Home Buyer s Guide To the Title and Escrow Process

Transcription

1 Home Buyer s Guide To the Title and Escrow Process

2 Committed To Service Experienced and Trusted, Serving Southern California Since

3 Table Of Contents Realizing The American Dream 4 The Professionals Involved 5 Life Of An Escrow 6 Understanding Escrow 7 Life Of A Title Search 8 Understanding Title Insurance 9 What Happens Next To The Buyer 10 Importance Of A Title Search 11 Title Policy Coverage Comparison 12 Who Pays For What 13 Understanding Recurring And Non-Recurring Closing Costs 14 Common Ways To Take Title 15 Tax Calendar 16 Terms To Know 17 Important Contact Information 18 Notes 19

4 Realizing the American Dream Welcome to the home buying process. You're about to embark on an exciting journey in securing the home of your dreams. Throughout this process, you can count on Landwood Title Company to guide you smoothly through your transaction, and provide all the answers to your questions. For over 40 years Landwood Title Company has offered their clients a much appreciated comfort in knowing that their transaction will be handled in an ef cient manner by experienced, dedicated professionals. We welcome the opportunity to serve you. 4

5 The Professionals Involved In Your Transaction REALTOR A Realtor is a licensed real estate agent and a member of the National Association of Realtors, a real estate trade association. Realtors also belong to their state and local Association of Realtors. REAL ESTATE AGENT A real estate agent is licensed by the state to represent parties in the transfer of property. Every Realtor is a real estate agent, but not every real estate agent has the professional designation of a Realtor. LISTING AGENT A key role of the listing agent or broker is to form a legal relationship with the homeowner to sell the property and place the property in the Multiple Listing Service. BUYER'S AGENT A key role of the buyer's agent or broker is to work with the buyer to locate a suitable property and negotiate a successful home purchase. MULTIPLE LISTING SERVICE (MLS) The MLS is a database of properties listed for sale by Realtors who are members of the local Association of Realtors. Information on an MLS property is available to thousands of Realtors. TITLE COMPANY These are the people who carry out the title search and examination, work with you to eliminate the title exceptions you are not willing to take subject to, and provide the policy of title insurance regarding title to the real property. ESCROW OFFICER An escrow of cer leads the facilitation of your escrow, including escrow instructions preparation, document preparation, funds disbursement, and more. 5

6 The Life Of An Escrow Buyer and Seller sign Purchase & Sale Agreement (Deposit Receipt) Buyer s or Seller s Broker/Agent opens Escrow Escrow holder orders preliminary report from the Title company Prepare Escrow Instructions and all pertinent documents Preliminary report received and reviewed Order demands at Seller s request Receive Demands and review. Notify Seller Buyer and Seller sign and return Escrow instructions to Escrow Order Statement of Information on Buyers & Sellers and clear Title General Index matters Order Beneficiary Statement at Seller s request Receive Beneficiary Statement. Review terms of transfer and notify Seller Bills from termite company, roofers, appliance inspection company and home warranty company are forwarded to Escrow at the direction of the Seller Loan documents received from Lender Buyer s loan documents executed and returned to Escrow with funds Review file to determine that all conditions have been met and all documents properly executed, notarized and good funds received (for Buyer & Seller) Request funds from the Loan Company Forward documents to the Title Company And review title insurance requirements With Title Officer Loan funds received and deposited Close file, prepare statement and disburse funds 6 Final documents sent to interested parties

7 Understanding Escrow WHAT IS AN ESCROW? The escrow is the process of having a neutral party manage the exchange of money for real property. The escrow holder is known as an escrow or settlement of cer or agent. The Buyer deposits funds and the Seller deposits a deed with the escrow holder along with all of the other documents required to remove all "contingencies" (conditions and approvals) in the purchase agreement prior to closing. WHY DO I NEED AN ESCROW? Whether you are the buyer, seller, lender or borrower, you want the assurance that no funds or property will change hands until ALL of the instructions in the transaction have been followed. The escrow holder has the obligation to safeguard the funds and/or documents while they are in the possession of the escrow holder, and to disburse funds and/or convey title only when all provisions of the escrow have been complied with. ESCROW - HOW DOES IT WORK? The principals to the escrow- buyer, seller, lender, borrower - cause escrow instructions, most usually in writing, to be created, signed and delivered to the escrow of cer. If a broker is involved, he will normally provide the escrow of cer with the information necessary for the preparation of your escrow instructions and documents. The escrow of cer will process the escrow, in accordance with the escrow instructions, and when all conditions required in the escrow can be met or achieved, the escrow will be "closed." Each escrow, although following a similar pattern, will be different in some respects, as it deals with YOUR property and the transaction at hand. The duties of an escrow holder include; following the instructions given by the principals and parties to the transaction in a timely manner; handling the funds and/or documents in accordance with instructions; paying all bills as authorized; responding to authorized requests from the principals; closing the escrow only when all terms and conditions have been met; and distributing the funds in accordance with instructions and provide an accounting for same - the Closing or Settlement Statement. 7

