©2011 Cengage Learning. Chapter 10 The Role of Escrow and Title Insurance Companies California Real...

Chapter 10The Role of Escrow and Title

Insurance Companies

California Real Estate Principles


Chapter 10

1. Define escrow and list the legal requirements for a valid escrow.

2. Describe the basic services provided by title insurance companies.

3. Explain the differences between a CLTA standard and an ALTA extended coverage title insurance policy.

4. Explain various closing costs and indicate who normally pays for each closing cost.


LEGAL REQUIREMENTS FOR VALID SALE ESCROW

1. Binding contract between Buyer and Seller

2. Conditional Delivery of 1. Money: Deposit funds and monies2. Documents: Transfer instruments

Remember that . . .Escrow instructions are confidentialThe escrow agent must be strictly impartial

agent for both buyer & sellerThe escrow agent may not give tax, law or

real estate advice to either party©2011 Cengage Learning

Escrow Disagreements

Escrow agent cannot give legal advice.

Halt until mutual agreement.

Interpleader: Legal court action to resolve dispute between the parties.


Who May Act

Escrow Laws

Corporation

Independent*

Bank**

Saving &**

Loan

Attorney**

Title** Insuranc

e Compan

y

Real**

Estate

Broker

Corporation Commission

erBank

Commissioner

FSLIC Commission

erBar

Association

Insurance Commission

erReal Estate Commission

er

Only if Broker is involved in the Transaction

*License by Corp. Commissioner

**Exempt from escrow licensing law.©2011 Cengage Learning

Different Practices

Northern California

Escrow handled by

Title insurance Co

Southern CaliforniaEscrow handled by

Independent escrow co. orTitle co. orBroker-owned escrow co.


TYPES OF ESCROWSResidential SalesLiquor LicenseBulk SaleRe-FinanceIncome PropertyBusiness OpportunityExchangeProbateCommercialIndustrial Land Sales


ESCROW

Neutral Third Party – Stakeholder Closing costs are usually negotiable Provides custodian for funds and documents Provides Clearing House for Payments Acts as an Agent for Prorations


LIFE OF AN ESCROW

R eceive D em ands andE n ter in to F ile

R equest D em ands ( if any)R equest C larif ication ofO ther L iens ( if any) andR eview Taxes on R eport

R eceive and R eviewP relim inary R eport

O rder T itleS earch

P rocessF inanc ing

O btain S ignatu res

P repare E scrow Ins tructionsand P ertinen t D ocum en ts

Continued . . .


LIFE OF AN ESCROW

R ece ive B en efic ia ry S ta tem en tan d E n te r in to F ile , R eview

Term s o f Tran s fe r an d C u rren tP aym en t S ta tu s

R eq u es tB en e fic ia ryS ta tem en t

R eq u es t L oan D ocu m en ts

O b ta in L oan A p p rova lan d D e te rm in e th a tTerm s a re C orrec t

R eq u es t/o r P rep areN ew L oan A p p lica tion

P rocess F in an c in g

continuation


LIFE OF AN ESCROW (cont)

F orw ard D ocu m en tsTo T it le C om p an y

O b ta in F u n d sF rom B u yer

R etu rn L oanD ocu m en ts

C om p u te P ro ra tion s(C os ts an d C h arg es )

an d R eq u es t S ig n a tu res on a llR em ain in g D ocu m en ts

R eview F ile To D ete rm in e th a t A ll C on d it ion s H ave B een M etan d th a t A ll D ocu m en ts a re C orrec t an d A va ilab le fo r S ig n a tu re

Term ite in sp ec tion , con tin g en c ies re leased , fire in su ran ce o rd eredad d it ion a l d ocu m en ts (2 n d T.D . b ill o f sa le e tc .) h ave b ee o rd ered

Title Financing


LIFE OF AN ESCROW (cont)

C om p le te C los in gF orw ard F in a l D ocu m en ts

to A ll In te res ted P arties(B u yer S e lle r L en d er)

C lose F ileP rep are S ta tem en tsan d D isb u rse F u n d s

O rd er R ecord in g o f D eedan d O th er D ocu m en ts

R ece ive L oan F u n d s

R eq u es t L oan F u n d s


ESCROW FUNCTIONSA depository for funds and documents.Clearinghouse for documents and fundsCalculate and compute closing costsPrepare escrow instructionsOrder status of loans and beneficiary demands Process termite, home inspection & pest control reportsPrepares financing instrumentsOrder title search and buyer preliminary title reportTransfer impounds Requests hazard insurance policies Computes prorationsObtains documents and prepares Deeds to be recordedDisclose Appraisal


Escrow FunctionsCollects monies needed to closeRequest new loansPrepare closing statementsFile Non-Foreign Status certificateExecute Bill of Sale for inventory and/or

personal propertyDisburses monies and documents after closeDisclose AppraisalFile Change of Ownership Tax Assessor DataReport Funds to IRS


TERMINATION OF ESCROWFull Performance of the sale, exchange or

refinance

Mutually agreed - Cancellation

Revocation or Refusal by one party; Legal problems


Non-RecurringNon-Recurring CLOSING COSTSNon-Recurring = One Time Costs

Loan Fees Appraisal ReportCredit Report Pest Control Escrow FeeTax Service FeeDrawing, Notary, Recording FeesTitle Insurance Policy FeeBroker CommissionTransfer TaxNote: ALL costs are negotiable between the parties

unless restricted by the loan.©2011 Cengage Learning

Recurring Recurring CLOSING COSTS

Insurance : Hazard, Flood, Mortgage (MIP, PMI)

Property TaxesInterest on LoansImpound Deposits

Recurring = Continue repeated costs

Note: ALL costs are negotiable between the parties unless restricted by the loan.


