Chapter 14: Escrow and Title Insurance

Preliminary Title Report CONTAINS:

-owner's name and property description, -outstanding assessments, covenants, conditions or restrictions and -recorded liens or encumbrances that must be removed before a loan can go through.

Escrow AGENTS

Attorneys, Banks, Brokers, Insurance companies, etc. The majority of escrows are handled by title insurance companies and independent escrow companies. The remaining are handled by Attorneys and Brokers.

Buyer's Side

Buyer Expenses -mortgage recording/credit/appraisal fees, - title/homeowner's insurance, -survey, -PMI Buyer Debits - contract sales price, -other expenses (loan origination/closing fee/recording fees). Buyer Credits - earnest money or deposit - loan amount.

Brokers as Escrow Agents

Cannot delegate any of the escrow duties to another person. Cannot advertise that he or she conducts escrows unless the broker specifies in the advertising that the escrows are in connection with the brokerage business. Prohibited from using fictitious names or corporation names that use the word "escrow." Must put aside any agency relationships with the parties involved and become a neutral depository.

Items not included in a standard CLTA policy

Defects known to the insured but not disclosed to the title insurer. Easements, encumbrances and liens not shown in the public record. Rights or claims of persons in physical possession of the property. Mining claims, water rights and zoning ordinances

Escrow Process

Document most often used is: -CAR's Residential Purchase Agreement and Joint Escrow Instructions. Select the escrow company Deliver the purchase contract to the escrow holder Open the escrow Complete all items outlined in the escrow instructions -Ordering inspection reports and the title search/insurance -Arranging financing and property insurance Close the escrow - the buyer completes financing arrangements, -the seller transfers the title -both the buyer and seller pay the necessary taxes, fees and other charges.

The title insurance company:

Examines all records pertaining to the property's recorded history. Reviews risks that might not appear in the public record. Helps the property owner correct any defects. Insures the property against economic loss.

Closing Disclosure, Page 3

If the lender has exceeded the estimate in the GFE category the lender has two choices: The lender can credit the buyer dollar for dollar for the overage, depending upon where the overage occurred. The lender has 30 days to rebate any dollar amount that exceeds the lenders quote for origination or the 10% tolerance limits for third party service.

RESPA details the costs that the buyer and seller will pay at closing:

Requires lenders to use the Closing Disclosure to detail the costs that the buyer and seller will pay at closing. Gives the buyer the right to review the completed settlement statement at least 3 days prior to closing. Prohibits any payment or receiving of fees or kickbacks when a service has not been rendered.

Seller's Side

Seller Expenses - broker commission, -title fees, -fees for preparing the deed Seller's Debits - loan balance, -unpaid items due from seller, -closing fees -document preparation. Seller's Credits - contract sales price - items paid for in advance.

Lenders requirements:

Within three days of receiving a loan application, a lender must give a copy of a HUD booklet called Settlement Costs and You to the applicant. Within three business days of receiving the application, the lender must give the applicant an estimate of the closing costs that would be expected in the transaction - Loan Estimate.

8 of 10 Which of the following statements is NOT true regarding a broker acting as an escrow agent? a A broker may advertise that he or she is an escrow agent. b A broker cannot use the word "escrow" in a fictitious name. c The broker must conduct the escrow personally and not delegate any escrow activities. d Written escrow instructions must include a statement with the broker's name, indicating he or she is a licensed real estate agent.

a A broker may advertise that he or she is an escrow agent. Brokers cannot advertise that they conduct escrows unless the ad specifies that the escrows are in connection with the brokerage business. The broker also may not use fictitious names that use the word escrow, may not delegate any escrow duties, must include a statement within escrow instructions with the broker's name and that he or she is a licensed real estate agent.

7 of 10 Which of the following is not an item that a buyer usually pays at closing? a Fee for clearing the title b Mortgage recording fee c Homeowner's insurance d ALTA policy

a Fee for clearing the title Buyer closing expenses typically include mortgage recording fees, title insurance, appraisal fees, credit fees, surveys, loan origination fees, homeowner's insurance, and PMI; but sellers pay the broker commission, title clearing fees, and deed preparation fees.

RESPA

applies to purchases of residential property; involving first or second mortgages; financed by a federally-related loan. RESPA does not apply to seller-financed loans.

3 of 10 Accepting referral fees: a Is common business practice. b Could be a violation of state licensing laws. c Is permissible if being accepted on behalf of a third party d Is permissible in amounts under $50.

b Could be a violation of state licensing laws.

6 of 10 Who is responsible for ordering the preliminary title report? a Buyer b Escrow officer c Seller d Real estate salesperson

b Escrow officer Part of the escrow process is to order a preliminary title report to determine the legal holder of the property's title. This step is performed by the escrow officer.

