays" is not uniform. In some areas the buyer will pay while in others the seller will pay. In some places, the seller will pay for the owner's title policy and the buyer will pay for the lender's policy. But in every case, the question of who pays closing costs is a matter of agreement between the buyer and seller. Usually this agreement is based on the customary practice in your area. 13 Title Insurance

18 Q. WHY ARE SEPARATE OWNER'S AND LENDER'S TITLE INSURANCE POLICIES ISSUED? A. Both you and your lender will want the security offered by title insurance. Your home is an important purchase, and you will want to be certain your home is yours, all yours. Q. WHAT ARE MY CHANCES OF EVER USING MY TITLE POLICY? A. In essence, by acquiring your policy, you derive the important knowledge that recorded matters have been searched and examined so that title insurance covering your property can be issued. Because title insurance companies are risk eliminators, the probability of exercising your right to make a claim is very low. However, claims against your property may not be valid, making the continuous protection of the policy all the more important. When a title company provides a legal defense against claims covered by your title insurance policy the savings to you for that legal defense alone will greatly exceed the one-time premium. Q. WHAT IF I AM BUYING PROPERTY FROM SOMEONE I KNOW? A. You may not know the owner as well as you think you do. People undergo changes in their personal lives that may affect title to their property. People get divorced, change their wills and engage in transactions that limit the use of the property and have liens and judgments placed against them personally for various reasons. There may also be matters affecting the property that are not obvious or known, even by the existing owner, which a title search and examination seeks to uncover as part of the process leading up to the issuance of the title policy. Just as you wouldn t make an investment based on a phone call, you shouldn t buy real property without assurances as to your title. Title insurance provides these assurances. The process of risk identification and elimination performed by the title companies, prior to the issuance of a title policy, benefits all parties in the property transaction. 14 Title Insurance Title Insurance minimizes the chances that adverse claims might be raised, and by doing so reduces the number of claims that need to be defended or satisfied. This process keeps costs and expenses down for the title company and maintains the traditional low cost of title insurance. Reprinted with permission from the California Land Title Association.

19 Escrow & Closing 06Opening the Escrow After the buyer and seller agree to terms of a sale, the sale goes into escrow, which can take several weeks (30-45 days) to reach closing. Escrow can be opened by the buyer or the seller's real estate agent. The escrow agent and their company act as a neutral third party for serving as custodian for funds and documents, providing a clearing house for payment of demands and performing clerical details for the closing. What the Escrow Company Does When the escrow is opened an order for a preliminary report/commitment is placed with the title company which shows ownership of a parcel of land and recorded matters that are relative to the property. Then a plan is set for the necessary action and documents required, such as demands for satisfaction of liens and documents for recording instructions and requirements of the new lender. In most areas buyers and sellers instructions are prepared for signature from the information gathered. The items on the opposite page represent a cross section of all that an escrow holder does during the escrow process. 15 Escrow & Closing

20 The Escrow Holder: Prepares escrow instructions as directed by the parties involved Requests a preliminary report Orders a statement of identity (information) on buyer and seller Orders demands or beneficiary statements at client's request Complies with lender's requirements specified in the escrow agreement Receives bills from termite, roof, appliance, inspection and home warranty companies At the direction of the client, receives purchase funds from client Prepares or secures the deed or other documents Prorates taxes, interest, insurance and rents according to instructions Secures release of contingencies/conditions as imposed on any particular escrow Records deeds and any other documents as instructed Closes escrow when all the instructions of buyer and seller have been carried out Disburses funds as authorized by instructions, including charges for title insurance, recording fees, real estate commissions and loan payoffs Collects all outstanding fees (i.e. title insurance premiums, real estate commissions, inspection charges) Prepares final statements for the parties accounting for the disposition of all funds deposited in escrow Escrow Instructions and Your Closing When all the title and financial requirements are met and instructions from all parties can be fully complied with, the escrow is ready to close. Then the financial settlement takes place, the documents are recorded and the title insurance policy is issued. Escrow instructions define all conditions that must occur before the transaction can be finalized and a grant deed may be recorded. A grant deed legally transfers the property title to the new owner. Your escrow officer or real estate agent will contact both the buyer and seller for an appointment to sign your escrow instructions and grant deed. The appointment should probably take anywhere from minutes. You will be informed of the amount you will need to pay or will receive, depending on whether you are buying or selling. Bring a legal form of identification with you such as current driver's license, passport or ID card (military or state). You will also need to bring the closing payment if you are the buyer. The seller's closing costs will be deducted from their payment. 16 Escrow & Closing If you are the buyer you will be informed about the disbursement of keys. If you are the seller, in some cases, the escrow holder will be instructed to hold funds in escrow to pay off obligations that may not be completed until after the escrow closes. Upon receipt of the proper documentation and releases the escrow officer will disburse the reserved funds including the seller's payment.

