RE174 Ch 14 Escrow and Title Insurance

Title Insurance Companies: A new title insurance company in California must have at least blank paid-in capital and show a surplus of at least $500,000.

$500,000

Prohibitions: Licensed escrows are prohibited from:

1. Paying referral fees to anyone except for the normal employee compensation 2. Accepting escrow instructions or amendments containing any blanks to be filled in after the signing or initialing of the instructions 3. Turning over buyer funds to the seller without buyer authorization or before the seller has conveyed title, some of the creative financing arrangements with extremely long escrows providing for funds to be turned over to the seller before the close of escrow can be dangerous because intervening liens could attach to the property; and 4. Permitting any party to unilaterally change or amend signed instructions

Prohibitions on Broker/Escrow: While a real estate broker can act as an escrow agent in transactions where the broker represented the buyer, represented the seller, or acted as a principal to the transactions, the real estate commissioner's regulations prohibits the following acts by a broker/escrow. The following acts are considered to be grounds for disciplinary action:

1. Soliciting or accepting an escrow instruction or amendment containing blanks to be filled in after signing or initialing. 2. Permitting any person to make an addition, a deletion, or an alteration to escrow instructions or amendments unless signed or initialed by all the parties to the escrow instructions. 3. Failing to provide a copy, at the time of signing, to people executing escrow instructions or amendments 4. Failing to maintain books, records, and accounts in accordance with accepted principles of accounting and good business practice. 5. Failing to maintain all records relating to escrows freely accessible for audits, inspections, and examination by the commissioner. 7. Failing to deposit all money received, as an escrow account on or before the close of the next full working day after receipt thereof. 8. Withdrawing or paying out any money deposited in such trust account or escrow account without the written instructions of the party or parties paying the money into escrow. 9. Failing to advise all parties, in writing, that any licensee, acting as such in the transaction, has any interest in the escrow agency , stockholder, partner, officer, owner, etc., prohibits a broker from having any undisclosed interest in the escrow. 10. Failing to provide a written closing statement to the principals showing all receipts and disbursements and to whom they were made.

Escrows must be licensed by the commissioner of corporations. Exempt from the licensing requirements of the escrow law are:

1. banks and savings associations 2. title insurance companies 3. Attorneys, attorneys essentially are unregulated unless they operate an escrow company; however, they must have had a bona fide client relationship with one of the parties; and 4. real estate brokers. This exemption applies only to transactions where the broker was either a principal or the listing selling agent.

4. Which of the following is exempt from the licensing requirements of the escrow law?

1. commercial banks - banks and savings associations 2. title insurance companies 3. Real estate broker where the broker was either a principal or the listing or selling agent, or buyer. 4. Attorneys - attorneys essentially are unregulated unless they operate an escrow company- however, they must have had a bona fide client relationship with one of the parties. All of the above

Standard policy exclusions Not covered by a homeowner standard policy of title insurance are:

1. defects known by the insured and not disclosed to the title insurer; 2. zoning , a special endorsement is available stating that property currently is zoned properly or that a current use is authorized by the zoning; 3. mining claims, these are filed in mining districts, and legal descriptions are not required. 4. taxes and assessments that are not yet liens' 5. easements and liens not a matter of public record, such as a mechanic's lien rights. 6. rights of parties in possession, unrecorded deeds, options, leases, etc. and matters that would be disclosed by making inquiry of people on the property. 7. matters not of record that would be disclosed by checking the property, such as encroachment; 8. matters that would be revealed by a correct survey 9. water rights; and 10. reservations in government patents.

Lender-Extended Coverage Exclusions: Extended-coverage policies do not cover:

1. matters known by the insured but not conveyed to the insured 2. government regulations such as zoning 3. liens placed by the insured 4. eminent domain 5. violations of the map act, or 6. the physical condition of the property

Escrow duties might include:

1. ordering preliminary title reports 2. accepting structural pest control reports and other reports as required by escrow for delivery to the buyer. 3. obtaining beneficiary statements on existing loans so balances can be ascertained, as well as the actual payoff amount - demand statement. 4. Accepting instructions for new loans and obtaining the buyer's signature to satisfy the lender; 5. Ascertaining amounts in impound accounts 6. Arranging for the transfer of insurance; 7. Drafting grant deeds, trust deeds, notes, etc.; 8. Preparing closing statements showing all receipts, expenditures, costs and prorations; 9. Requesting all documents, disbursing funds, and issuing closing statements; and 10. Reporting the sale to IRS on form 1099-S

The Division of Corporations has interpreted Section 17006 -d of the Financial Code, broker's exemption, as follows:

1. the exemption is available only to the real estate broker 2. the exemption is personal to the broker and cannot be delegated to others, other than ministerial functions. 3. In a purchase and sale agreement, the broker must be either a party to the transaction or the listing or selling broker. 4. The exemption is not available for any association of brokers for the purpose of conducting escrows. 5. The broker escrow function must only be an ancillary part of the broker's business. 6. When the broker's escrow business is a substantial factor in the utilization of the broker's services, the broker may not delegate or contract out any services that may be provided pursuant to the exemption. This apparently covers the ministerial functions.

