FAQ - Frequently Asked Questions
It is whatever was agreed upon in the purchase contract. Buyer and seller should negotiate a possession date and time that best coordinates with their schedule prior to opening escrow.
Buyer’s Agent will notify the buyer when escrow closes and coordinate the key exchange at that time. Keys do not normally get handled through escrow.
Escrows are typically 30-45 days to give the buyer sufficient time to qualify and establish a new loan along with do necessary investigation to confirm the property is what the buyer wants. Escrows can be closed in as little as 1 week if buyer is purchasing “as is” AND all cash. In the event buyer is obtaining financing, loan documents should be in escrow roughly 5 business days prior to the closing date.
Once the terms are agreed upon and the contract is accepted escrow is opened. Buyer has 3 days from acceptance to deposit money and open an account with escrow.
Most lenders require the executed loan documents back for review prior to funding (sending buyer’s loan proceeds to escrow) Lender review times range between 24 hours to 72 hours before they will provide Buyer’s loan proceeds to escrow holder. The County Recorders Office requires 24 hour notice prior to recording the documents, so Buyer’s loan funds the day before recording/closing.
It is still questionable at this point. Some do, some don’t, it might be in your best interest to just sign the old fashioned way to avoid a big urgent inconvenience later.
A reserve account established and paid through your loan for your property taxes and insurance. The amounts are collected with your monthly mortgage payment and are set aside in an “impound/escrow account”. Your lender will pay your taxes and insurance when they become due and payable. Lenders will require you to keep at least 2 months cushion in this account at all times.What is the difference between an Escrow Account with the lender and the Escrow Account with an Escrow Company?
Completely different, but called the same for a couple of different reasons: “Escrow” is the third party holder of trust (your) funds. An escrow account established for your real estate transaction is there to hold buyer’s funds and seller’s documents until both parties have satisfied themselves and authorized an exchange/transfer. An Escrow Account established with your lender is an account set aside that you pay into monthly for your taxes and insurance payments. (see question above)
Prorations are a debit/credit through escrow for taxes and homeowner’s association dues for the current installment. Example: If you are closing escrow in September, 1st installment taxes began 7/1 but are not due yet. The seller would credit the buyer from the first day of the installment (7/1) to the day you close escrow (last day property was owned by seller) based on the latest available tax bill. Buyer will be responsible to pay the full amount of taxes when due in November, but has already been credited from seller for the time the seller owned the property.
The County Assessor’s Office will reassess the property upon transfer of ownership based on the purchase price. A supplemental tax bill is the difference between the seller’s assessed value and the buyers new value. If you are a buyer who established an impound account for taxes and you receive a supplemental bill, it is your responsibility to notify your lender.
- Pre-loan approval: “based on your credit score and income to debt ratio, we think you qualify for a loan”
- Conditional loan approval: “we have reviewed your application and we want to give you a loan but need the following items first”
- Final Loan Approval: “we are ready to give you the loan now, get ready to sign”
- Section 1 items are evidence of dryrot or active infestation and are required to be corrected prior to closing escrow by Buyer’s new lender if a termite inspection report is a provision in the Real Estate Purchase agreement and/or Sale Escrow Instructions.
- Section 2 items make reference to items that may be a problem such as water stains, water damage, earth to wood contact, etc. and are not required by most lenders to be corrected prior to closing escrow.
Fair Market value is determined by other properties that have sold and at what price in your neighborhood that are comparable to your property.
Your Lender should provide you with a copy of the appraisal report before you close escrow.
A report consisting of the results of a search of the public record of the property in question. The items referenced in the preliminary title report usually consist of current property taxes, easements for access (walkways), utility easements (telephone poles) and any mortgages, judgements or liens that would need to be cleared up at closing.
An Owner’s Policy of Title Insurance is usually furnished by a seller to a buyer to ensure the buyer that there are no voluntary or involutary liens of record. Title Insurance is the only type of insurance you can obtain that insures the past instead of the future. In the event an issue shows up on record that was a responsibility of the previous owner, a claim would be opened with the title policy issuer and the title company would clear or remove the item for the buyer/new owner. A Lender’s Policy of Title Insurance is usually purchased by a buyer/borrower as a requirement of a new loan. A Loan Policy insures the lender against loss caused by invalid title in the borrower (ownership) and/or seniority of position on title.