21 Reminders: If you transfer funds to another escrow or wire transfer, fund arrangements must be made with the escrow agent/holder If you use a Power of Attorney make arrangements as early as possible If the funds deposited in escrow are insufficient for closing you will need to bring a cashier s check or certified check for the remainder Due to the natural disasters in any State, shop for homeowners or fire insurance as soon as your offer is accepted Your lender continues to accrue interest to the date that they post your loan as being paid in full After your escrow agent/holder sends your payoff check to your existing lender you can expect to get your impound account back direct from your lender within days If you are selling do not cancel your insurance until you have received your sales proceeds Sellers are required to have their gross proceeds from the sale reports on the IRS 1099 form Taking Ownership It is now time for you to take ownership of your new home. You should have already received your homeowners and flood/fire insurance policies. You are now ready to move! 17 Escrow & Closing

22 Moving Checklist Below is a list of helpful moving tips for you and your family. Courtesy of Old Republic. One month before moving: Make truck rental reservations Acquire moving supplies (boxes, tape, rope, packaging materials) Travel arrangements if moving far away Save moving receipts, some are tax deductible Put all necessary documents (legal, medical) in a safe place Notify post office of move, friends, banks, credit card companies, doctors, dentists, state and federal tax authorities, etc. Two weeks before moving: The day before moving: After moving: Inform gas, electric, water cable, phone of move Recruit moving day help Make arrangements for alternative transportation Arrange to close or transfer your bank account Set aside all moving materials Pick up rental truck Confirm tickets, charge cards, etc. Defrost refrigerator Notify senders of mail that you have moved Register to vote Contact DMV if you have moved out of state Contact Department of Sanitation to see when the trash will be picked up Provide new doctors and dentists with medical history of your family Transfer insurance policies to an agent in the community Call Chamber of Commerce for help in finding schools, cable service, hospitals, police stations, banks, cleaners, fire stations, etc. 18 Escrow & Closing

23 07 Closing Costs It's the big day. The day you go to the title or escrow company, sign your name on the dotted line, hand over a check and prepare to take ownership of your new home. The buyer and the seller will pay "closing" or settlement costs, an accumulation of separate charges paid to different entities for the professional services associated with the buying and selling of property. Closing costs are allocated to the buyer or seller (separate charges) and paid to different entities for the services associated with the transaction. Some closing costs might include real estate commissions, appraisal fees, loan fees, escrow charges, advance payments like property taxes (City and County), homeowner's insurance, title insurance, pest inspections, etc. Keep in mind that your closing funds should be in the form of a cashier's check made payable to the title company or escrow office in the amount requested, or by wired funds. A personal or out-of-state check could delay your closing because of clearance of such checks. Common Property Taxes City Transfer Tax: Tax paid to the state or local government as a percentage of the property's value. The amount of the tax is usually based on a percentage of the property's selling price, but the exact amount is determined by the City where the property is located. County Transfer Tax: Tax paid to the state or local government as a percentage of the property's value. The amount of the tax is usually based on a percentage of the property's selling price, but the exact amount is determined by the County where the property is located. 19 Closing Costs