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

1. unrecorded liens 2. off-record easements 3. rights of parties in physical possession, including tenants and buyers under unrecorded instruments; 4. rights and claims that a correct survey or physical inspection of the land would show; 5. mining claims 6. reservations in patents; 7. water rights; and 8. lack of access

Homeowner Standard Coverage Policy, California Land Title Association - CLTA

The homeowner standard policy of title insurance covers matters of record not specifically excluded from coverage, as well as matters not of record such as: 1. Forger 2. lack of capacity of a grantor 3. undisclosed spousal interest, a grantor who claimed to have been single could have a spouse with community property interests. 4. FAILURE OF DELIVERY OF A PRIOR DEED 5. federal estate tax liens 6. deeds of a corporation whose charter has expired and 7. deeds of an agent whose capacity has terminated

15. Which of the following is CORRECT regarding an extended-coverage policy?

The lender's policy provides coverage only until the loan is paid. It actually offers decreasing coverage each year. Unrecorded liens are covered.

While an escrow has duties to parties to the escrow, it has no duties to other parties. True or False

True

7. A homeowner's standard policy of title insurance covers all EXCEPT a. a mining clause b. a lack of capacity c. forgery d. undisclosed spousal interest

a. a mining clause

9. Escrow licensing is NOT required for a. any of the above. b. banks. c. title insurance companies d. real estate brokers as to their own transactions

a. any of the above for escrow licensing is not required for

4. As escrow fails to close. Both the buyer and seller demand the purchase deposit be turned over to them. The escrow holder should a. commence with an interpleader action (yes) b.

a. commence with an interpleader action

2. lender extended coverage policies of title insurance cover all EXCEPT a. physical condition of the property b. off recod easements c. water rights d. forgery

a. physical condition of the property is not covered

8. A broker handling an escrow is subject to disciplinary action if a. the broker fails to provide a written closing statement. b. there is a charge for the escrow. c. the escrow is conducted on the broker's premises d. the broker does not personally handle the escrow

a. the broker fails to provide a written closing statement

A real estate broker can open an escrow department for their office, but CANNOT

a. use a name for the escrow company containing the word "escrow". b. advertise in a manner that would tend to be misleading to the public. c. advertise that he/she conducts escrows outside of their real estate brokerage business. d. all of the above

11. A history of title showing every recorded document is called an

abstract of title.

IMPORTANT: In a purchase or exchange of real property, it may be advisable to obtain title insurance in connection with the close of escrow because there may be prior recorded liens and encumbrances, which affect your interest in the property being acquired. A new policy of title insurance should be obtained in order to ensure your interest in the property you are blank.

acquiring.

Individuals cannot be licensed as escrows. Escrows must be corporations. Applicants for escrow licenses must furnish a $25,000 surety bond, and all directors, trustees, and employees of an escrow who have access to money or valuable securities must have a $125,000 fidelity bond. All money deposited in escrow must be placed in a trust account that is exempt from execution or attachment for any claim against the escrow blank.

agent.

10. Who pays for the escrow services is determined by

agreement between buyer and seller. parties to the escrow.

Escrow charges and prorating: Who pays for the escrow services is determined by agreement of the parties of the escrow , buyers and sellers. Normally escrow charges are split between the parties. Title insurance costs are paid by the buyer or the seller according to their agreement. Taxes, insurance, interest, rents, etc. are prorated, with the seller usually responsible up to and including the day of closing and the buyer usually responsible after the date of closing. Proration is usually based on a 360 day year and a 30 day month. Parties may, however, make other payment or prorating blank.

agreements.

17. Escrows must be licensed by the commissioner of corporations, with the exception of a. banks b. title insurance companies c. attorneys d. all of the above

all of the above. Escrows must be licensed by the commissioner of corporations, with the exception of banks and savings associations, title insurance companies, attorneys, and real estate brokers. Real estate brokers can serve as escrows on transactions in which they represented either the buyer or the seller, or were a principal.

Because escrows customarily provide for time being "of the essence," failure to complete an escrow on time will terminate the escrow. The parties then will have to agree to blank the escrow instructions if they want to continue.

amend . In practice, however, most of escrow instructions provide that they will continue unless canceled by either party. Nevertheless, a person whose failure to perform was the reason for a delay cannot use the delay as the basis for terminating the escrow.

If the escrow instructions say purchase agreement governs so be it, if the escrow instructions and a later amendment by the parties are in conflict, the later blank will govern.

amendment

A change in escrow instructions is known as an

amendment. Any changes in the escrow instructions are called "amendments" and should be signed by both buyer and seller.