8 Life Of A Title Search The Process Escrow Officer Opens Title Orders with Open Order Desk Customer Service Verifies Legal And Vesting if Needed Title Orders to Searching Plant Computerized Property Chains - General Index Seller/Buyers Searcher Examines - Chain & General Index Title Examiner Completes Search Package and Writes Prelim Title Report Word Processing Department Types Prelim Messenger Service Delivers Prelims to Escrow and Lenders Escrow Submits New Documents, Demands, & Statements of info To Title Unit Escrow Authorizes Recording Upon Notification of Funding Documents Record & Encumbrances of Record Are Paid Off Title Officer Writes Title Polices Word Processing Dept Prepares Final Title Policy Title Policy Sent to Escrow & Lender 8

9 Understanding Title Insurance The purchase of a home is one of the most expensive and important purchases you will ever make. You and your mortgage lender will want to make sure the property is indeed yours and that no one else has any lien, claim or encumbrance on your property. The following Q&A answers some questions frequently asked about an often misunderstood line of insurance, title insurance. What is title insurance? Title insurance is used by homebuyers and lenders for protection against back taxes, undisclosed liens, legal judgments, forgeries, fraud and a host of other potential legal/ nancial problems that can arise when purchasing or re nancing property. Title companies perform upon an exhaustive search of the public record to identify and correct liens and encumbrances on property. Most of the title insurance premium goes towards identifying and eliminating these potential problems before the close of escrow. Consumers pay only once for title insurance there are no monthly premiums for coverage that lasts as long as they own the property. Who needs title insurance? Both buyers and lenders in real estate transactions need title insurance. Both want to know that the property they are involved with is insured against certain title defects. Title companies provide this needed insurance coverage subject to the terms of the policy. The seller, buyer and lender all bene t from the insurance provided by title companies. Title companies routinely issue two types of policies: An owner's policy that insures the homebuyer for as long they own their home; and a lender's policy that insures the priority of the lender's security interest over the claims that others may have in the property. 9

10 What happens Next to the Buyer? Statement of Information You will be asked to ll out a Statement of Information that enables the title company to distinguish you from others with identical names during their search of County records. It also provides basic information that will be useful to your escrow of cer. Home Loan Unless you are paying cash, assuming a loan, or the seller is nancing, you will need to apply for a home loan if you have not already done so. Apply as soon as possible to comply with the purchase contract and prior to insuring in order to avoid a delay in the closing. Response to Seller's Notices If directed by the contract, you may receive the following items which require a response from you: Ÿ Ÿ Ÿ Ÿ Seller's property disclosure statement listing any existing problems known to the seller Information pertaining to the Homeowners Association (HOA) or Planned Unit Development (PUD), such as Covenants, Conditions and Restrictions (CC&Rs), if applicable Flood hazard disclosure if the real property is in a ood area Independent inspections, such as termite and septic, and any repairs as required Preliminary Report have questions about the preliminary report, contact your real estate agent or your escrow of cer. Escrow Transaction One escrow transaction could involve over 20 individuals, including real estate professionals, Buyer, Seller, attorney, escrow of cer, escrow technician, title of cer, loan of cer, loan processor, loan underwriter, home inspector, termite inspector, insurance agent, home warranty representative, contractor, roofer, plumber, pool service, and so on. And often one transaction depends on another. When you consider the number of people involved, you can imagine the opportunities for delays and mishaps. While your experienced real estate professional, escrow, and title team can't prevent unforeseen problems from arising, they can help to ensure as smooth a closing as possible. 10

