ch9

what is a binding contract?

**binding contract** can appear in any legal form, including a deposit receipt, an agreement for sale, mutual escrow instructions of the buyer and the seller, or an exchange agreement

2 requirements for escrow license

1) financially solvent 2)furnish a surety bond in the amount of 25k or more based on yearly average trust fund obligations All officers, directors, trustees and employees have access to money or negotiable securities in the possession of the corporate licensee must furnish a bond of indemnification against losses

proration time period

30 days ***remember that the date used in figuring out the proration is based on the date the escrow closes*** This date is not the same as the possession date But any date can be used if all parties to the transaction agree

what must a broker specify in the advertisement when advertising that they conduct escrow?

A broker cannot advertise that he conducts escrows without specifying in the advertisement that such services are only in connection with the broker's real estate brokerage business

prohibited escrow activities

A licensed escrow agent may not pay fees to real estate brokers or others for referral of business -gifts or other things of value An escrow agent cannot disburse a real estate broker's commission prior to closing of the escrow Escrow licensees may not solicit or accept escrow instructions, or amended or supplemental instructions, containing any blank to be filled in after signing or initialing They may not permit any person to make any addition to, deletion from, or alteration of an escrow instruction unless it is signed or initialed by all persons who had signed the instructions As noted earlier, a real estate broker may not decide on an escrow holder as a condition of the transaction, but may suggest an escrow holder if requested to do so by the parties Note that civil code section 2995 prohibits any real estate developer from requiring, as a condition precedent to the transfer of real property containing a single family residential dwelling, that escrow services effecting such transfer be provided by an escrow entity in which the developer has a financial interest

escrow is a limited agency. what does this mean?

An escrow is a limited agency. Therefore the only obligations to be fulfilled by the escrow holder are those instructions given in regard to the specific transaction

who may see the escrow instructions?

As long as the instructions relate to mutual items in the transaction, then both principals and their agents in the transaction may see these instructions If the instructions are unilateral, then these may be only known to the involved party and his agent No one else, with the exception of the escrow holder, may view these confidential instructions

who/what DOESN'T need to obtain a special license to act as a escrow holder?

However, banks, title insurance companies, and attorneys do NOT NEED TO OBTAIN SPECIAL LICENSES TO ACT AS ESCROW HOLDERS

what happens if the escrow instructions contain terms in conflict with the original contract?

If the instructions contain terms in conflict with the original contract, then the escrow instructions, acting at the later contract, usually control

what is escrow?

NEUTRAL THIRD PARTY a mechanism for the finalization of real property transfers and other transactions a grant may be deposited by the grantor with a third person, to be delivered on the performance of a condition, and on delivery by the depository, it will take effect. while in the possession of the third person, and subject to condition, it is called an escrow AKA "A SMALL AND SHORT LIVED TRUST ARRANGEMENT"

explain the change in agency that happens once both parties sign and paperwork is handled

Once the escrow closes, the dual agency in which both parties (usually buyer and seller) are represented, changes to separate agency, in which each party's separate paperwork is handled

once the instructions have been signed by both parties to the escrow, can either party change those instructions?

Once the instructions have been signed by both parties to the escrow, neither party may unilaterally change those instructions However, if both parties agree to change the instructions at any time, the instructions may be so altered If one of the parties wishes to change the instructions in order to waive his performance of certain conditions, this is permitted by mutual agreement IF that waiver is not detrimental to the other party to the transaction If only one party has signed, that party may terminate the proposed escrow at any time prior to the other party's signing

when does an escrow become effective?

Properly drawn and executed escrow instructions become an enforceable contract. When all parties to the escrow have signed mutual (identically conforming) instructions, the escrow becomes effective Once all the terms of the instructions have been met, the escrow is termed complete

tax prorations in CA

Regarding tax prorations in california real estate, taxes are prorated either from july 1 at the beginning of the fiscal year or jan 1, which marks the middle of the fiscal year

when is the california fiscal year?

The fiscal year begins on july 1 and ends on june 30th

regulations for escrow holder

Under california regulations, the escrow holder must maintain an escrow account with extreme care This means maintaining records and files on a daily basis, providing excellent and efficient customer service, and ensuring that the account is overdrawn, since an overdrawn account is strictly forbidden The escrow holder must be sure that not a single procedure in maintaining such an account is overlooked The escrow holder should not accept any documents or funds that have not been addressed by the escrow instructions, unless specifically authorized to do so by the principals

escrow procedures step 6

accept fire insurance policies and complete settlement By accepting and delivering any fire insurance policy and transferring the insurance if so instructed by the parties Making all prorations (ex:: prop taxes and insurance) as instructed by the parties Completing the accounting (Settlement) details and informing the principals that escrow is ready to proceed

escrow procedures step 5

accept structural pest control report and other reports into escrow and obtain, as instructed, any necessary approvals from the parties in connection with the reports/inspections such as plumbing and roofing inspections

who pays escrow fees?

also negotiable between buyer and seller the payment of the fees varies depending on the geographical location within the state in some places the buyer or seller pays, in other areas, both parties share the costs

escrow procedures step 8

audit file

what must the escrow holder do before closing?

