Helpful Information For Buyers & Sellers
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Checklist for Moving
Before You Leave
Address Change
- Post Office: Give forwarding address
- Charge Accounts, Credit Cards
- Subscriptions: Notice requires several weeks
- Friends and Relatives
Bank
- Cancel any automatic payment or direct deposit arrangements
- Transfer funds & arrange check-cashing in new city
- Arrange credit references
Insurance
- Notify company of new location for coverage's: Life, Health, Fire, and Auto
Utility Companies
- Gas, Electricity, Water, Telephone, Fuel, Garbage, and Cable T.V.
- Get refunds on any deposits made
Delivery Service
- Laundry, newspaper, change over of services
Children
- Register in school
- Transfer school records
- Arrange for day care
Medical, Dental, Prescription Histories
- Ask Doctor and Dentist for referrals; transfer needed prescriptions, eyeglasses, X-rays
- Obtain birth records, medical records, etc.
Pets
- Consult a veterinarian about moving your pet
- Obtain all records
- Ask about regulations for licenses, vaccinations, tags, etc.
Don't Forget To:
- Empty freezer; plan use of foods
- Defrost freezer and clean refrigerator. Place charcoal inside to dispel odors
- Have appliances serviced for moving
- Clean rugs or clothing before moving; have them moving-wrapped
- Clean and/or repair furniture and curtains
- Check with your moving counselor on insurance coverage, packing and unpacking labor, arrival day, various shipping papers, method and time of expected payment
- Plan for special care needs for your infants and pets
- Assemble first day items - soap, toilet paper, pencils, paper, toiletries, bath towels, utility knife, scissors, trash bags, etc.
- Obtain relocation package from Real Estate agent or Chamber of Commerce in your new city
- Arrange for storage (if needed)
- Find out about tax-deductible moving expenses
- Obtain all personal records from lawyers and accountants
- Assemble packing materials
- Have car checked and serviced for the trip
- Pack a day or two worth of extra clothing in case of a delay
On Moving Day
- Make a list of every item and box loaded onto the truck.
- Carry enough cash or travelers checks to cover cost of moving services and expenses until you make banking connections in your new city.
- Carry jewelry and documents yourself; or use registered mail.
- Carry an assortment of toys for the children (if needed).
- Let a close friend or relative know route and schedule you will travel including overnight stops; use them as your message headquarters.
- Double check closets, drawers, and shelves to be sure they are empty.
- Turn off all appliances and lock all doors and windows
- Leave all old keys needed by new tenant or owner with Realtor or neighbor.
- Let the movers know where you can be reached.
At Your New Address
- Check off all the boxes and items as they come off the truck.
- Install new locks.
- Check on service of gas, electricity, water, telephone, garbage, and Cable T.V.
- Check pilot light on stove, hot water heater, and furnace.
- Have appliances checked.
- Ask mail carrier for mail he or she may be holding for you.
- Apply for state driver license (or just address change if needed).
- Visit city offices and register for voting.
- Register car within five (5) days after arrival in state or a penalty may have to be paid when getting new license plates.
- Obtain inspection sticker and transfer motor club membership.
- Arrange for medical services: doctor, dentist, veterinarian, etc.
Closing Costs
Some of the items associated with closing costs are:
Title Insurance Premium
Fee paid by an individual to insure he has a marketable title or-in the case of a lender-to insure their lien position.
Real Estate Commission
Fee paid to a real estate broker for services rendered in listing, showing, selling and consummating the transfer of property.
Transfer and Assumption Charges
Fees charged by a lender to allow a new purchaser to assume an existing loan.
Recording Fees
Fees assessed by a county recorder's office for recording the document of a real estate transaction.
Loan Fees
Fees charged by a lender in connection with the processing of a new loan. These may include points, origination fee and credit report.
Escrow Fees
Fees charged by a title and/or escrow company for services rendered in preparing documents necessary in the consummation of a real estate transaction.
Additional Settlement
Taxes, insurance impounds and interest prorations, termite inspection fees, tax prorations.
Title or escrow company personnel will review and explain your closing statement when you prepare to close your transaction and take ownership of your new home. Shown below are two of North American Title's cost saving policies. It will also help you understand the other typical items associated with closing costs.
5 year short term rate (20% savings in title fees) applies to any property which has had a title insurance policy issued in the past five years. North American Title company will honor any title policy even if it was written by a different title company. The new title fee will be discounted by a tremendous 20%.
Planning to resell within 2 years? Pay an additional 10% of the title fee at escrow's close. Sell within 2 years and 100% of the original fee will be credited. The complete title fee cost? Just the 10% of the original title fee. This is an attractive plan for investors and relocation prospects. Refinance rate is 70% of base rate. (Short term rate does not apply)
It's the big day. You go to the title company, sign your name on the dotted line hand over a check and prepare to take ownership of your new home. It's also the day that you and the seller will pay "closing" or settlement costs on an accumulation of separate charges paid to different entities for the professional services associated with the buying and selling of real property.