11 The Importance of a Title Search an unpleasant and costly surprise. Some examples include: Ÿ Previously undisclosed errors with claims against the property Ÿ A forged deed that doesn't transfer title to real property Ÿ Instrument executed under expired or fabricated powers of attorney Ÿ Mistakes made in public record themselves against loss or damage due to potential problems with the title to their property. The Preliminary Report The title company will perform a title search before issuing a title insurance policy. This Labor intensive process searches the history of the property from the county records. The search results may uncover items that need to be corrected before a clear title can be conveyed, such as: Ÿ Ÿ Ÿ Ÿ Outstanding Mortgages, Liens, Judgments and tax liens Deeds that contain improper vesting and incorrect names Improper notary acknowledgments Easements and restrictions The title company will issue a preliminary report on the property. A preliminary report gives the buyer, seller and lender an opportunity to review any potential title defects that are to be cured or shown on the title policy. Reviewing the preliminary report Your real estate agent should review the preliminary report as soon as it arrives, paying particular attention to certain areas: Verify the ownership vesting The name on the report should match the names on the purchase contract. Sometimes the names of an unexpected owner will appear and a corrective document may be required. Verify the property address The plat map and legal description should match the address. An owner could own two properties adjacent to or across the street from each other, causing confusion in identifying the correct property. Verify the exceptions Carefully review the exceptions. Common exceptions include current taxes, bonds, Mello-Roos assessment, Covenants, Conditions and Restrictions (CC&R), easements and deeds of trust. Be sure the CC&R's or existing easements don't interfere with the buyer's future plans. For example, an easement across the backyard could have a profound effect on the buyer's ability to add a swimming pool. 11

12 TITLE POLICY COVERAGE COMPARISON Protection From: 1 Someone else owns an interest in your title 2 A document is not properly signed 3 Forgery, fraud, duress in the chain of title 4 Defective recording of any document 5 There are restrictive covenants 6 There is a lien on your title because there is: a) a deed of trust Compare the Alta Homeowner's Policy b) a judgement, tax, or special assessment c) a charge by a homeowner's association 7 Title is unmarketable 8 Mechanics lien 9 Forced removal of a structure because it: a) extends on another property and/or easement b) violates a restriction in Schedule B c) violates an existing zoning law* 10 Cannot use the land for a Single-Family Residence because the use violates a restriction in Schedule B or a zoning ordinance 11 Unrecorded lien by a homeowners association 12 Unrecorded easements 13 Building permit violations* 14 Restrictive covenant violations 15 Post-policy forgery 16 Post-policy encroachment 17 Post-policy damage from extraction of minerals or water 18 Lack of vehicular and pedestrian access 19 Map not consistent with legal description 20 Post-policy adverse possession 21 Post-policy cloud on title 22 Post-policy prescriptive easement 23 Covenant violation resulting in your title reverting to a previous owner 24 Violation of building setback regulations 25 Discriminatory covenants Other benefits: 26 Pays rent for substitute land or facilities 27 Rights under unrecorded leases 28 Plain language statements of policy coverage and restrictions 29 Compliance with Subdivision Map Act 30 Coverage for boundary wall or fence encroachment* 31 Added ownership coverage leads to enhanced marketability 32 Insurance coverage for a lifetime 33 Policy adopted by the California Land Title Association (CLTA) 34 Post-policy inflation coverage with automatic increase in value up to 150% over five years 35 Post-policy Living Trust coverage *Deductible and maximum limits apply. Available for certain 1-to-4 unit residential properties. Coverage may vary based on an individual policy. Please contact your Landwood Title Representative for more information. Landwood Title Company makes no express or implied warranty respecting the information presented and assumes no responsibility for errors or omissions. ALTA Homeowners ALTA Standard or CLTA 12