The initial deposit provided by buyer to open an escrow. These funds are applied toward the total consideration (purchase price) at closing.
- Grant Deed: Acquisition Deed, used to add or transfer title from one person to another.
- Quitclaim Deed: Used to remove person(s) from title.
Charges incurred to purchase or sell a property. Common closing costs include: Title Charges, Escrow Fees, Inspection reports, disclosure reports, Transfer Fees and Loan Charges.
California State Law requires Escrow Holder to verify the transfer documents have recorded with County Recorders Office prior to disbursing any funds. Typically the Seller gets paid within 24 hours of recording. Mostly same business day, but depending on what time confirmation of recording is received by escrow holder, funds may not be available until the next business morning.
California State Law requires all funds to be “good funds” in order to close. Personal checks take 10 business days to clear, Official (bank) checks take 3-7 business days to clear and Cashier’s checks take 3-5 days. More and more these days, Title Companies are placing holds on Cashier’s Checks to verify issuance due to fraud and the risk of the bank going out of business before they can honor their check so we strongly recommend wire transfers only for closing funds.
No, only independent escrow companies are required to be bonded. Independent escrow companies are also required to have a certain amount of liquid assets, have spot audits conducted by the Department of Business Oversight and also, all employees of an independent escrow company must pass a background check from the Department of Justice.
No. Unlike attorney states, escrow closing states are handled much different. All documents required for your signature either as buyer or seller are obtained prior to closing. Usually once the buyer’s loan documents come in, escrow will gather the balance of documents required for your signature at that time. Sometimes escrow is notified of changes in terms between the time you have signed the initial paperwork and closing. If that is the case, escrow will notify you of additional items required for your signature which can be handled via email or fax.
- A Mortgage Broker qualifies your situation and finds a lender that can give you a loan that best suits your needs.
- A Mortgage Banker is a direct lender that can Broker loans to outside lenders as well.
- A Direct Lender finds a program within their organization that best suits your needs.
Some cities such as Los Angeles, Pasadena and now Burbank require a mandatory report certifying a property at transfer meets the requirements of the city for items such as low flush toilets, earthquake shut off valve, impact glazing, on large glass windows and sliding glass doors. A retrofitter or qualified licensed contractor can inspect a property to confirm all items are up to code per the city requirements.
A document signed by a licensed Contractor, Retrofitter or Realtor certifying the property to be compliant with the city ordinances.
A Mortgage Lender. Depending on whether you are located in a fire and/or flood area will determine what they will require. It is strongly advised that you confirm with your lender what type of insurance will be required in advance so that you have time to shop around for a policy that fits your needs. Lenders will require evidence of insurance urgently through escrow so it is very important you are prepared for that phone call as to who you will obtain the policy with.
Accessors Parcel Number. A ten digit number used by the Assessor’s Office to identify your property. You APN number can be found on your tax bill or the Deed you received from the county after you purchased your home.
A fee charged by the County Recorder’s Office for a transfer in Title (ownership). Cost is based on total consideration (amount of money exchanged for transfer).
If you are selling your property, a Franchise Tax Board form (593) Real Estate Withhold Certificate will come to you with your initial paperwork from escrow. This form asks questions that will qualify whether or not it is necessary to send a portion of your sale proceeds to the Franchise Tax Board as prepayment of income taxes. NOTE: If you are selling your primary residence, you have lived in the home 2 out of the last 5 years, you are doing a 1031 tax deffered exchange or are subject to a loss, you will not be subject to real estate withholding.
Once your escrow closes you will receive a closing package consisting of your final closing statement/HUD, a copy of your insurance policy and other documents that were held for you through the course of the transaction. The County Recorder’s Office will send the Deed direct to you. (typically 6-8 weeks after escrow closes).
Both a buyer and seller will be required to sign documents that require a notary acknowledgement. A Driver’s license, state issued I.D. or passport will be required for a document to be notarized.
Anytime funds are received by a person other than our Buyer or Seller, a third party authorization form will need to be completed. This form authorizes escrow holder to use the third party funds through escrow to benefit either the buyer or seller with no consideration due the depositor.
Although we suggest you seek professional advice, we also handle “For sale by Owner” transactions and would be happy to walk you through the process. Call us for more info.