24 California Closing Costs 20 Closing Costs County Escrow Title Fees County City Charges Transfer Tax Transfer Tax Alameda Buyer Pay Buyer Pay Seller Pay $1.10 Buyer-Seller-50% Alameda $5.40 Albany $11.50 Berkeley $15.00 Hayward $4.50 Oakland $15.00 Piedmont $13.00 San Leandro $6.00 Alpine Buyer-Seller 50% Buyer-Seller 50% Seller Pay $1.10 None Amador Buyer-Seller 50% Buyer Pay Seller Pay $1.10 None Butte Buyer-Seller 50% Buyer-Seller 50% Seller Pay $1.10 None Calaveras Buyer-Seller 50% Buyer-Seller 50% Seller Pay $1.10 None Colusa Buyer-Seller 50% Buyer-Seller 50% Seller Pay $1.10 None Contra Costa Buyer Pay Buyer Pay Seller Pay $1.10 Seller Pay Richmond $7.00 Del Norte Buyer-Seller 50% Buyer-Seller 50% Seller Pay $1.10 None El Dorado Buyer-Seller 50% Buyer-Seller 50% Seller Pay $1.10 None Fresno Buyer-Seller 50% Buyer-Seller 50% Seller Pay $1.10 None Glenn Buyer-Seller 50% Buyer-Seller 50% Seller Pay $1.10 None Humboldt Seller Pay Seller Pay Seller Pay $1.10 None Imperial Buyer-Seller 50% Seller Pay Seller Pay $1.10 None Inyo Buyer-Seller 50% Seller Pay Seller Pay $1.10 None Kern Buyer-Seller 50% Seller Pay Seller Pay $1.10 None Kings Buyer-Seller 50% Seller Pay Seller Pay $1.10 None Lake Buyer-Seller 50% Buyer-Seller 50% Seller Pay $1.10 None Lassen Buyer-Seller 50% Buyer-Seller 50% Seller Pay $1.10 None Los Angeles Buyer-Seller 50% Seller Pay Seller Pay $1.10 Seller Pay $4.50 except for: Palos Verdes $2.20 Pomona $2.20 Redondo Beach $2.20 Santa Monica $3.00 Madera Buyer-Seller 50% Seller Pay in Madera Seller Pay $1.10 None Buyer-Seller 50% in Chowchilla North Marin Buyer Pay Buyer Pay Seller Pay $1.10 Seller Pay San Rafael $2.00 Mariposa Buyer-Seller 50% Buyer-Seller 50% Seller Pay $1.10 None Mendocino Buyer Pay Buyer Pay Seller Pay $1.10 None Merced Buyer-Seller 50% Buyer-Seller 50% Seller Pay $1.10 None Modoc Buyer-Seller 50% Buyer-Seller 50% Seller Pay $1.10 None Mono Seller Pay Seller Pay Seller Pay $1.10 None Monterey Buyer-Seller 50% Seller Pay Seller Pay $1.10 None Napa Buyer Pay Buyer Pay Seller Pay $1.10 None Nevada Buyer-Seller 50% Buyer-Seller 50% Seller Pay $1.10 None Orange Seller Pay Seller Pay Seller Pay $1.10 None Placer Buyer-Seller 50% Buyer-Seller 50% Seller Pay $1.10 None