13 Who Pays For What The SELLER can generally be expected to pay for:! Real Estate Commission! Document preparation fee for Deed! Documentary transfer tax (County Tax) ($1.10 per $1, of sales price)! Any city Transfer Tax! Payoff of all loans in seller s name! Interest accrued to lender being paid off, Statement Fees, Reconveyance Fees and any Prepayment Penalties! Termite Inspection (according to contract)! Termite Work (according to contract)! Home Warranty (according to contract)! Any judgments, tax liens, etc., against the seller! Tax proration (for any taxes unpaid at time of transfer of title)! Any unpaid Homeowner s Association dues! Any bonds or assessments! Any and all delinquent taxes! Notary Fees! Escrow Fee! Title Insurance Premium The BUYER can generally be expected to pay for:! Title Insurance Premium! Escrow Fee! Document preparation (if applicable)! Notary Fees! Recording charges for all documents in buyer s names! Termite Inspection (according to contract)! Tax proration (from date of acquisition)! Homeowner s Association transfer fee! All new loan charges! Interest on new loan from date of funding to 30 days prior to first payment date! Assumption/Change of Records fees for takeover of existing loan! Beneficiary Statement Fee for assumption of existing loan! Inspection Fees (roofing, property inspection, geological, etc.)! Home Warranty (according to contract)! Fire Insurance Premium for first year YOURS OR THEIRS - The Personal vs. Real Property Dilemma The distinction between personal property and real property can be the source of difficulties in a real estate transaction. A purchase contract is normally written to include all real property; that is, all aspects of the property that are fastened down or an integral part of the structure. For example, this would include light fixtures, drapery rods, attached mirrors, trees and shrubs in the ground. It would not include potted plants, free-standing refrigerators, washer/dryers, microwaves, bookcases, swag lamps, etc. If there is any uncertainty whether an item is included in the sale or not, it is best to be sure that the particular item is mentioned in the purchase agreement as being included or excluded. 13

14 Understanding Recurring and Non-recurring Closing Costs There are two types of costs or expenses in an escrow: the recurring costs and the non-recurring costs. This chart will define and give examples of both types. Recurring Costs Costs which the party pays at closing and will continue to pay after the close of escrow, as part of maintaining the property.! Fire Insurance Premium! Homeowner's Association Dues! Real Property Taxes! Interest on the New Loan Non-Recurring Costs Costs which are charged ONE TIME ONLY as an expense of closing the transaction.! Title Insurance Premiums! Recording Fees! Endorsement Fees to Title Company! Sub-Escrow Fee to Title Company! Reconveyance Fees! Documentary Transfer Tax! Escrow Fees! Notary Fees! Messenger Fees! Appraisal! Credit Report! Loan Origination! Loan Processing! Document Fees! Tax Service Contract! Real Estate Broker Commissions! Fees for Property Disclosures or City Reports! Transaction Coordinator Fee! Home Warranty Premium! Transfer or Document Fees to a Homeowner's Association 14

15 Common ways to take title to California residential property Advantages and Limitations TENANCY IN COMMON JOINT TENANCY COMMUNITY PROPERTY COMMUNITY PROPERTY with Right of Survivorship Parties Two or more persons 1 Two or more natural persons Spouses or domestic partners 2 Spouses or domestic partners 2 Division Ownership can be divided into any number of interests, equal or unequal Ownership interests must be equal Ownership interests must be equal Ownership interests must be equal Creation One or more conveyances (law presumes interests are equal if not otherwise specified) Single conveyances (creating identical interests); vesting must specify joint tenancy Presumption from marriage or domestic partnership or can be designated in deed Single conveyance and spouses or domestic partners must indicate consent which can be on deed Possession and control Equal Equal Equal Equal Transferability Each co-owner may transfer or mortgage their interest separately Each co-owner may transfer his/her interest separately but tenancy in common results Both spouses or domestic partners must consent to transfer or mortgage Both spouses or domestic partners must consent to transfer or mortgage Liens against one owner Unless married or domestic partners, co-owner s interest not subject to liens of other debtor/owner but forced salecan occur Co-owner s interest not subject to liens of other debtor/owner but forced sale can occur if prior to co-owner s/debtor s death Entire property may be subject to forced sale to satisfy debt of either spouse or domestic partner Entire property may be subject to forced sale to satisfy debt of either spouse or domestic partner Death of co-owner Decedent s interest passes to his/her devisees or heirs by will or intestacy Decedent s interest automatically passes to surviving joint tentant ( Right of Survivorship ) Decedent s 1/2 interest passes to surviving spouse or domestic partner unless otherwise devised by will Decedent s 1/2 interest automatically passes to surviving spouse or domestic partner due to right of survivorship Possible advantages/ disadvantages Co-owners interests may be 3 separately transferable Right of Survivorship (avoids probate); may have tax disadvantages for spouses Qualified surviorship rights; mutual consent required for transfer; surviving spouse or domestic partner may have tax advantage 2 Right of survivorship; mutual consent required for transfer; surviving spouse or domestic partner may have tax advantage 1 Persons includes a natural person as well as validly formed cooperation, limited partnership, limited liability company or general partnership. Trust property is vested in the trustee (usually a natural person or corporation). 2 Transfers by spouses/domestic partners may require a quitclaim deed from the other spouse/partner for title insurance purposes. 3. If co-owners are spouses/domestic partners, property may be subject to legal presumption of community property requiring consent of both spouses/partners to convey or encumber title notwithstanding vesting as joint tenancy THIS IS PROVIDED FOR GENERAL INFORMATION ONLY. FOR SPECIFIC QUESTIONS OR FINANCIAL, TA OR ESTATE PLANNING GUIDANCE, WE SUGGEST YOU CONTACT AN ATTORNEY OR CERTIFIED PUBLIC ACCOUNTANT. 15