Creative Financing
You may have heard of creative financing, and, as a seller, the idea sounds attractive. However, it is imperative that you become familiar with everything you need to know about carrying back a second. To protect yourself, you should feel confident that you have as much information about becoming a lender as the financial institutions do.
If you are carrying back a second mortgage as a seller, you need a lender's title policy. Everyone who retains an interest in the property needs title insurance. When you took on the role of lender, you retained a record title interest which you will want to protect for the term of the loan.
You may feel that you don't need lender's title insurance when the repayment of your loan is assured by a lien in the form of a recorded deed of trust against the property. However, even if you think that nothing could possibly go wrong, that is not always the case.
You must insure yourself for the same reason that financial institutions obtain title insurance; for the protection of your investment. You must be assured that your lien on the property cannot be defeated by a prior lien or other interest in the property, which, if exercised, would wipe out your security.
Anything that involves the new buyer's ownership rights to the property is of direct interest to you because you are holding the second mortgage. If such ownership rights are in question or defective, you may have trouble collecting your monthly mortgage payments.
Even if there is nothing in your property's history that could cause problems--no problems with easements, no problems with boundaries, no problems with rights-of-way--these matters are not the only source of title problems. A large proportion of title problems arise out of man's interaction with man. The fact of a marriage, a divorce, a death, a forgery, a judgment for money damages, a failure to pay state or federal taxes can and usually does affect your rights as a mortgage lender.
As an example of what can befall the lender, did you know that a federal tax lien recorded against your "buyer" before the loan transaction is concluded may result in the loss of "your" security in "your" home? Sophisticated mortgage lenders are aware of this and other risks which could jeopardize their loan security, and so they seek the protection afforded by a lender's title insurance policy.
If you are considering carrying back a second, be sure to get all the facts regarding the benefits of lender's title insurance. Your local title insurance company will be happy to provide the information you need.
It's time to sell your home, a home that you have owned for fifteen years, a home in which you have substantial equity. The loan terms call for a $20,000 down payment from your buyer, a new $100,000 loan from a local savings and loan, and for you, the seller, to carry back a the note for the remaining $30,000.
Delays In Escrow
Any of the following situations could cause a substantial delay in close of escrow. The earlier we are made aware of potential problems, the earlier these issues can be dealt with to ensure a smooth and timely close of your transaction.
- Are your principals trying to accomplish a tax deferred exchange? If so, have they chosen an intermediary and who is it?
- Will any of the principals be using a Power of Attorney?
- Are any of the vested owners deceased or in any way incapacitated?
- Do all of the principals who will be signing have a current photo I.D. or Driver License?
- Have any of the principals recently filed for bankruptcy?
- Are the sellers of this transaction residents of California?
- Has there been a change in marital status of any of the vested owners or will we be adding anyone to title, i.e., cosigners, additional insured, etc.?
- Is the property currently vested in a trust or will the new buyer/borrower vest in a trust?
- Are any of the trustees of the trust deceased or incapacitated?
- Will this transaction involve a short sale?
- Will there be a new entity formed, i.e., partnership, corporation?
- Will all of the principals be available to sign or will we be Federal Expressing documents to another state/country? If so, where?
If you have any other information which may be useful to us, please contact your escrow officer as soon as possible. Our goal is to make your transaction as easy and trouble-free as possible. We appreciate your business and hope that you find North American Title Company your company of choice for all of your title and escrow needs.
How To Hold Property
The home buyer who has selected a broker, a neighborhood, a property and a mortgage lender still has at least one more choice to make - the way in which the title to the property is to be held. The North American Title Reporter asked James Stovitz about community property, joint tenancy, and related matters in a recent interview. Mr. Stovitz is Vice President - Underwriting Counsel for the Southern California Region of North American Title Company.
Reporter: How many ways are there to hold a piece of real estate, and how do buyers select the one that's best for them?
Stovitz: The are a half-dozen popular methods: individual ownership, either in one's own name or in a corporate name; joint tenancy; community property, tenants in common; limited partnership; and general partnership. Of these, only a few are used commonly in the ownership of single-family homes. Before selecting an ownership method, the home buyer should consult with an attorney, an accountant, or a real estate broker about it.
Reporter: How are they different? Joint tenancy and tenancy in common sound alike...