6. It is a history of conveyances and encumbrances concerning a property. It is

an abstract

5. The following is TRUE as to escrow instructions. a. they are independent of the purchase agreement b. all of the above are true c. if different from purchase agreement, the escrow will prevail d. changes to escrow must be signed by the buyer and seller

b. all of the above are true for escrow instructions

The parties normally agree that title passes when the deed is recorded, or on a particular date. In the absence of such agreement, the title could pass when all conditions are met. The risk of loss, therefore, could be on a buyer before the buyer realizes title has transferred. The buyer's insurance usually will not take effect until the close of escrow, so a buyer who takes possession or title blank the close of escrow will need to obtain earlier insurance coverage.

before

Title insurance companies must set apart annually, as a title insurance surplus fund, a sum equal to 10% of premiums collected during the year until this fund equals the lesser of 25% of the paid-in capital of the company, or $1 million. This fund offers further security to the holders and blank of title insurance policies.

beneficiaries

If only one party has signed the escrow instructions, that party can terminate the escrow before the other party's signing and forming a blank agreement.

bilateral. However, the person terminating the escrow still could be liable under the purchase contract.

10. A property is destroyed before escrow closes. Risk of loss would be a. with the seller if possession had not passed and the loss was not due to the fault of the purchaser b. with the buyer if either possession or title has passed and not the fault of the seller. c. with the escrow holder if not the fault of hte buyer or seller. d. both a and b are correct

both a and b are correct risk of loss would be

The title insurance company, may, however, furnish the names of owners of record and the legal description of parcels of real estate without blank.

charge.

Preliminary Title Report: After deciding that it will issue title insurance, the title company issues a preliminary title report, which indicates exceptions to its coverage. The preliminary title report is not insurance. A separate fee is charged for the title insurance policy, which is usually issued at blank of escrow.

close

3. an escrow may change the instructions if a. the seller requests the changes b. authorized by the broker c. the party who gave the deposit request the changes. d. is directed in writing to do so by both parties to the escrow.

d. is directed in writing to do so by both parties to the escrow

If the escrow agent dies, the parties select a substitute agent. After escrow instructions have been signed, escrow will not be terminated by the blank of either the buyer or the seller. The escrow, unless agreed otherwise, will be binding on the estate of the deceased principal.

death

A real estate developer is prohibited from requiring, as a condition precedent for a sale of a single-family dwelling, that escrow be provided by an escrow entity in which the blank has a financial interest.

developer

The abstractor is liable only for negligence in failing to report a recorded document, and the attorney is liable only for failing to blank problems that were evident in the abstract.

discover

Title Insurance: An abstract of title is a history of title showing every recorded blank.

document. Lawyers give opinions of the marketability of titles based on the abstracts. This method is still used in some states.

ESCROW AGENTS: The designation of the escrow holder is the responsibility of the buyer and the seller. Normally, the buyer designates the escrow holder in the offer; the seller, by the seller's acceptance, has agreed to the blank.

escrow.

The rebate prohibition extends to any title business, including blank.

escrows. It is a criminal offense for an employee of a title company or controlled escrow company to pay a commission to a real estate licensee as an inducement for placement or referral of title business.

figure 14.2 simplifies title insurance coverage: STANDARD COVERAGE: 1. Defects found in public records 2. Forged Documents 3. Incompetent Grantors 4. Incorrect marital statements 5. Improperly delivered deeds LENDER EXTENDED COVERAGE: 1. Standard coverage plus defects discoverable through: 1. Property Inspection, including unrecorded rights of people in possession. 2. Examination of survey; and 3. Unrecorded liens not known of by policyholder NOT COVERED BY EITHER POLICY: 1. Defects and liens listed in policy 2. Defects known to buyer 3. Changes in land use brought about by zoning ordinances

figure 14.2 Owner's Title Insurance Policy

9. If a dispute arises during an escrow and both buyer and seller make demands on the buyer's deposit, the escrow should

file an interpleader action.

Because the relation-back doctrine is equitable, it does not apply to 3rd parties who obtain interest without the knowledge of the escrow agent or of the blank interest.

grantee's

The need for greater protection led to title blank.

insurance. In California, title insurance is used to prove marketable title. For a single premium, title insurance companies insure a purchaser as to the marketability of title. Title insurance is a contract to indemnify the insured against loss through defects in the title or against liens and encumbrances that may affect the title at the time the policy is issued.

While title insurance also covers the executor, administrator, and heirs of the insured, it does not directly cover other successors in blank.

interest.