16 TA CALENDAR JULY 1 Beginning of the fiscal year. NOVEMBER 1 First SECURED PROPERTY TA installment is due. DECEMBER 10 FIRST INSTALLMENT payment deadline. A 10% penalty is added after the deadline. FEBRUARY 1 Second SECURED PROPERTY TA installment due. APRIL 10 Second SECURED PROPERTY TA installment payment deadline. A 10% penalty plus $10.00 cost is added after the deadline. JULY 1 Delinquent SECURED and SECURED SUPPLEMENTAL accounts are transferred to delinquent tax roll and additional penalties added at 1.5% per month on any unpaid tax amounts, plus $15.00 redemption fee. *If a delinquent date falls on a weekend or holiday, the delinquent date is the next business day. 16

17 Amendments A change - either to alter, add to, or correct - part of an agreement without changing the principal idea or essence. Appraisal An estimate of value of property resulting from analysis of facts about the property; an opinion of value. Assumption Taking over another person's nancial obligation; taking title to a parcel of real property with the Buyer assuming liability for paying an existing note secured by a deed of trust against the real property. Bene ciary The recipient of bene ts, often from a deed of trust; usually the lender. Close of Escrow Generally the date the documents are recorded and title passes from Seller to Buyer. On this date, the Buyer becomes the legal owner, and title insurance becomes effective. Comparable Sales Sales that have similar characteristics as the subject real property, used for analysis in the appraisal. Commonly called comps. Deed A document through which a conveyance of property is affected. Deed of Trust An instrument used in many states in place of a mortgage. Deed Restrictions Limitations in the deed to a parcel of real property that dictate certain uses that may or may not be made of the real property. Earnest Money Deposit Down payment made by a purchaser of real property as evidence of good faith; a deposit or partial payment. Easement Terms to know A right, privilege or interest limited to a speci c purpose that one party has in the land of another. Hazard Insurance Real estate insurance protecting against re, some natural causes, vandalism, etc., depending upon the policy. Buyer often adds liability insurance and extended coverage for personal property. Impounds A trust type of account established by lenders for the accumulation of borrower's funds to meet periodic payments of taxes, mortgage insurance premiums and/or future insurance policy premiums, required to protect their security. Legal Description A description of land recognized by law, based on government surveys, spelling out the exact boundaries of the entire parcel of land. It should so thoroughly identify a parcel of land that it cannot be confused with any other. Lien A form of encumbrance that usually makes a speci c parcel of real property the security for the payment of a debt or discharge of an obligation. For example, judgments, taxes, mortgages, deeds of trust. Mortgage The instrument by which real property is pledged as security for repayment of a loan. PITI A payment that combines Principal, Interest, Taxes, and Insurance. Power of Attorney A written instrument whereby a principal gives authority to an agent. The agent acting under such a grant is sometimes called an Attorney-in-Fact. Purchase Agreement The purchase contract between the Buyer and Seller. It is usually completed by the real estate agent and signed by the Buyer and Seller. Quitclaim Deed A deed operating as a release, intending to pass any title, interest, or claim which the grantor may have in the property, but not containing any warranty of a valid interest or title by the grantor. Recording Filing documents affecting real property with the County Recorder as a matter of public record. 17

18 Important Contact Information Your Title Order Number Your Escrow Number Your New Address City/State/Zip Title Contact Title Of cer Assistant Company Address City/State/Zip Phone Fax Escrow Contacts Escrow Of cer Escrow Assistant Company Address City/State/Zip Phone Fax Realtor Agent Address City/State/Zip Phone Fax 18

19 Notes 19

20 Experienced and Trusted, Serving Southern California Since