Stovitz: They are quite different, actually. Let's take the two most popular methods of ownership first. Joint tenancy is the way most single-family properties were held, historically. In that method, a husband and wife each hold an undivided half interest in the property, and on the death of one owner, his or her interest in the property automatically vests in the survivor. That method is still chosen in perhaps ten percent of the title changes we see. Community property ownership is more popular. It, too, means that a husband and wife hold equal undivided interest in the, property, but it vests in a survivor the deceased owner's interest only if there's no instruction to the contrary - as with a will, for example. One party may have a provision in his or her will that bequeaths an interest in a property to a son or daughter, let us say; in that case, the surviving spouse does not automatically take full title to the property, as he or she would in a joint tenancy.
Reporter: Is the law changing in this area, or is this the way it's been for a long time?
Stovitz: It's changed quite a bit. Actually, community property used to be quite different in that it always meant that a property had to go through probate before a survivor could take title to a deceased spouse's interest in a property. Now, there are some circumstances in which a probate may not be needed.
Reporter: So, when a property owner dies...
Stovitz: If the property is in fact held in joint tenancy, his or her interest in it would automatically vest in the surviving joint tenant, without the need for probate, and whether or not the decedent left a will. If the property is community property, the decedent's interest may or may not go to the supervising spouse, depending on the decedent's will, and there may or may not be the need for a probate.
Reporter: How do the two popular methods of ownership treat real estate in the case of a divorce?
Stovitz: When a property has been held as community property, and when the owners' marriage is dissolved, each of the owners becomes a tenant in common - assuming the property has not been sold, of course. This happens often when couples divorce, but agree to have one or the other stay in it for some period of time in order to keep their children in the same schools or for whatever reason. Should one of the owners in that situation die, his or her interest in the property vests in the estate, rather than in the surviving ex-spouse. It is important to note that if the property has been held in joint tenancy, however, the joint tenancy continues after the divorce unless the owners change it. For example: John and Mary are joint tenants who divorce, leaving Mary and the children in the house that they both continue to own. If John does nothing to change the joint tenancy, his interest in the property will vest in Mary should he die - even if he has remarried in the meantime.
Reporter: You mean, his second wife would have no claim on the property?
Stovitz: No, not if the property is still in joint tenancy with the former wife,
Reporter: If John and Mary had held a home as community property, and she now owns it with his estate as a tenant in common, could his estate force her to leave it?
Stovitz: It's possible. If the estate needs to liquidate the property, and if she is not prepared to acquire the estate's interest, it could petition for the sale of the home and she might be required to sell and move.
Reporter: Is it possible for an adult to own a property in joint tenancy with a child?
Stovitz: Yes, and some do. We understand that taxing authorities look at such ownerships to determine whether the adult has used them as tax avoidance maneuvers, and may consider the property as part of the decedent's estate - for tax purposes only - if the decedent paid the whole consideration for the property.
Reporter: It seems that "tenancy in common" is a form of ownership that results from some event such as the death or divorce of property owners, rather than from some election an owner has made.
Stovitz: Not necessarily. If two or more people unrelated by blood or marriage decide to buy a home together, and don't want the automatic right of supervisorship that a joint tenancy has, they may choose to hold title as tenants in common.
We also occasionally see another name being added to title as a tenant in common. This may happen when a young couple cannot qualify for a loan and have to get financial help from a parent, for example. Then, the lender may require that the parent come on title along with the couple, rather than being merely a guarantor of their first trust deed.
Reporter: How could that make any difference to a lender?
Stovitz: It seems that most lenders prefer "owner borrowers" whose names are on the title, rather than non-owner guarantors of loans.
Reporter: With respect to individual ownership, you mentioned that a person may wish to hold a property in his or her name or in that of a corporation. Why would someone want to use corporate ownership?
Stovitz: Some property owners, for reasons of their own, may not wish to disclose their identities. Ownership of the property by a corporation they control may help them keep their individual names off the property records. There may also be tax or liability considerations that differ as between individual and corporate ownership.
Reporter: At what point in a real estate transaction do questions about the form of ownership arise?
Stovitz: Generally, it's when an escrow officer asks the buyer how the property is to be held. If the buyers are unsure, and if they are a married couple, the ownership will usually be as community property. If no election is made, and if both names are entered on the title, the presumption would generally be that it is community property - again, absent any contrary instructions. Occasionally, the form of ownership will surface when the owner contracts with a real estate broker to sell the property. The broker may note, for example, that the seller is a widow who has been living in the home that she and her late husband held for years, and that she has not changed the title to reflect her individual ownership of it.
Reporter: What happens then?
Stovitz: Depending on the way in which she and her late husband held the property, the widow may be required to present an Affidavit of Death of Joint Tenant along with a certified copy of a death certificate in order to clear up the recording of title in her name alone; or, she may be required to probate her deceased husband's estate, if it has not already been done.
