Chapter 30: Escrow, the way to perform

When receiving instructions from an agent, the escrow officer prepares a _________ noting all the tasks they are to undertake to handle and close escrow. When drafting escrow instructions, the officer relies on the take sheet as a checklist to determine the contents of the instructions.

"take sheet"

What is a good faith deposit (aka earnest money)?

-Money deposit made by buyer - to evidence their good faith intent to buy -when making an offer to acquire property [See RPI Form 401 §1.1]

What are 2 types of escrow instructions used in California?

1.) bilateral; and 2.) unilateral instructions

Chapter 30 Key Terms (6):

1.) escrow 2.) escrow officer 3.) escrow instructions 4.) good faith deposit 5.) proration 6.) Statute of Frauds

All written escrow instructions signed by a buyer or seller are to include (2):

1.) escrow agent's name; and 2.) name of the California state agency issuing the license or granting the authority under which the escrow agent is operating.13 [See RPI Form 401]

Which individuals are exempt from the escrow licensing requirements (4)?

1.) licensed real estate broker, either individual or corporate, who represents a person in the real estate transaction in which the broker will be performing escrow services; 2.) licensed attorney who does not hold themselves out as an escrow agent; 3.) bank, trust company, or insurance company; and 4.) title insurance company whose principal business is preparing abstracts or making searches of title used for issuing title insurance policies.

Escrow is a process employed to facilitate the closing of a transfer of real estate interests by two parties. Escrow activity consists of (2):

1.) one person, such as a seller or buyer of real estate, delivering written documents or money to an escrow company for the purpose of fully performing their obligations owed another person under an agreement; and 2.) the escrow company delivering the documents and money to the other person on the occurrence of a specified event or the performance of prescribed conditions.

Escrow activity employed to close a real estate transaction consists of (2):

1.) one person, such as a seller or buyer of real estate, who delivers written documents or money, called instruments, to an escrow company for the purpose of fully performing their obligations owed another person under an agreement entered into before the escrow is opened for a sale, a mortgage origination or leasing of real estate; and 2.) the escrow company, who receives and delivers the documents and money to another person, such as the buyer, seller or third parties, on the occurrence of a specified event or the performance of prescribed conditions, such as the receipt of reports or the issuance of a title insurance policy.2

Items which the buyer takes over and are prorated include (4):

1.) property taxes 2.) interest on mortgages/bonds assumed 3.) rent; and 4.) service contracts assumed by buyer

The services rendered by the escrow officer typically include (4):

1.) receive funds & collecting necessary documents, such as property reports, disclosure statements and title reports called for in the escrow instructions [See RPI Form 401]; 2.) prepare documents necessary for conveyancing and mortgaging a property required for escrow to close; 3.) calculate prorations and adjustments; and 4.) disburse funds and transfer documents when all conditions for their release have been met

The services rendered by escrow agents typically include:

1.) receiving funds and gathering necessary documents, called instruments; 2.) preparing documents necessary for conveyancing and mortgaging a property required for escrow to close; 3.) calculating prorations and adjustments; and 4.) disbursing funds and transferring documents when all conditions for their release have been met.

A purchase agreement sets forth the (3):

1.) sales price 2.) terms of payment; and 3.) conditions to be met before closing [See RPI Form 150]

Chapter 30 Learning Objectives (6):

1.) understand steps escrow takes to facilitate the closing of a real estate sale 2.) distinguish various services rendered by escrow and duties of escrow officer 3.) appreciate how purchase agreement and escrow instructions work in tandem to create and close a transaction 4.) recognize how agents ensure the escrow instructions conform to purchase agreement and intent of buyer and seller 5.) calculate prorations and adjustments forbuyer and seller in a transaction 6.) advise on who has the right to receive the buyer's funds held in escrow when escrow fails to close

What are Statute of Frauds?

California state law requiring specific types of contracts to be in writing and signed by the person to be charged w/ performance before they will be enforceable by a court (Ex: purchase agreements & lease agreements for a term of > 1 year)

What is escrow?

Depository process employed to facilitate the gathering of instruments and funds for use to transfer real estate interests between two persons.

What are escrow instructions?