Be Patient. Be Available. The Real Estate Industry has changed dramatically over the past couple of years. Between short sale transactions and bank requirements of a new loan, we are dealing with something new every day. All of us work very dilligently to close your transaction very smoothly and quickly. In todays market, banks will require review of your file 2-4 times before they ultimately say yes, and they may require additional items prior to. You being proactive, available and cooperative will make the difference in a good experience vs bad.
A Qualified Intermediary is necessary to create the exchange of properties required under Section 1031. The Exchange Accomodator accepts the transfer of your property, conveying it to a buyer, taking custody of the proceeds, buying the replacement property, and transferring title to you. It is a sensitive role requiring experience, special knowledge, and extreme care to preserve the tax-deferred character of the transaction.
No, there are certain persons who may not act as your Qualified Intermediary. Generally, these include certain relatives, or someone who, within a two-year period prior to your exchange, has acted as your attorney, accountant, real estate broker, or agent.
Experience, financial stability, and customer satisfaction are factors that you should consider.
Qualified Intermediaries are appointed to carry out the exchange and prepare the necessary documentation for tax deferral, but we are precluded from counseling you on the desirability or tax implications of an exchange.
The identification of replacement property must be submitted in writing, unambiguously described, signed by you, and delivered or sent before midnight of the 45th day.WHAT HAPPENS IF I CHANGE MY MIND ABOUT BUYING A REPLACEMENT PROPERTY AND WANT TO CANCEL MY EXCHANGE?
If you transfer the relinquished property and do not replace it with another, the sale will create a taxable event and any capital gain will be subject to federal and state capital gains taxes. Additionally, if you decide to cancel your exchange after the accommodator receives the exchange proceeds, certain restrictions apply to all Qualified Intermediaries that limit access to those proceeds until certain time periods have elapsed.WHAT HAPPENS IF I SELL A PROPERTY AND THEN DECIDE I WANT TO MAKE IT A PART OF A TAX-DEFERRED EXCHANGE?
If you actually or constructively received proceeds from the sale, it might not be possible to include that property in a tax-deferred exchange. That’s why it’s important to note your intention to make this transaction part of a tax-deferred exchange in the contract to sell the relinquished property. If you have entered into a contract to sell, but have not closed, it may be possible to carry out a deferred exchange, provided you execute the proper exchange documents, identify the replacement property within 45 days of the closing, and actually receive it within 180 days or before your tax return is due. Your attorney or tax advisor can help you to make that determination.
“Boot” can be cash received from the sale of the relinquished property or other non-cash consideration, including any property that is not “like-kind,” promissory notes, or debt relief (mortgage boot). If you receive boot in an exchange, it is likely that all or some portion of the boot will be taxed.
No, your principal residence is not considered property held “for productive use in a trade or business” or “for investment,” and therefore, does not meet the requirements of Section 1031. However, Internal Revenue Code Section 121 allows an individual to exclude from taxation up to $250,000 of the capital gain realized on the sale of the individual’s principal residence. A married couple filing jointly can exclude up to $500,000. Section 121 has certain requirements that must be met.
As part of its ongoing commitment to continuously improve housing relief efforts, the Obama administration announced on March 26 adjustments to the Home Affordable Modification Program (HAMP) and to the Federal Housing Administration (FHA) programs.
According to a press release from the Department of Housing and Urban Development (HUD), the program adjustments will better assist responsible homeowners who have been affected by the economic crisis through no fault of their own.
“The program modifications will expand flexibility for mortgage servicers and originators to assist more unemployed homeowners and to help more people who owe more on their mortgage than their home is worth because their local markets saw large declines in home values,” the release stated.
According to HUD, the changes will help the administration meet its goal of stabilizing housing markets by offering a second chance to up to 3 to 4 million struggling homeowners through the end of 2012. Costs will be shared between the private sector and the federal government. The Federal cost of the changes will be funded through the $50 billion allocation for housing programs under the Troubled Asset Relief Program (TARP).
Adjustments to HAMP
The HAMP program will now provide for temporary assistance for unemployed homeowners while they search for re-employment. This assistance will consist of reducing the homeowner’s mortgage payments for a minimum of three months to a maximum of six months while the homeowner actively searches for a job.