The Affidavit is a fairly simple procedure, but the seller and his or her broker are wise to take care of it when the home is listed for sale. A probate can be very time consuming, and should be done before listing the property. If they wait until it's time to close escrow, there could be lengthy delays in completing the sale.
Reporter: If I understand correctly, you're saying that while the widow may in fact be the individual owner, she's required to prove it.
Stovitz: Yes, very often, survivors simply assume that nothing need be done about the title to real estate when a spouse passes away, but that is not the case. It may be that they don't receive, the entire title, as in the case of community property where the decedent's will leaves his interest to another person. Or, even if the surviving spouse does receive the entire title, the courthouse records don't automatically show this. They must be brought up to date before title can be conveyed in a later sale.
Reporter: Are there tax reasons or other financial reasons for selecting one form of ownership over another?
Stovitz: There can be, yes, and it is important that home buyers receive sound legal advice at the time they're considering a purchase. The family attorney might explain, for example, that the form of ownership may make a, difference in inheritance taxes. Based on the buyer's financial and family situation, the attorney may recommend community property instead of joint tenancy because of the different ways in which tax laws treat a property that's been transferred on the death of one co-owner. It may be that in order to meet estate-planning needs, a property should be held in trust. Or, the attorney may want to help the buyer look ahead to his or her later life, when eligibility for state provided nursing home care may be based on the ownership of assets that include real estate. For most families, a home is the greatest asset, so it is very important that the manner in which it's owned be considered and that the family be properly advised by a legal and financial expert.
Information To Make Your Closing Successful
Fire Insurance Policy
Your lender will require a hazard insurance policy naming the bank as the 1st Loss Payee. It is to your advantage to shop around for the best rate. Once you have placed your insurance, instruct your agent to call the escrow officer as there will be other information needed to complete the policy.
Lenders Requirements As To Fees
a. Prepaid Interest - Interest on your new loan is paid in arrears (i.e., Escrow closes 7/10 - escrow will collect interest from 7/9 to 8/1; 1st payment is 9/1 - which pays interest from 8/1 to 9/1).
b. 90% Financing
- additional fees may be required:
PMI (Private Mortgage Insurance) Usually .05% point fee. The lender will require 1 year prepaid in escrow plus 2 months placed in a reserve account
Fire Insurance - one year prepaid in escrow plus 2 months placed in a reserve account.
Real Estate Property Taxes - depending on the month of closing, the lender will ask for 2 to 5 months tax reserve. (Escrow closes 7/10; 1st payment 9/1; 5 months tax reserve will be collected in escrow, based on the new estimated assessed value, 5 months tax reserve and the 9/1 payment will be sufficient to pay the 1st installment of taxes in November, with one month additional remaining in the reserve account.
Credit Cards/Personal Loans/Car Loan - depending on your income to loan ratio, the lender may require that all or a portion of your debts be paid in escrow. They will supply escrow with estimated balances. It is your responsibility to submit current billings and the self-addressed envelopes to escrow for payment. Escrow does not check balances or recent payments made.
Funds To Close Escrow: Assembly Bill 512 (Good Funds Bill), effective January 1, 1990, states that a title company may only make funds available for monetary dispersal in accordance with certain rules. Therefore, a cashiers check must be deposited to escrow 1 business day prior to recordation; wired funds should be sent 2 business days prior to close of escrow. Any other type of check deposited for closing can delay close of escrow for check clearance up to 10 days.
Close Of Escrow - Signing the loan documents and escrow instructions is not done on the closing day. After the documents are signed by buyers and sellers, the escrow officer must package and return these to the lender for their review. Lenders take 24 to 72 hours to review and fund. The day after the lender deposits funds to escrow, escrow presents the original documents (deed, deed of trust) to the County Recorder for recordation. The recordation day is the "Close of Escrow."
Power Of Attorney - If any one of the buyers will not be available to sign the escrow instructions and loan documents, notify your real estate agent immediately. You real estate agent will notify your loan broker or bank and the title company. Most banks will accept a power of attorney signature if the document is prepared by the title company. Powers of Attorney must always be approved by the lender.
Opening Your Escrow: A Checklist for Success
- A copy of seller's existing title policy, if possible. If policy is not available, provide escrow officer with the following: Legal description and address of the property, Assessor's Parcel Number (APN), Name of party in ownership, Name of existing lienholders and type of loan, i.e., VA, FHA, CONVENTIONAL.
- Direct which liens are to remain and which are to be paid in full. Name, address, and loan number of existing lienholders (Last coupon in client's book is helpful). Request a 30-day notice letter if an FHA loan is being paid off.
- Full names, addresses (inclusive of zip codes) and phone numbers of parties involved. This includes buyers, sellers, real estate agents, and any new lenders with name of loan officer.
- Vesting - how buyers want to take title. Correct spelling of entire name
- Consider issue of required owner occupancy for residential property.