Directives an escrow officer undertakes, as given by buyer and seller, or lender and borrower to coordinate the closing on a purchase agreement or mortgage origination [See RPI Form 401]

_______ is a process employing an independent agent to manage and coordinate closing of real estate transaction - through exchange of documents & money btwn 2 parties (such as buyer & seller)

Escrow

Throughout most of California, escrow instructions used in real estate sales transactions are _______ in nature. As bilateral escrow instructions, they are entered into by both the buyer and seller. Each signs a copy of the same instructions and hands them to escrow. [See RPI Form 401]

bilateral

On the close of escrow, buyers and sellers receive a credit or a charge for their proportionate share of income or expenses involved in the ownership or operations of the property being conveyed, called _________

prorations

_______ are usually calculated based on the date escrow closes. However, they may be set based on any date agreed to by the buyer and seller. For calculating prorations based on the date of closing, the entire day of closing is the first day of the buyer's ownership, unless the escrow instructions specify otherwise.

prorations

Escrow activities are typically based on a primary agreement, such as a ___________

purchase agreement

Most modern real estate sales transactions depend on both the __________ and __________ working in tandem to close a transaction.

purchase agreement ; escrow instructions

An individual engaged in the business of acting as an escrow agent is called an ___________ The officer is employed by an escrow company and needs to be licensed. Likewise, the escrow company is licensed by the __________, unless exempt

escrow officer Department of Business Oversight (DBO)

Usually the dispute arises on the seller's claim they are entitled to the deposit under a ___________ provision in the purchase agreement. However, the seller is not entitled to any of the buyer's funds unless the seller has suffered out-of-pocket money losses due to a breach by the buyer.

forfeiture-of-deposit

Neither the buyer nor seller will be entitled to any penalty or statutory attorney's fees on resolution of a __________

good faith dispute

Release of deposited funds is not required if a legitimate __________ exists between the buyer and the seller over entitlement to the funds.

good faith dispute

Environmental Hazards and Annoyances, Part II (9:32) -Same as chapter 31

https://www.firsttuesday.us/course/6076.cfm

Environmental Hazards and Annoyances, Part I (8:38) -Same as chapter 31

https://www.firsttuesday.us/course/6309.cfm

Unless escrow receives mutual instructions to disburse the funds held in escrow when escrow fails to close, the escrow company deposits the funds with the court. This relieves escrow of any further responsibility to account for the funds, called an ________ Thus, escrow can close out its trust account on this escrow file.

interpleader

The specific duties of the escrow officer, outlined in the escrow instructions, vary according to?

local real estate custom

What happens if a dispute between buyer and seller arises over a point not addressed in the underlying purchase agreement or escrow instructions?

the agents need to mediate an agreeable solution.

A written and signed purchase agreement typically is the primary underlying document in a real estate sales transaction. All further agreements, including escrow instructions, need to comply with the primary document, unless?

the parties intend to modify the terms of that original agreement

A seller or buyer who wrongfully refuses to release the buyer's good faith escrow deposit is liable for a money penalty of three times the amount wrongfully withheld, called __________ Treble damages need to be >$100 but <$1,000, plus attorney's fees

treble damages

Escrow instructions which modify the intentions stated or implied in the purchase agreement need to be ___________ to escrow by both the buyer and seller. Proposed modifications signed by some but not all parties are not binding on a party who has not agreed to the modifications.

written, signed and returned

What is an escrow officer?

An individual licensed & employed as agent of an escrow company or other escrow service provider to perform escrow services

Finally, escrow has a duty to advise the buyer in writing of the ___________ requirements for withholding 3 1/3% of the price paid the seller, unless the seller certifies they are exempt from state income tax withholding.

Franchise Tax Board (FTB)

What is a proration?

Provisions entitling the seller to a credit for the portion of prepaid sums which have not accrued on obligations a buyer assumes on the day escrow closes, or entitling the buyer to a credit for amounts assumed which accrued unpaid through the day prior to the close of escrow. [See RPI Form 401 §10]

Both purchase agreement and escrow instructions are contracts regarding interests in real estate. Both documents are required to be in writing to be enforceable under the __________

Statute of Frauds

Here, the buyer and seller intend the escrow instructions to function as the binding contract documenting the sale. In this situation, in addition to providing closing instructions, the escrow instructions constitute a binding contract between the buyer and seller, satisfying the _________

Statute of Frauds

The good faith standard for an individual's refusal to release escrowed funds requires what?

a reasonable belief by the individual of their right to the funds.