25 County Escrow Title Fees County City Charges Transfer Tax Transfer Tax Plumas Buyer-Seller 50% Buyer-Seller 50% Seller Pay $1.10 None Riverside Seller Pay Seller Pay Seller Pay $1.10 Seller Pay $1.10 Sacramento Seller Pay Seller Pay Seller Pay Seller Pay $2.75 San Benito Seller Pay Seller Pay Seller Pay $1.10 None San Bernardino Buyer-Seller 50% Seller Pay Seller Pay $1.10 None San Diego Buyer-Seller 50% Seller Pay Seller Pay $1.10 None San Francisco Buyer Pay Buyer Pay Seller Pay Up to $250,000-$5.00 $250,000 through $999,999 - $6.80 $1,000,000 and up - $7.50 San Joaquin Buyer-Seller 50% Buyer-Seller 50% Seller Pay $1.10 None San Luis Obispo Buyer-Seller 50% Buyer Pay Seller Pay $1.10 None San Mateo Buyer Pay Buyer Pay Seller Pay $1.10 Seller Pay Buyer-Seller Pay $5.00 in San Mateo Santa Barbara Buyer-Seller 50% Seller Pay Seller Pay $1.10 None Santa Clara Seller Pay Seller Pay Seller Pay $1.10 Buyer-Seller 50% Mountain View-$3.30 Palo Alto-$3.30 San Jose-$3.30 Santa Cruz Buyer-Seller 50% Buyer-Seller 50% Seller Pay $1.10 None Shasta Buyer-Seller 50% Buyer-Seller 50% Seller Pay $1.10 None Sierra Buyer-Seller 50% Buyer-Seller 50% Seller Pay $1.10 None Siskyou Buyer-Seller 50% Buyer-Seller 50% Seller Pay $1.10 None Solano Buyer Pay Buyer Pay Seller Pay $1.10 Seller Pay Vallejo-$3.30 Sonoma Buyer Pay Buyer Pay Seller Pay $1.10 Seller Pay Cloverdale-$1.10 Petaluma-$2.00 Cotati-$1.90 Santa Rosa-$2.00 Sebastopol-$2.00 Stanislaus Buyer-Seller 50% Seller Pay in Modesto Seller Pay $1.10 None Buyer-Seller 50% in Turlock Sutter Seller Pay Seller Pay Seller Pay $1.10 None Tehama Buyer-Seller 50% Buyer-Seller 50% Seller Pay $1.10 None Trinity Buyer-Seller 50% Buyer-Seller 50% Seller Pay $1.10 None Tulare Buyer-Seller 50% Seller Pay Seller Pay $1.10 None Tuolomne Buyer-Seller 50% Buyer-Seller 50% Seller Pay $1.10 None Ventura Buyer-Seller 50% Seller Pay Seller Pay $1.10 None Yolo Buyer-Seller 50% Buyer-Seller 50% Seller Pay $1.10 Seller Pay Winters-$2.20 Woodland-$1.10 Yuba Buyer Pay Buyer Pay Seller Pay $1.10 None *San Francisco Transfer Tax is NOT figured incrementally. The TOTAL purchase price determines which Transfer Tax figure applies. Closing Costs are allocated between Buyer and Seller on the basis of custom, but are subject to negotiation in the sale of Real Property. These Closing Costs are deemed reliable as of Feb but are not guaranteed and are subject to change without notice. 21 Closing Costs

26 Title Insurance Premiums Escrow Fee Documentation preparation fee Recording charges for all documents in buyer s name Interest on new loan from date of funding to 30 days prior to first payment Inspection fees (property, roof, geological) All new loan charges (except those required by lender for seller to pay) Tax proration from date of acquisition Assumption/change of record fees for take over of existing loan Beneficiary statement fee for assumption of existing loan Homeowners Association transfer fee Home Warranty (according to contract) Any City transfer tax/conveyance tax (may be split with seller per custom) Fire Insurance premium for first year impounds, if applicable Additional Closing Costs Real Estate commission Documentation preparation fee for transferred deed Notary Fees Payoff all loans in seller s name (or existing loan balance if being assumed by buyer) Interest accrued to lender being paid off, statement fees, reconveyance fees and any prepayment penalties Termite work (according to contract) Natural hazard disclosure report Any judgments, delinquent taxes, tax liens, etc. against seller Tax proration (for any unpaid taxes) Recording charges to clear all documents of record against seller Any bonds or assessments Any unpaid homeowners dues, homeowners document and demand fees Home Warranty (according to contract) Documentary transfer tax (*Based on City/County of where property is located. Check with your Real Estate Professional.) 22 Closing Costs