- Amount of buyer's initial deposit. Direct whether funds are to be deposited into escrow or held in the broker's trust account.
- Amounts of commission and breakdown of payment.
- Type of property, i.e. land, single family residence, land with a mobile home, etc
- If a termite report is required, provide information as to who is paying the fee. If corrective work is required, promptly order and deposit into escrow.
- If there are rents to prorate, leases to assign, and/or a Bill of Sale to be drawn, secure and deposit into escrow a rental schedule showing amounts of rents, date rents are paid, and the amount of the security/cleaning deposits to be credited to buyer. An inventory of personal property for the Bill of Sale and copies of all leases to be assigned should also be provided to escrow.
- Inform us of all items to be prorated and the proration date.
- If there is a homeowner's association, provide us with the name and address of the management company.
- If a loan is remaining that has an existing trust fund for taxes and insurance, direct how said account is to be handled, i.e., if the buyer is to be charged/seller credited for the balance or if the account will be transferred at no cost.
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Submit all terms of notes and security documents to be typed by escrow officer.
- Direct who is to receive copies of the preliminary report and the number of copies to be sent.
- Provide information as to whether copies of the tract restrictions are required.
- Discuss all closing costs and who will be responsible for each.
- Communicate all contingencies/conditions required prior to closing.
- If the seller is non-resident of California, contact your escrow officer immediately as additional disclosures may be required.
- If seller/buyer is a corporation, submit articles of incorporation, by-laws, and a corporate resolution authorizing the sale/purchase of the subject property.
- If the seller/buyer is a partnership, submit a copy of the partnership agreement and a copy of the recorded statement/certificate of partnership.
- If the seller/buyer is a trust entity, submit a copy of the trust agreement and a signed verification of the trustee.
- If a power of attorney is to be used, provide escrow and lender with power of attorney form for review and approval.
Remodeling
Make it Pay!
More than 30% of American homeowners plan some sort of remodeling job within the next two years. And if you're one of them, the editor of Remodeling magazine urges you to think through your plans carefully, or you may recoup only a fraction of your investment when it comes time to sell. "The biggest mistake you can make is over-remodeling for your neighborhood," advises Peter Vanvanter.
Although some owners are willing to sink money into their renovation for their pleasure alone, most hope for a good return down the road. You won't get that if you live in a neighborhood of small bungalows and a huge family room, or if you convert a precious third bedroom into a home office.
Even if you live in an area that can support costly improvements to your property, its wise to set priorities. With 92,000 professional remodeling firms as their subscribers, the editors at Remodeling magazine take the issue of cost versus value seriously. Each year they do an extensive analysis of the returns home owners can expect from various sorts of renovations.
Of course, there's much more to cost-effective renovation than simply picking the right job. It's also important to be sure the remodeling work is well-executed and done at a fair price.
Real estate specialists offer these five suggestions:
1. Educate yourself about local market tastes". Most renovations should be undertaken with caution after checking current market conditions," says David Friedberg, the co-manager of a large Coldwell Banker Realty Office.
2. Inspecting the homes for sale in your neighborhood is a quick way to get a feeling for the quality of competing properties and how they're priced.
"Even if your house is an older property, you should include brand new homes on the tour," recommends Eric Belsky, a senior research associate at Harvard's Joint Center for Housing Studies.
"Why? Because builders tap market research on buyer preferences and incorporate their findings in the homes they build," says Belsky, who is involved in a three-year study of supply and demand trends for the remodeling industry.
"New homes are a good bellwether for types of features home buyers want today," Belsky tells us.
"You'll quickly discover, for instance, that most contemporary buyers like high ceilings, lots of large windows, and an open floor plan," he reports. "They also relish extensive closet and storage space, large bathrooms and energy efficient windows, among other features."
3. Hire an architect for an extensive addition to an upscale home.
"Design is probably the weakest strength of remodelers," Vandevanter mentions.
Many remodelers advertise themselves as "design build" firms, and they are capable of adding new square footage to your home in a manner that blends with the current property.
"But, more is at stake, in terms of aesthetics, if you are doing an addition to a property selling in the top 10% of the local price range," Vandevanter points out. "You'll be further up the creek without a paddle if you have a pricey home and your addition looks odd."
4. Renovate your home for mainstream tastes
"You may think stainless steel-surfaced appliances would look sleek and contemporary in your newly renovated kitchen. They're popular with many home buyers at the moment. But others think they present a cold, utilitarian look. And the bigger question is whether a stainless steel kitchen will look outdated in the future, when it's your turn to sell. If you're selling anytime soon and money is an issue, you're probably better off with white appliances, which will appeal to a wider cross section of the buying population over a protracted period of time.
