CA Real Estate Law Chapter 14

Lender Extended Coverage Policy

- ALTA policy developed to meet lender needs for protection - the extended coverage policy of title ins allowed assignment bc loans are frequently transferred between lenders - lender's policy provides coverage only until loan is paid off and offers decreasing coverage each year

Homeowners Extended Coverage Policies

- CA Land Title Association - CLTA and American Land Title Assoc. ALTA offers extended coverage title policies - LIMITATIONS: building permit violations, restrictive covenant violations, postpolicy forgery and adverse possession, access, postpolicy encroachment and prescriptive rights, map inconsistencies, living trust coverage, structure damage from mineral extraction by others

Homeowner Standard Policy Coverage CLTA

- California Land Title Association - COVERS matters of record not specifically excluded from coverage and matters NOT OF RECORD including: forgery, lack of capacity, spousal interest, failure of delivery of prior deed, fed estate tax liens, deeds of corporation, deeds of an agent whose capacity has terminated --EXCLUSIONS: defects known by insured and not disclosed to title insurer, zoning, mining claims, taxes/assessments not yet liens, easements/liens not matter of pub. record, rights of parties in possession, matters not of record, encroachment, matters revealed by a survey, water rights, reservations in govt patents

Escrow Instructions Southern/Northern CA

- Southern CA - buyer and seller sign escrow instructions ^^ escrow inst. signed upon opening escrow - Northern CA - escrow instructions are separate docs signed separately by buyer and seller ^^ escrow inst. given at open of escrow - signed at closing - escrow inst. aren't effective until both buyer and seller have signed identical/conforming escrow instructions

Title Insurance

- Southern CA - seller pays for standard policy of title insurance - Northern CA - buyer pays for policy of title insurance

Elder Abuse Law

- Welfare/Institutions Code - Elder Abuse Law - escrow holders, realty agents, others must report elder financial abuse, fraud, or undue influence

Abstract of Title

- a history of title showing every recorded document - lawyers give opinions of marketability of titles based on abstracts - they do not show hidden items -- ie capacity of grantor, forged or altered document in chain of title, unknown spousal interest ... - abstractor is only liable for failing to report a recorded document and attorney is liable for failing to discover problems that were evident in the abstract

Escrows in which there isn't a policy of title insurance purchased ..

- a statement outlining the importance of a policy is issued and signed by the buyer

Preliminary Title Report

- after deciding to issue title insurance -- the title comp issues a prelim. report indicating exceptions to the coverage - it is not insurance - a separate fee is charged for the title insurance policy at the close of escrow - prelim reports are offers to issue title policy subject to stated conditions -- it isn't an abstract and there are no rights, duties, responsibilities applicable to the issuance of the prelim report - the report doesn't represent the condition of title but will constitute a statement of the terms and conditions on which the issuer is willing to issue the title policy

Escrow Agents

- designation is responsibility of buyer and seller - usually the buyer designates the escrow holder in the offer and the seller accepts by accepting the offer

Disclosure

- escrow agent has duty to both parties to keep escrow matters confidential

Conflict Between Purchase Agreements/Escrow Instructions

- escrow inst are independent of any purchase agreement between the parties - difference exists between instructions and purchase agreement ->> escrow inst. prevail bc they are signed at a later date and show more clearly the final agreement

Buyer's Deposit

- escrow terminated -- escrow agent requests that parties sign a termination/cancellation agreement that specifies how to dispose of funds being held - escrow involving 1-4 residential units - buyer indicated intention to occupy a unit -- penalty for wrongful refusal of a party to execute documents required by escrow holder to release funds --- aggrieved party entitled to amt of funds deposited in escrow, treble the amt of escrow funds, attorney fees - INTERPLEADER ACTION - if both buyer and seller claim a deposit when escrow is terminated - the escrow agent should file this asking courts to determine who has the valid claim - money deposited by the buyer into escrow is given conditionally and is to be paid to the seller only when title is transferred - deposit remains the property of the buyer until closing - personal check deposit -- escrow agent should wait till check clears before conveying title

Special Policies

- example - construction lender policies, vendee policies for purchasers under real property sales contracts, leasehold loan policies, leasehold owners' policies, oil and gas interest policies - endorsements can be obtained for special addtl coverage or exclusion from coverage

Termination of Escrow

- full performance by completion of escrow terminates escrow - terminated by mutual agreement of buyer and seller - impossibility of performance terminates escrow - only one party has signed the escrow instructions -- that party can terminate the escrow prior to the other signing ^^ could still be liable under purchase agreement - TIME IS OF THE ESSENCE - when completing Escrow - Escrow Agent Dies -- parties select a substitute agent

Escrows

- in CA the closing process is done by using an independent depository to handle the closing process - escrows are neutral third party depositories that are limited in authority to the instructions given by principals - Escrow = the process - Escrow agent = individual holder of the funds - usually an employee of the escrow company - not an arbitrator or mediator - they are a dual agent - essential element of an escrow -- irrevocability of the deposit of the deed and the purchase money

Title Insurance Importance

- in CA title insurance is used to prove marketable title - title ins. companies insure a purchaser as to the marketability of title - is a contract to idemnify the insured against loss through defects in the title or against liens and encumberances that may affect the title at the time the policy is issued - title insurance covers executor, administrator, and heirs of the insured -- it doesn't cover the successors in interest - NEW BUYER - must obtain their own insurance protection - Title Ins offers idemnification against loss up to the amt of coverage purchased - title ins. company is obligated to defend the title in legal action, cure defects and pay for the loss up to policy limits - TITLE PLANT - prior to issuing ins policy - title company will search records to determine if it will write a policy -- TITLE PLANT is a microfilm/computer system showing every document that has been recorded w/in the county - title insurer has no duty to ascertain if the title is good -- it decides whether to take and insure the risk of insuring ittle - CA insurance Commissioner regulates CA title insurance companies