According to Section 12340.11 of the Insurance Code, preliminary title reports are offers to issue a title policy subject to stated conditions. The reports are not abstracts, nor are there any rights, duties, or responsibilities applicable to the issuance of the preliminary report. The report will not be construed as, or constitute a representation of, the condition of title, but will constitute a statement of the terms and conditions on which the blank is willing to issue its title policy, if such offer is accepted.

issuer

Buyer's deposit: When an escrow is terminated, the escrow agent ordinarily requests that the parties sign a termination or cancellation agreement that specifies how to dispose of funds being held. Returning funds to the buyer, or paying funds to the seller as blank damages, could subject the escrow h older to liability should the court later determine the action to have been improper.

liquidated

Marketability of Title is not the same as

market value. If land is contaminated an ALTA title policy does not help, nor does a CLTA. encumbrances are defined as 'taxes, assessments, and all liens upon real property.' an order to clean up property is not a lien unless recorded.

Termination of Escrow: Full performance, by completion of escrow, terminates the escrow. Escrows also can be terminated by the blank agreement of both the buyer and the seller. In addition, impossibility of performance will terminate an escrow.

mutual

In Southern California, the seller pays for the standard policy of title insurance, while in a number of blank areas, the buyer pays it.

northern

Lender Extended Coverage Policy: The lender's policy provides coverage only until the loan is blank.

paid. It actually offers decreasing coverage each year.

1. Title insurance companies may not

pay a referral fee to a real estate licensee

Doctrine of Relation Back: Title does not pass until escrow conditions have been blank.

performed. Before title being passed, the property could acquire liens. If a lien is acquired during this period by a party who had knowledge or notice of the escrow or of the rights of the grantee, the buyer's rights relate back to the delivery of the deed to the escrow, to defeat these intervening liens.

Possession and Risk of Loss: Unless agreed otherwise, the seller retains blank until the close of escrow. If property is destroyed or seriously damaged after a purchase contract is entered into, the Uniform Vendor and Purchaser Risk Act provides the following, unless otherwise agreed:

possession; 1. If neither title or possession has passed to the purchaser and damage is without fault of the purchaser, then the purchaser is entitled to recover all monies paid. 2. If either possession or title has been transferred to the purchaser and damage or destruction was without fault of the seller, then the purchaser is not relieved of contractual obligations. Any expenses incurred for the property are the seller's responsibility until the close of escrow. Rents and other income also accrue to the seller until the close of escrow. However, rents paid in advance normally are prorated at closing.

13. Before issuing a title insurance policy, the title company will indicate exceptions to its coverage by issuing a

preliminary title report. After deciding that it will issue title insurance, the title company issues a preliminary title report, which indicates exceptions to its coverage.

Escrow instructions are actually independent of any purchase agreement between the parties. If a difference exists between the instructions and the purchase agreement, the escrow instructions generally will blank because, signed at a later date, they more clearly show the final agreement of the parties.

prevail

A broker may act as an escrow on transactions where the broker acted as a/an

principal to the transaction, agent of the buyer, or agent of the seller.

The California Dept of Insurance has indicated that providing a broker with a "Comparative Market Analysis" is a blank inducement.

prohibited

14. Which of the following is NOT covered under a standard policy of title insurance?

rights of parties in possession. A standard policy does NOT cover rights of parties in possession, unrecorded deeds, options, leases, etc., and matters that would be disclosed by making inquiry of persons on the property.

The buyer generally assumes the risk of loss of the deposit through embezzlement by the escrow or bank failure. If, however, the loss results from a delay in closing caused by the seller's act or negligence, the seller bears the blank of loss.

risk

Money deposited by the buyer into escrow is given conditionally because it is to be paid to the blank only when title is transferred.

seller

8. Who would normally be responsible for any material damage to the property by fire or vandalism before close of escrow?

seller. Unless agreed otherwise, the seller retains possession until the close of escrow and thus retains responsibility for damage.

If the grantor dies after the deed is given to escrow, the delivery date of the deed relates back to the date it was given to escrow. Because the date preceded the grantor's death, there is no need to probate court approval. If the deed were not delivered to escrow, the grantee could bring an action for blank performance against the seller's heirs.

specific

Unless the purchase contract is blank along with an escrow, unilateral cancellation of escrow will not cancel the rights and obligations of the parties.

terminated . Specific performance or damages still might be possible based on the purchase contract.

Within one month of closing, brokers must inform the buyer and the seller of the final selling price. In actual practice this is usually not necessary because

the escrow provides this information in the closing statement.

12. A microfilm or computer system showing every document that has been recorded within the county is called a

title plant. Title insurance companies use a title plant that is a microfilm or computer system showing every document that has been recorded within the county.

Any records search the title insurer performs is for its own protection in deciding if it wants to take the risk of insuring blank.

title.

16. An extended coverage policy of title insurance covers all of the following EXCEPT a. defects covered by a standard policy b. zoning restrictions c. forged docs d. defects that would be revealed by a survey

zoning restrictions. An ALTA extended-coverage policy of title insurance does NOT cover government regulations such as zoning restrictions.