Don't individualize your remodeling job. Vanilla is a better flavor than tutti-frutti.
5. Employ reason, not intuition, in making renovation decisions
How can you be sure your remodeling job makes sense before you commit? Realtors are a good source of information on the topic, as Freidberg points out. Even if you're not expecting to sell for several years, getting an agent's opinion before you hire a contractor could spare you expensive mistakes.
6. Try to renovate as much in advance of your sale as possible
National statistics show that most owners either remodel in the first two years after they've purchased the home or right before the property goes to market.
"But, if you have the means to do the project now, why wait until you're ready to sell? Many home sellers suffer pangs of regret that they waited too long," reports Harvard's Belsky.
"There's a lot to be said for accelerating your remodeling, so you can enjoy it while you are in the home," he concludes.
Title Insurance
Where does your dollar go?
Title insurance: To a home buyer, the term is probably familiar--but is it understood? What is your dollar actually paying for when you purchase a title policy?
Title Insurers, unlike property or casualty insurance companies, operate under the theory of risk elimination. Title companies spend a high percentage of their operating income each year collecting, storing, maintaining, and analyzing official records for information that affects title to real property. Their technical experts are trained to identify the rights others may have in your property, such as recorded liens, legal actions, disputed interests, rights of way, or other encumbrances on your title. Before closing your transaction, the title company will proceed to "clear" those encumbrances which you do not wish to assume.
This theory is different from most other insurance where, for example, rates and anticipated losses are based on actuarial studies and premiums are pooled on the assumption that a certain number of claims will be made. The distinction is important: title insurance premiums are paid to identify and eliminate potential risks and claims before they happen. Medical and casualty insurance premiums, for example, are paid to insure against an unpredictable future event, knowing that risks exist and claims will, occur. Furthermore, title insurance involves a one-time premium, paid when you close the real estate transaction, while property, casualty, and medical insurance require renewal premiums.
The goal of title companies is to conduct such a thorough search and evaluation of public records that no claims will ever arise. Of course, this is impossible -- we live in an imperfect world, where human error and changing legal interpretations make 100 percent risk elimination impossible. When claims arise, professional claims personnel are assigned to handle them according to the terms of the title insurance policy.
Title companies' rates are filed with the California Department of Insurance, and each company is required to publicly post its schedule of fees. As in all competitive business environments, rates vary company to company, so you should make comparisons before deciding on a particular title company. Your real estate professional can help you do this. In addition, there are many helpful customer services provided by title companies which you and your real estate professional may find helpful to your transaction.
The issuance of a title insurance policy is highly labor-intensive. It is based upon the maintenance of a title "plant," or library of title records, in many cases dating back over a hundred years. Each day, recorded documents affecting real property and property owners are posted to these title plants so that when a title search on a particular parcel is requested, the information is already organized for rapid and accurate retrieval. In California, most of the large counties have been converted to computer based title plant system which provide retrieval from remote locations, further speeding the process of delivering the title search to the customer. This investment in skilled personnel and advanced data processing represent a major part of the title insurance premium dollar.
Proper title plant maintenance, research, evaluation, and legal interpretation are the foundations upon which a title policy rests. That is where most of your dollar goes, and that is the source of your protection and peace of mind as a homeowner in California.
Understanding Foreclosure
It Is An Unfortunate Commentary, but when economic activity declines and housing activity decreases, more real property enters the foreclosure process. High interest rates and creative financing arrangements also are contributing factors.
"...as a general rule, a lender would rather receive payments than receive a home due to a foreclosure." When prices are rapidly accelerating during a real estate "bonanza," many people go to any lengths available to get into the market through investments in vacation homes, rental housing, and "trading up" to more expensive properties. In some cases, this results in the taking on of high interest rate payments and second, third, and even fourth deeds of trust. Many buyers anticipate that interest rates will drop and home prices will continue to escalate. Neither may occur, and borrowers may be faced with large "balloon" payments becoming due. When payments cannot be met, the foreclosure process looms on the horizon.
In The Foreclosure Process, one thing should be kept in mind: as a general rule, a lender would rather receive payments than receive a home due to a foreclosure. Lenders are not in the business of selling homes and will often try to accommodate homeowners who are having payment problems. The best plan is to contact the lender before payment problems arise. If monthly payments are too hefty, it may be that a lender will be able to make some alternative payment arrangements until the owner's financial situation improves.
Let's say, however, that a homeowner has not made any alternate arrangements with the lender. In this case, the lender may decide to begin the foreclosure process. Under some circumstances, the lender, whether a bank, savings and loan, or private party, will request that a trustee, often a title company, file a notice of default with the county recorder's office. A copy of the notice is mailed to the homeowner. Once the notice of default has been recorded, the homeowner has 3 months to bring the loan current. If during the 3 month period the owner cures the default by making up the payments, the deed of trust or mortgage will be reinstated and regular monthly payments will continue as before.