The changes will also include a requirement for servicers to consider alternative principal write-down approaches and increase principal write-down incentives. As stated in the “HAMP Improvements fact sheet,” all servicers are now required to consider an alternative modification approach that emphasizes principal write-down with incentives based on the dollar value of the principal reduced. The principal reduction and the incentives will be earned by the borrower and investor based on a pay-for-success structure.
Improvements to the program are also being implemented to reach more borrowers with HAMP modifications and to prohibit against the initiation of a new foreclosure referral when a borrower is cooperating with the servicer to obtain a modification. Other changes include:
- Borrowers in active bankruptcy must be considered for HAMP upon request;
- Increased incentives for servicers to provide permanent HAMP modifications; and
- The expansion of HAMP to include homeowners with FHA loans.
In addition, relocation assistance payments to homeowners receiving foreclosure alternatives is being doubled and there are now increased incentives to servicers and lenders, including increased incentives for extinguishment of subordinate liens, to encourage more short sales and other alternatives to foreclosure.
Adjustments to FHA programs
Highlights of changes to the FHA program, which have been implemented to support refinancing for underwater homeowners, will, among other things:
- Encouraging responsible restructuring and refinancing through is voluntary option. This will encourage lenders and borrowers to work together, when appropriate, to restructure underwater mortgages. Because it is voluntary for lenders, not all underwater borrowers who meet the criteria will receive an FHA refinance loan.
- Enable refinancing into more sustainable loans that are no higher when compared to the value of the home than the standard FHA refinance loan (97.75 percent).
- Enable refinancing to a reduced monthly payment at current low interest rates to facilitate affordable homeownership.
In addition, HUD outlined incentives for principal write-downs on second liens, but to qualify for a refinance, all mortgage debt including second liens must be written down to a maximum of 115 percent of the current value of the home.
FHA has promised more transparency on the impact of the refinancings. It has indicated it will publish data on the number of loans, average percentage written down and quantity of the principal that is reduced quarterly. In addition, TARP funds will be made available up to a total of $14 billion to provide incentives to support write-downs of second liens and encourage participation by servicers and to provide additional coverage for a share of potential losses on the loans.
Housing policy overview
HUD stated that the administration’s goal is to promote stability for both the housing market and homeowners. To meet these objectives, it has developed a comprehensive approach using state and local housing agency initiatives, tax credits for homebuyers, neighborhood stabilization and community development programs, mortgage modifications and refinancing and support for Fannie Mae and Freddie Mac. The administration’s efforts for homeowners have focused on giving responsible households an opportunity to remain in their homes when possible while they get back up on their feet, or to relocate to a more sustainable living situation.
“Today, mortgage rates are at record lows and, thanks in large part to these programs, more than 4 million homeowners have refinanced their mortgages to more affordable levels helping to save more than $7 billion annually, more than 1 million are saving an average of over $500 per month through the administration’s modification program, home equity increased by more than $12,000 for the average homeowner in the last three quarters last year and the economy is growing,” HUD reported.
However, even with these improvements homeowners and servicers still face challenges. HUD said servicers were slow to implement HAMP, resulting in a slow start for the program. Recent improvements in the program have accelerated the pace of modifications, and the announced adjustments will improve performance.
“But our strategy to address the crisis must evolve because our challenges have also evolved,” HUD said. “Our housing initiatives must balance the need to help responsible homeowners struggling to stay in their homes, with the recognition that we cannot and should not help everyone. The President has said: ‘We can’t stop every foreclosure.” And in fact, we can’t maintain the balance described above if we assist every borrower.”
For example, investors and speculators should not be protected under the efforts, nor should Americans living in million dollar homes or defaulters on vacation homes. Some people simply will not be able to afford to stay in their homes because they bought more than they could afford. Instead, HUD said the administration must focus on providing responsible homeowners opportunities to obtain a modification or to refinance and prevent avoidable foreclosures and, when necessary, must facilitate the transition to a more sustainable housing situation.
“The adjustments announced today are tailored to accomplish these goals by helping a targeted group of borrowers,” HUD said.
Eligible homeowners for modifications under HAMP must, for example: live in an owner occupied principal residence, have a mortgage balance less than $729,750, owe monthly mortgage payments that are not affordable (greater than 31 percent of their income) and demonstrate a financial hardship. The new flexibilities for the modification initiative announced today continue to target this group of homeowners.