audit the file, accounting for all items to be handled, recorded and delivered, including cleared funds The escrow holder must not disburse any funds from an escrow account until all items such as checks, drafts, etc have cleared and so have become available for withdrawal This holding period may range from 1-10 days depending on the type and location of lender

what are the two forms of escrow instructions employed?

bilateral - binds both the buyer and seller unilateral - separate instructions of the buyer and seller

how do you pick an escrow company?

buyer and seller negotiate

escrow procedures step 10

close escrow After confirming recording, by: Preparing settlement statements for seller and buyer Disbursing all funds Delivering documents to the appropriate party or parties

through what 3 means can escrow be terminated?

completion mutual agreement to terminate court action

escrow instructions are ________

confidential

a broker may not use a ficiticious business name or a corporate name containing the word _____ or advertise in any other manner that would tend to misleading the public

escrow

in a real estate transaction, _______ is the process in which a neutral third party, for a fee, acts as the closing agent for the buyer and seller

escrow

who/what needs to obtain a special license to act as escrow holders?

escrow companies must be licensed by the state of CA

escrow holder is prohibited from...

escrow holder is prohibited from offering legal advice and must suggest that the disagreeing parties consult an attorney for legal matters If the disagreement is not a legal matter, but one involving the transaction itself, the parties real estate brokers should handle it Regardless of who handles a disagreement, the escrow holder is NEUTRAL and uninvolved third party--not a mediator or lawyer

where must the money deposited in escrow be placed?

in a trust account that is exempt from execution or attachment

what are escrow instructions?

instructions set forth the specifics of the delivery of the instruments and funds, which will occur once the conditions of the contract are performed as set forth in the contract escrow instructions contain mutuality and the understanding of the principals to the escrow

what does the escrow holder do?

makes sure that all parties to the transaction comply with the terms and conditions of the agreement as set forth in the escrow instructions -coordinate activités and professional services of the lender and title company -takes care of proper paperwork -handles the fund disbursement at the property sale closing/settlement

can either parties real estate agent pick an escrow company for them?

no If one of the agents in the transaction has financial interest in an escrow company, this fact must be disclosed to both buyer and seller prior to a final decision being made

is an escrow holder an individual? if not, what is it?

no it can be a corp, an attorney, or a real estate broker who acts as a real estate agent in the transaction

can a real estate broker conduct escrow?

no unless that broker is acting as a real estate agent or principal within that specific real estate transaction

can the cancellation of escrow cancel a purchase contract? which court case set the precedent for this?

no cohen v shearer (1980) -court of appeal decided that cancellation of an escrow by mutual agreements of both parties did no rescind the purchase contract between them A real estate broker seeking to carry out the principal's decision to cancel a contract of purchase or sale should be sure the other party to the contract agrees in writing to do precisely that , and not simply settle for written advice to cancel the escrow

escrow procedures step 2

order the preliminary title search and report

escrow procedures step 9

ordering recording By authorizing the title company to run the seller's title to date and record the necessary documents Provided no change has occurred in the seller's title since the issuance of the preliminary title report

escrow procedures step 1

prepare the escrow instructions -signatures of all parties

what must be included in the instructions for a home purchase?

purchase price agreements as to mortgages how buyer's title is to vest matters of record subject to which buyer is to acquire title inspection reports to be delivered into escrow proration adjustments the date of buyers possession of the prop the documents to be signed by the parties, delivered into escrow and recorded the disbursements to be made including costs, charges and who is to pay for them the date of closing

escrow procedures step 7

request closing dunds

escrow procedures step 4

request for a new loan instructions and documents if the buyer is obtaining new financing

escrow procedures step 3

request the lenders demand, including any amount owed and the pay off statement

north v south: signed escrow instruction delivery

south -bilateral escrow instructions are signed by the buyer and seller shortly after they've signed their purchase agreement, just after the start of escrow which is about 30-60 days before the actual close of escrow north -the escrow instructions are not usually signed until one or two days just before the close of escrow

north v south: escrow services

south -the escrow services are usually performed by independent escrow companies -while title insurances companies provide title services, the escrow companies do the actual closing of the sale north -the escrow services are usually performed by the title insurance companies that have extensive escrow departments and many branch offices

north v south: paying the escrow service fee

south -split 50-50 between buyer and seller north -paid by buyer

what happens if the time limit provided in the instructions runs out BEFORE termination or closing?

the escrow holder has no authority to enforce or accept performance after the time limit provided in the instructions This means that once the time limit provided in the instructions has expired and either party to the escrow has not performed in accordance with the terms of the escrow agreement, the parties may cancel escrow and are entitled to the return of their respective property and documents The escrow holder does not have authority to determine that a principal has not performed

what is an escrow holder?

the neutral third party holding onto funds

what is proration?

the process in which expenses, such as property taxes, interest, rent and or assessments are divided proportionately between the buyer and the seller This applies both to expenses that are prepaid by the seller, such as fire insurance, or that will be paid after closing by the buyer, such as property taxes

what are the two essential mandates for an escrow to be valid?

there must be a binding contract between buyer (grantee) and the seller (grantor) there must be the conditional delivery of transfer instruments and funds to a neutral third party

a real estate broker who conducts an escrow under the exemption must maintain all escrowed funds in a _______

trust account