PRORATIONS Equitable division of costs

Every month = 30 DaysEvery Year = 360 Days# of Days x Rate Per Day = Share of Expense Common items prorated: association dues,

interest, taxes, insurance & prepaid rent

Credit is an Entry Made in Favor of the PartyDebit is an Entry to be Paid by the PartyDeeds typically record at 8:00 a.m.©2011 Cengage Learning

TYPICAL CLOSING STATEMENT Buyer Seller

Debit Credit Debit Credit

Prepaid rents xxxx xxxx

Documentary transfer tax xxxx

Prepayment penalties xxxx

Termite inspection/correction xxxx

Seller’s CLTA title ins policy xxxx

Brokerage commission xxxx

Recording Fees xxxx xxxx

Payoff of Existing Loan xxxx

Discount points xxxx xxxx

Any “seller pays” fees xxxx

Seller’s Net Proceeds xxxx ©2011 Cengage Learning

TYPICAL CLOSING STATEMENTBuyer Seller

Debit Credit Debit CreditSales Price xxxx

xxxxBuyer’s initial deposit xxxxBuyer’s new loan xxxxBalance of Buyer’s Deposit xxxxAppraisal xxxxLoan origination fee xxxxNew fire Ins. Policy xxxxCredit report xxxxDrawing Fee/Notary xxxxLender’s ALTA Title xxxxAny “buyer pays” fees xxxxTax service & impounds xxxx©2011 Cengage Learning

TITLE INSURANCE PROCESS

Search

Examine

Chain of Title

Preliminary Title Report

Escrow

Title Policy


TITLE COMPANY BASIC FUNCTIONSTo assure marketable titleSearch and Gather Title Records

Courthouse searchTitle Plant search

Examine and Interpret Title RecordsCompile a Chain of titleIdentifies existing encumbrancesIssue a Preliminary Title Report with encumbrances

Issues insurance policiesInsured against defects in titleAdditional assurance over seller’s representations

Escrow the Real Estate TransactionCollect all instruments of transferClose transaction


TITLE INSURANCE COVERAGE CLTA Standard Coverage

Types: Owner’s * Lender’s * Joint ProtectionRisks Insured against

• Undisclosed public record • Forgery• Incompetence of Parties• Marketable Title• Street Access

NOT Insured:• Matter not of public record• Zoning and use of the property• Mining and water claims• Undisclosed KNOWN defects not revealed to title

company©2011 Cengage Learning

TITLE INSURANCE COVERAGE ALTA Extended Coverage

Types: ALTA Lender’s * ALTA-R Homeowner'sRisks Insured against

• All Items under standard coverage, plus• Unrecorded liens & encumbrances not shown in the

courthouse• Potential mechanic’s liens• Easement by prescription• Encroachments and adverse possession• Parties in possession, other than the property owner(s)• Mining claims & water rights

NOT insured:• Zoning and property use• Known defects not disclosed to title company


Review Quiz Chapter 10

1. Which of the following is not exempt from the escrow licensing law?

(a) trust companies(b) escrow companies(c) title insurance companies(d) real estate brokers when acting as an agent in the

transaction


Review Quiz Chapter 102. A history of title transfers for a particular parcel of

land is a/an:(a) preliminary report(b) title insurance policy(c) abstracter index(d) chain of title

3. Which insurance policy requires the title company to make a physical inspection of the property?

(a) CLTA

(b) standard

(c) RESPA

(d) ALTA


4. There are certain requirements that must be met before a transaction can be placed in escrow. They are:

(a) a binding contract between buyer and seller

(b) a neutral third party is employed

(c) conditional delivery of all documents related to sale

(d) all of the above


5. Which of the following is normally paid by the seller?

(a) prepayment penalty

(b) credit report fee

(c) recording fee for the trust deed

(d) loan origination fee


6. When an escrow officer receives conflicting instruction that cannot be resolved by the parties, the escrow officer can file a legal action in court called:

(a) arbitration

(b) hold harmless

(c) interpleader

(d) settlement suit



Review Quiz Chapter 107. Which law prohibits a real estate agent from receiving

a referral fee from an escrow or title company?

(a) Truth in Lending

(b) Regulation Z

(c) RESPA

(d) all of the above

8. Title insurance does not cover publicly disclosed:

(a) easements

(b) zoning ordinances

(c) deeds of trust

(d) corporation commission


Review Quiz Chapter 109. Title insurance rates are set by:

(a) title companies

(b) insurance commissioner

(c) real estate commissioner

(d) corporation commissioner

10.On behalf of the buyer and seller, the escrow officer acts as:

(a) an employee

(b) an independent contractor

(c) an agent

(d) a licensee


Review Quiz – Chapter 10 Answers

1. B 6. C

2. D 7. C

3. D 8. B

4. D 9. A

5. A 10. C


©2011 Cengage Learning. Chapter 10 The Role of Escrow and Title Insurance Companies California Real...

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Transcript of ©2011 Cengage Learning. Chapter 10 The Role of Escrow and Title Insurance Companies California Real...