27 Mello-Roos (California only) A Mello-Roos District is an area where special tax is imposed on those real property owners within a community facilities district. It is an area that has chosen to seek public financing through the sale of bonds for the purpose of financing certain public improvements and services. Mello-Roos allows for flexibility in the method of apportionment of taxes. Charges for this tax vary, but will never exceed the maximum amount specified when the district was created. When there is a new purchase of a house in a subdivision the maximum amount of the tax will be specified in the public report. Mello-Roos is used to make payments of principal interest on the bonds and is collected with the general property tax bill. It is also subject to the same penalties that apply to regular property taxes and it stays in effect until the bonds are paid off along with costs incurred in collecting the special tax or so long as it is needed to pay the expenses of services - not to exceed 40 years. The tax is assessed against the land- not on the value. Although Proposition 13 tax limits are on the value of the real property, Mello-Roos taxes are equally and uniformly applied to all properties. If you don't pay it on time then the facilities district that obtained the lien can withdraw the assessment from the tax roll and commence judicial foreclosure. Supplemental Tax (applicable in select States) The Supplemental Real Property Tax Law was signed in 1983 as an act to aid schools in California. if you are purchasing a home, or building a home, you will need to pay this tax. The supplemental tax is a one-time tax which dates from the date you take ownership of your property or complete the construction until the end of the tax year on June 30. The owner always pays this tax. This tax will become a lien on your property as of the date of the ownership change or the date of completion of construction. Your property will be appraised and a bill will be sent to you from your County Assessor, County Controller/Auditor and the County Tax Collector based on the property appraisal. You always have the option to discuss your valuation and apply for a homeowner's exemption or file for an assessment appeal. The total assessment will be prorated based on the number of months remaining until the end of the tax year. If the effective date is July 1, then there is no supplemental assessment on the current tax roll and the entire supplemental assessment will be made to the tax roll being prepared which will then reflect the full cash value. If the effective date is not July 1, then use the following information to calculate the supplemental assessment on the current tax roll. The Supplemental Tax is payable in two installments - due on the date that the bill is mailed or delinquent. Proration factors are listed below: Tax Proration Effective Date: Proration Factor: Effective Date: Proration Factor: August 1.92 February 1.42 September 1.83 March 1.33 October 1.75 April 1.25 November 1.67 May 1.17 December 1.58 June 1.08 January *If the bill is mailed July-October, the first installment is delinquent on December 10th of the same year. The second installment will be delinquent on April 10th of the next year. *If the bill is mailed November-June, the first installment will be delinquent on the last day of the month - following the month in which the bill is mailed, the second installment will be delinquent on the last day of the fourth calendar month following the date the first installment is delinquent. Closing Costs

28 Tax Calendar 2nd Installment Delinquent Apr. 10th Beginning of Fiscal Tax Year Jul. 1st 1st Installment Delinquent Dec. 10th Lien Date Jan. 1st 2nd Installment Due Feb. 1st Apr. 15th Last Day to File for Homeowners Exemption 100% File by Dec. 1st for 80% Tax Bills Mailed Last Week of Oct. 1st Installment Due Nov. 1st Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2nd Installment 1st Installment Jan 1-Jun 30 Jul 1-Dec Closing Costs

29 08 The Language of Real Estate To the unfamiliar, it can often confuse and bewilder. Fannie Mae and Freddie Mac. ARMS and APR. Clear title and clouded title. Though these terms have special meaning to real estate professionals they may often be meaningless to the consumer. To help you better understand the language of real estate the California Land Title Association has defined some of today's most common real estate, lending and title 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. Acknowledgement: 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. 25 The Language of R.E.

30 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. 26 The Language of R.E. 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.

31 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 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. 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. 27 The Language of R.E.

32 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 and Urban Development (HUD). Its main activity is the insuring of residential mortgage loans by private lenders. 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. 28 The Language of R.E. 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.

33 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 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. 29 The Language of R.E.

34 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. 30 The Language of R.E. 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.

35 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. 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. Reprinted with permission from the California Land Title Association. 31 The Language of R.E.