4 of 10 Which item is not covered by CLTA, ALTA or ALTA-R insurance policies? a Acts of minors b Mining claims c Forgeries d Federal estate tax liens

b Mining claims CLTA, ALTA, and ALTA-R are all title insurance policies, and no title insurance policy covers against defects known to the insured but not disclosed to the title insurer, mining claims, or government zoning regulations.

2 of 10 RESPA applies to all of the following EXCEPT which? a Condominium purchase b Seller-financed loan c Loan involving a second mortgage d Federally-insured loan

b Seller-financed loan RESPA applies to purchases of residential property of one-to-four dwellings, first or second mortgages, and loans that are federally insured. RESPA does not apply to seller-financed loans or loan assumptions.

Closing Disclosure

buyer will see the actual debits and credits for the purchase and know exactly how much money to bring to closing. The seller will know exactly how much he or she will receive at closing.

10 of 10 Proof of ownership of a property is called: a Marketable title b Abstract of title c Evidence of title d Title commitment

c Evidence of title

9 of 10 Which statement is not true about opening escrows? a The escrow holder will need information about the broker's commission. b The escrow holder will use the purchase agreement as the basis for writing the escrow instructions. c The buyer's and seller's agents will sign the escrow instructions. d Once escrow instructions are signed, changes can only be made with the written agreement of all parties.

c The buyer's and seller's agents will sign the escrow instructions. Opening escrows includes obtaining information including the broker's commission, using the purchase agreement to compile escrow instructions, obtaining the buyer and seller's signatures, and making no changes without written agreement of all parties.

1 of 10 Which of these individuals could not act as an escrow agent without an escrow license? a Attorney b Banker c Broker d Real estate salesperson

d Real estate salesperson Attorneys, banks, brokers, insurance companies, title companies, trust companies, and savings and loan associations can all act as escrow agents without being licensed as such. Real estate salespersons are not brokers.

5 of 10 RESPA gives the buyer the right to review the completed closing disclosure how long before closing? a Two calendar days b One business week c One calendar week d Three days

d Three days

No title insurance policy protects against...

defects known to the insured but not disclosed to the title insurer or Government zoning regulations.

Insurance for the BUYER...

ensures a clear title and protects his or her investment.

Prorating Items

expenses paid at closing must be prorated or divided proportionately between the buyer and the seller - Taxes, Insurance, Mortgage interest and Utilities. For items paid in advance, the buyer will receive a debit and the seller will receive a credit. Other items are those expenses that the seller incurred but have not yet been billed for at the time of closing - paid in arrears.

American Land Title Association (ALTA)

extended coverage policy that insures against many of the items excluded in the CLTA standard policy. This policy gives coverage to the lender, not the buyer. Includes a survey or physical inspection of the property.

ALTA-R doesn't provide...

extended coverage policy. Title insurance companies recommend it to owners of one-to-four unit, owner-occupied residences. Does not include a survey. CAR's purchase agreement form lists the ALTA-R policy as the preferred title policy choice for residential properties.

California Land Title Association (CLTA)

may be issued to a lender only, a buyer only or jointly to lender and buyer (joint-protection standard coverage policy). The buyer and seller negotiate who pays for the CLTA policy. Covers items of record as well as some risks that are not of record, such as: -Forgeries or acts of minors and incompetents. -Federal estate tax liens and -Failure of delivery of a prior deed.

debit

money that the buyer or seller needs to pay at closing.

credit

money that the buyer or seller receives at closing, either because it was already paid, it's being reimbursed or there is a promise to pay.

Escrow

process in which a disinterested third party holds all money and documents relating to a transaction until all of the terms and conditions of the escrow instructions have been satisfied. The buyers and the sellers are the persons who decide what the escrow instructions will be. The purchase contract itself serves as the basis for the escrow instructions.

Insurance for the LENDER...

protects the lender's interest in the property.

Title Insurance

seller is required to deliver a marketable title at closing. A marketable title is so free of defects that the buyer is certain he or she will not have to defend the title. The seller must have Evidence of title - proof of ownership of the property. Title insurance is paid for one time, when the property passes from one owner to another. It stays in effect until the property sells again.

RESPA permits...

sharing commissions and the payment of referral fees among cooperating brokers or multiple-listing services. The office may charge a fee for the service as long as only the borrower pays the fee.

Preliminary Title Report

shows the condition of the title before the loan or sale transaction.

Referral fees are...

strictly forbidden for title search/insurance, inspection, survey, appraisal, loan, etc.

Settlement Charges

the closing requires that both the buyer and the seller pay certain fees and expenses to settle the transaction.

Title insurance insures...

the lender (and the property owner for an additional fee)

The escrow agent will subtract...

total of the buyer's credits from the total debits and the result will be what the buyer needs to bring to closing.