Closing

- in other states settlements are conferences with all the parties and documents are signed, money paid at these events

Lender Extended Coverage Exclusions

- matters known by the insured but not conveyed to insurer - govt regulations - zoning - liens placed by insured - eminent domain - violations of the map act - physical condition of the property

Mobilehome Escrows

- money deposited into escrow acct involving a sale/lease of mobile home and escrow receives written notice from a party in dispute -- the escrow must inform the parties of their right to submit a written request that the escrow hold the funds pending resolution of the problem

Escrow Agent Licensing

- must be licensed by the commissioner of corporations - Exempt -- Banks/Savings Associations, Attorneys, RE brokers in course of business, Title Insurance Comp. - individuals cannot be licensed as escrow - must be Corporations

Escrow Instructions Include...

- names of purchasers and sellers - how title it to be taken - terms - contingencies - date of closing and possession - prorations - docs to be delivered and disbursements to be made - authority to accept docs and funds - costs and charges - disgnation of title insurance company - items of personal property to be included

Dept of Corp Financial Code - BROKERS EXEMPTION

- only available to the RE broker - exemption is personal to the broker and cannot be delegated to others - purchase/sales agreement - the broker must be a party to the transaction or the listing/selling broker - exemption isn't available for any association of brokers - broker escrow function must only be an ancillary part of the broker's business - broker's cannot contract out or delegate any services that may be provided pursuant to the exemption - broker's cannot advertise that the conduct escrows w/o saying it is in connection w/ the RE broker business - broker cannot use a fictitious name that includes escrow or advertise in any manner that would be misleading - broker who acts as an escrow >> puts aside agency relationship with buyer/seller and any special interests - broker must maintain the position of being neutral

Escrow Duties

- ordering preliminary title reports, pest control reports - obtaining beneficiary statements on existing loans and payoff amt - DEMAND STATEMENT - instructions for new loans and buyer's signature - ascertaining amts in impound accts - arranging transfer of insurance - deeds of reconveyance - drafting grant deeds, trust deeds etc - preparing closing statements - requesting necessary funds - recording all documents, disbursing funds, issuing closing statements - reporting sale to IRS 1099-S

Title Insurance Costs

- paid by the buyer or seller according to their agreement

Licensed Escrow Agents are Prohibited from ..

- paying referral fees to anyone - accepting escrow instructions/amendments containing any blanks to be filled in after signing - turning over buyer funds to the seller w/o buyer authorization or until seller conveys title - permitting any party to unilateraly change/amend the signed instructions

Taxes, Insurance, Interest, Rents

- prorated with the seller responsible up to and including the day of closing and the buyer responsible after the date of closing - based on a 360 day year and a 30 day month

Escrow Instructions

- should be clear and unambiguous - signed escrow inst can meet the requirements of statute of frauds and form the contract for sale - AMENDMENTS to the escrow instructions should be signed by both seller/buyer

Prohibitions on Broker/Escrow

- soliciting/accepting an escrow instruction or amendment containing blanks to be filled in after signing/initialing - permitting anyone to make an addition/deletion to escrow inst. unless signed by all parties - failing to provide a copy at time of signing escrow docs - failing to maintain books/records in accordance to good accounting and relating to escrows - failing to deposit all money received - withdrawing or paying out any money deposited w/o written instructions of the party - failing to advise all parties of any undisclosed interest in the escrow - failing to provide written closing statement

Doctrine of Relation Back

- title doesn't pass until escrow conditions have been performed - prior to title passing -- property could acquire liens - new lien acquired by a party who had knowledge or notice of the escrow or the rights of the grantee -- they buyer's rights relate back to the delivery of the deed to the escrow - to defeat the INTERVENING LIENS - if grantor dies after deed is given to escrow - the delivery date of the deed relates back to the date it was given to escrow -- bc the date preceeded the grantor's death ther eis no need for probate court approval - if the deed were not delivered to escrow -- the grantee could bring action for specific performance against the seller's heirs - the RELATION BACK DOCTRINE - is equitable -- it does not apply to third parties who obtain interest w/o knowledge of the escrow agent or the grantee's interest

Rebate Law

- title insurance comps in CA must charge for services and make effort to collect those charges - the rebate law prohibits direct/indirect payments by a title insurer to principals in a transaction as a consideration for business - including escrows -- its a criminal offense for title ins comp/escrow comp to pay a commission to a RE licensee for referrals of title business

Possession and Risk of Loss

- unless agreed otherwise - seller retains possession until close of escrow - if prop is destroyed or damaged after a purchase contract is entered into - Uniform Vendor and Purchaser Risk Act provides for the following ... --- neither title/possession has passed to purchaser -- damage/destruction is w/o fault of the purchaser -- the purchaser is entitled to recover all money paid --- possession or title has been transferred to purchaser and damage/destruction was w/o fault of seller -- the purchaser is not relieved of contractual obligations - During Escrow -- legal title remains w/ seller - escrow holder has the deed - buyer has equitable title when all money and docs have been deposited into escrow - title passes when deed is recorded

In addition to the coverages by the standard policy, an ALTA extended coverage policy of title insurance includes:

- unrecorded liens - off- record easements - rights of parties in physical possession - tenants - rights and claims that a correct survey/physical inspection of the land would show - mining claims - reservations in patents - water rights - lack of access

Escrow Charges

- who pays for escrow is by agreement of the parties - normally split between the parties