“The FHA refinance options being announced today will provide more opportunities for lenders to restructure loans for some families who owe more than their home is worth. This is a voluntary program for lenders and homeowners. The population eligible for a FHA refinance must be current on their mortgage. This rewards responsible homeowners and creates stabilizing incentives in the housing market,” HUD said.
Through its housing initiatives, the administration has taken the following actions to strengthen the housing market:
- Provided strong support to Fannie Mae and Freddie Mac to ensure continued access to affordable mortgage credit across the market;
- Together, Treasury and the Federal Reserve have purchased more than $1.4 trillion in agency mortgage backed securities, which have helped keep mortgage rates at historic lows, allowing homeowners to access credit to purchase new homes and refinance into more affordable monthly payments; and
- The FHA has played an important counter-cyclical role, providing liquidity for housing purchases at a time when private lending has declined; Launched a modification initiative to help homeowners reduce mortgage payments to affordable levels and to prevent avoidable foreclosures;
- Supported expanding the limits for loans guaranteed by Fannie Mae, Freddie Mac and FHA from previous limits up to $625,500 per loan to $729,750;
- Expanded refinancing flexibilities for the Fannie Mae and Freddie Mac loans, particularly for borrowers with negative equity, to allow more Americans to refinance;
- Launched a $23.5 billion Housing Finance Agencies Initiative which is helping more than 90 state and local housing finance agencies across 49 states provide sustainable homeownership and rental resources for American families;
- Supported the first time homebuyer tax credit, which has helped hundreds of thousands of Americans purchase homes.
- Is providing over $5 billion in support for affordable rental housing through low income housing tax credit programs and $2 billion in support for the Neighborhood Stabilization Program to restore neighborhoods hardest hit by concentrated foreclosures; and
- On Feb. 19, 2010, announced the $1.5 billion HFA Hardest Hit Fund for housing finance agencies in the nation’s hardest hit housing markets to design innovative, locally targeted foreclosure prevention programs.
Today mortgage rates remain at historic lows. The primary interest rate is now about 5 percent, lower than at any time in the three decades before the crisis. HUD reported that it is also seeing encouraging signs in housing indicators — home prices and the pace of home sales have stabilized in recent months.
If you have a transaction that is going or about to go through escrow, the following information may be important for you.
1. You should contact your escrow officer or Realtor to find out if the property taxes are open or paid. If there are any steps that are required to take they will be able to guide you.
2. If a current payment (Tax installment) wasn’t paid then it MUST NOT be paid directly to the Assessor. Instead you should prepare a CASHIERS CHECK for the payment amount payable to the stated county tax collector/assessor. This payment should be forwarded to the escrow company at least 5 business days before delinquency. This will allow escrow to verify the tax payment and prevent delays of up to 6 weeks and possible double payments.
3. Any installment of a new tax bill can be paid from the proceeds of a sale at the close of escrow. However, there will be at least a 10% penalty if escrow closing is after the delinquency date.
4. If either or both payments can not be verified but seller claims they were paid, seller will have to provide cancelled checks or a receipt to prove these payments.
5. If the seller has an impound/escrow account with their lender, taxes will be paid from that account prior to the delinquency date.
Computing Delinquent Penalties
(Cont’d from Dec 10)
January Jan. 1 – Assessment Date February Feb. 1 – 2nd Installment Due March Mar. 1 – Taxes on Unsecured Roll Due
April 10 – June 30
One or Both Installments Delinquent
– ADD 10% + $10.00 cost
April Apr. 10 – 2nd Installment Delinquent May June June 8 – Publication Date for Delinquent Taxes
July 1 –
One or Both Installments Delinquent —
ADD 10% – Penalty
ADD $10 Cost
ADD $15.00 Redemption Charge
ADD 1 1/2% per month
July July 1 – Beginning of Fiscal Year to July 1 of Following year July 1 – Properties with Delinquent Taxes Sold to State July 1 – Owners to be informed of New Values July First Monday – Assesment Appeals Board July 30 – Last Day to advise owners of New Values August Aug. (late) – Sale Numbers Assigned for Delinquent Taxes September Sept. (Mid.) – Tax Rates Set October Oct. (Last week) – Tax Bills Mailes November Nov. 1 – First Installment Due
December 10 – April 10
1st Installment Delinquent
December Dec. 10 – First Installment Delinquent