In the default is due to a balloon payment not being made when due, the lender can require full payment on the entire outstanding loan as the only way to cure the default. If the default is not cured, the lender may then direct the trustee to sell the property at a public sale.
In cases of a public sale, a notice of sale must be published in a local newspaper and posted in a public place, usually the courthouse, for three consecutive weeks. During this time, it may still be possible for the homeowner to work out a postponement on the sale with the lender.
However, if no postponement is reached, the property goes "on the block." At the sale, buyers must pay the amount of their bid in cash, cashier's check, or other instrument acceptable to the trustee. A lender may "credit bid" up to the amount of the obligation being foreclosed upon.
With the recent attention given to foreclosure, there also has been corresponding interest in buying foreclosed properties. However, the buyer should beware, foreclosed properties are likely to be burdened with overdue taxes, liens, and clouded title. A buyer should do his homework and ask a local title company for information concerning these outstanding liens and encumbrances. Title insurance may or may not be available following a foreclosure sale or various exceptions may be included in any title insurance policy issued to a buyer of a foreclosed property.
Your local title company will be happy to provide additional information.
The Title Consumer
Understanding Supplemental Property Taxes
Supplemental property taxes have been with us since July of 1983, but you and your neighbors still may not know what they are, what they do, and how they affect you and your property. To help you better understand this confusing subject, North American Title Company has answered some of the questions most commonly asked about supplemental real property taxes.
Q:When did this tax come into effect?
A: The Supplemental Real Property Tax Law was signed by the Governor in July of 1983 and is part of an ambitious drive to aid California's schools. This property tax revision is expected to produce over $300 million per year in revenue for schools.
Q:How will Supplemental Property Taxes affect me?
A: If you don't plan on buying new property or undertaking new construction, this new tax will not affect you at all. But, if you do wish to do either of the two, you will be required to pay a supplemental property tax which will become a lien against your property as of the date of ownership change or the date of completion of new construction.
Q:When and how will I be billed?
A: "When" is not easy to predict. You can be billed in as few as three weeks, or it could take over six months. "When" will depend on the individual county and the workload of the County Assessor, the County Controller/Auditor and the County Tax Collector. The assessor will appraise your property and advise you of the new supplemental assessment amount. At that time, you will have the opportunity to discuss your valuation, apply for a Homeowner's Exemption, and be informed of your right to file, an Assessment Appeal. The county will then calculate the amount of the supplemental tax and the tax collector will mail you a supplemental tax bill. The supplemental tax bill will identify, among other things, the following information: the amount of the supplemental tax and the date on which the taxes will become delinquent.
Q:Can I pay my Supplemental Tax Bill in installments?
A: All supplemental taxes on the secured roll are payable in two installments. The taxes are due on the date the bill is mailed and are delinquent on specified dates depending on the month the bill is mailed as follows: (1) If the bill is mailed within the months of July through October, the first installment shall become delinquent on December 10 of the same year. The second installment shall become delinquent on April 10 of the next year. (2) If the bill is mailed within the months of November through June, the first installment shall become delinquent on the last day of the month following the month in which the bill is mailed. The second installment shall become delinquent on the last day of the fourth calendar month following the date the first installment is delinquent.
Q:How will the amount of my bill be determined?
A: There is a formula to determine your tax bill. The total supplemental assessment will be prorated based on the number of months remaining until the end of the tax year, June 30.
Q:Can you tell me how the proration factor works?
A: The supplemental tax becomes effective on the first day of the month following the month in which the change of ownership or completion of new construction actually occurred. If the effective date is July 1, then there will be 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. In the event the effective date is not on July 1, then you may wish to contact your County Tax Assessor's office.
Q:Will my taxes be prorated in escrow?
A: No, unlike your ordinary annual taxes, 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 obligation for this tax is entirely that of the property owner.
What Happens In Escrow?
If the purchaser agrees to purchase a property for cash to be obtained by a loan, the deposit of the deed in escrow enables the purchaser to borrow money, using the property being acquired as security for the loan. This transaction would generally proceed as follows:
- The seller deposits the deed and other necessary papers with the escrow holder with the understanding that the seller is to receive the total purchase price.
- The purchaser deposits certain funds and authorizes the use of funds to be provided by a lender.
- The lender deposits funds with instructions that such funds be disbursed only when the lender's deed of trust, or mortgage, becomes a valid, enforceable lien against the property.
The process will be completed when all of the following occur:
- The deed to the purchaser is recorded.
- The deed of trust, or mortgage, to the lender is recorded.
- The lender's funds become the property of the borrower and in turn become the property of the seller.
The escrow holder at this point would divide the charges according to the instructions and prepare final statements to account for all monies deposited.
Division of Charges
The method of dividing the charges for the services performed through escrow or as a result of escrow varies from county to county. The fees and service charges to be divided might include, for example, title insurance policy premium, escrow fee, any transfer taxes, recordation fees, and all costs in connection with any loan being obtained. Local custom will dictate to the escrow holder how these charges are to be divided, unless the buyer and seller make a special agreement as to who will pay what.
Closing the Escrow
Once all of the terms and conditions of escrow of both buyer and seller have been fulfilled, and all closing conditions satisfied, the escrow can be closed. In many cases, the closing will depend on an instruction by one or the other of the parties which specifically indicates at what point and under what conditions the escrow holder may consider escrow closed. For example the seller may instruct that upon receipt of monies, escrow may be closed. When these events have occurred, the escrow officer must complete the closing procedures of recording the documents and settling the accounts.
In Summary
The escrow process was developed to help you facilitate the sale or purchase of your home. The escrow holder accomplishes this by:
- Acting as an impartial "stake holder"
- Processing and coordinating the flow of documents and funds
- Responding to the lender's demands
- Securing a title insurance policy
- Obtaining approvals from parties to the transaction as needed
- Precisely prorating and adjusting any fire insurance, taxes, rents, or other such items
- Recording the deed and any loan documents
These examples and explanations are based on relatively simple escrows. There are many variations, and should you encounter them, the escrow officer can explain any differences in the escrow procedures.
The Purpose of Escrow
When opening an escrow, the seller and buyer of a piece of property establish terms and conditions to facilitate a transfer of ownership of that property. These terms and conditions are given to a third, disinterested party known as the escrow holder. The escrow holder in turn has the responsibility of seeing that the terms of the escrow are carried out.
The Escrow Holder
The escrow holder could be any disinterested, third party, although some states require that certain escrow holders be licensed. Due to the technical nature of the transaction and because the escrow holder will be handling your money, it is advisable to select an established, independent escrow firm, an attorney or an escrow officer with a title insurance company. Generally, the escrow officer is trained in real estate procedures, title insurance, taxes, deeds, and insurance.
Due to the necessity of remaining impartial throughout the entire escrow process, the escrow officer, while courteous, will limit comments to the business at hand. This formal behavior is meant for the benefit of all concerned, since the escrow officer must follow the instructions of both parties without bias.
Escrow Instructions
Escrow instructions are written documents, signed by both parties, which direct the escrow officer in the specific steps to be completed in order that the escrow can be closed.
Typical instructions would include the following:
- The method by which the buyer will pay for the property
- The time limit set by the seller and buyer to complete purchase
- The instruction and authorization to the escrow officer to disburse funds for recording fees, title insurance policy, real estate commissions, and any other costs incurred through escrow
- Instructions as to the proration of insurance and taxes
- The instruction to the escrow holder to receive the balance of the purchase money prior to close of escrow.
Since the escrow holder can only follow the instructions as stated, and may not exceed them, it is extremely important that they be stated clearly and be complete in all details.
Once the instructions are completed and signed, the escrow process has begun.
Escrow Holder (Per instruction of parties)
- Opens order for title insurance
- Keeps parties informed of progress
- Obtains approvals from buyer on pest control reports and title insurance policy
- Receives funds from buyer
- Records deed and any loan documents
- Prorates and adjusts insurance, taxes, rents, etc.
- Prepares final statement for each party indicating amounts to be disbursed for services and any further amounts necessary to close escrow
- Disburses funds for title insurance, recordation fees, real estate commissions, clearance of liens, and so forth.
The Escrow Process
In a relatively simple escrow, the procedure is as follows:
- The seller deposits the deed and any other necessary papers with the escrow holder.
- The escrow holder is authorized to deliver them to the purchaser when the latter has:
1. Deposited the agreed-upon purchase price
2. Fulfilled any other conditions specified in the escrow instructions
Prior to the close of escrow, the purchaser deposits with the escrow holder the funds required and agreed upon by the parties to the sale.
- The buyer instructs the escrow holder to deliver the money to the seller when the escrow holder:
1. Records the deed
2. Delivers to the buyer a policy of title insurance which shows title to the property signed over to the purchaser, in accordance with the buyer's escrow instructions.
- The escrow holder, on the instructions of both parties, effects the prorations and adjustments on any fire insurance, real estate taxes, rents, interest, and so forth, as they apply to the property.
- The escrow officer thus acts for both parties and protects the interests of each within the authority of the escrow instructions.
- The escrow process enables the purchaser's money to obtain delivery of the title. Upon delivery of the deed, the money becomes the property of the seller, who has previously authorized the escrow holder to pay the necessary amounts to clear title.