What is an escrow?
An escrow is simply the method used to process the paperwork
and account for the funds in a real estate transaction, whether
it is the sale and purchase of a home or land or the refinancing
of your existing home.
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What is an escrow company?
An escrow company is a neutral third party who manages
and processes the paperwork, holds the funds, and ensures that the
terms of the contract or agreement to sell and purchase or refinance
are met.
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Does the escrow company and escrow officer represent
the buyer or the seller?
Neither. The escrow company and escrow officer are neutral
third parties who assist in the processing of the transaction. They
represent neither the buyer or the seller.
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Can the escrow company act on its own?
No. The escrow company and escrow officers can only act
at the direction and agreement of all of the parties to the transaction.
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Why do I need to review and sign escrow instructions?
Escrow instructions tell the escrow officer what they are
to do, who is to do what, how much is to be paid and when they are
to do it. Unless there are instructions, the escrow officer cannot
proceed to order documents, determine payoffs, or proceed with the
completion of the transaction.
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What if the buyer and seller disagree as to
what should be done?
The escrow officer cannot act if there is a dispute or
disagreement between the buyers and sellers. The
escrow officer can only act where both the buyer and seller agree.
In the event of a disagreement, the escrow officer will advise the
buyer and seller that there is a disagreement and will not proceed
in the absence of an agreement.
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What is required for a valid escrow?
There are three requirements for a valid escrow: First,
signed escrow instructions, forming a binding contract between the
buyer and seller. California Purchase Agreements are also Joint
Escrow Instructions. Second, a neutral party, which is the escrow
company, acting as a dual agent of the buyer and seller, and finally,
conditional delivery of funds and documents when all the conditions
in the escrow are met.
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Who pays for the escrow?
The escrow fees are typically paid equally by the buyer
and the seller unless they agree otherwise. This
agreement to pay and who pays what amount is set forth in the escrow
instructions and often times, in the Purchase Agreement as well.
These fees are considered to be part of the buyer’s and seller’s
closing costs.
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How are the escrow fees paid?
Escrow fees are usually deducted directly by the escrow
company prior to disbursement of funds to the
parties and the recording of the final documentation. This information
and the amount to be deducted are set forth in the estimated settlement
statement prior to closing and in the final settlement statement
after the completion of the process.
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Can the escrow officer draft legal documents
for me?
No. The escrow officer cannot draft legal documents for
you. The escrow officer is merely a neutral third party who manages
the process by which real estate changes hands. An escrow officer
cannot practice law and only lawyers, by law, can give you legal
advice. The practice of law without a license is illegal. If you
need legal documents drafted, such as powers of attorney, trust
documents, contracts or deeds, you should consult qualified legal
counsel who will represent your interests.
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Can the escrow officer advise me regarding
legal issues?
No. Neither the escrow officer nor the office staff are
attorneys and only attorneys can provide legal advice under Califonria
law. Questions regarding how title should be held, the differences
between vesting, title issues, and other issues concerning the contracts
or loan documents should be addressed to the appropriate party or
to an attorney for clarification or explanation. The escrow officer
and escrow staff merely follows the instructions as set forth in
the escrow instructions and ensures that the paperwork for the transaction
is in order as required by the instructions.
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Who is responsible for the oversight of escrow
companies?
In California, escrow processing can be performed under
various forms of licensure. Most commonly, real estate related escrows
are performed by independent escrow companies licensed by the California
Department of Corporations and title insurance companies licensed
by the California Department of
Insurance. Real estate brokers licensed by the California Department
of Real Estate can also perform
escrows, but only in transactions where the broker is acting as
an agent.
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How can I find out if the escrow company has
been subject to disciplinary action or is licensed?
You can go the Department of Real Estate website : www.dre.ca.gov/escrow_sub.htm
The Department of Corporations website: www.corp.ca.gov/fsd/esb/
or
The Department of Insurance website: www.insurance.ca.gov/Consumer-Alert/Alert.htm
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How long does escrow usually take?
The length of the escrow varies and is determined by the
agreement of the parties to the escrow. However, an escrow cannot
be completed overnight as there are many documents to finalize and
have signed by the parties. The purchase contract and escrow instructions
usually state how long the escrow should last. Sometimes, though,
a lender is not able to comply with the date set forth in the escrow
instructions or purchase agreement due to various issues such as
holidays, delay in obtaining signed documentation, or a delay in
obtaining the appraisal report. In that event, escrow will close
as expeditiously as possible after
the date set for closing.
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What are closing costs?
These are expenses over and above the price of the property
that are incurred by buyers and sellers when transferring ownership
of property. These expenses can also be incurred by individuals
who refinance property they own. Closing costs normally include
an origination fee, property taxes, charges for title search and
insurance, escrow costs, appraisal fees and other incidental fees
and costs. Closing costs typically vary according to the area the
property is located in and the lenders utilized.
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What do you mean when you say “closing?”
The meeting between the buyer, seller and lender or their
agents where the property and funds legally
change hands, also called settlement. Closing costs usually include
an origination fee, discount points,
appraisal fee, title search and insurance, survey, taxes, deed recording
fee, credit report charge and other costs assessed at settlement.
The costs of closing usually are about 3 percent to 6 percent of
the mortgage amount.
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What is a Settlement Statement?
A Settlement Statement or HUD-1 statement is a document that provides
an itemized listing of the funds that are payable at closing. Items
that appear on the statement include real estate commissions, loan
fees, points, and initial escrow amounts. Each item on the statement
is represented by a separate number within a standardized numbering
system. The totals at the bottom of the HUD-1 statement define the
seller's net proceeds and the buyer's net payment at closing.
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My loan documents refer to an Impound account,
what is an Impound account?
An impound account is that portion of a borrower's monthly
payments held by the lender or servicer to pay for taxes, hazard
insurance, mortgage insurance, lease payments, and other items as
they become due. It is also known as reserves.
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What is an Origination Fee?
An Origination Fee is the fee charged by a lender to prepare
loan documents, make credit checks, inspect and sometimes appraise
a property. It is usually computed as a percentage of the face value
of the loan.
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What is the Real Estate Settlement Procedures
Act (RESPA)?
This is a consumer protection law that requires lenders
to give borrowers advance notice of closing costs.
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What is Title?
A document that gives evidence of an individual's ownership of property.
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Why am I being charged for Title Insurance?
Title Insurance is a policy, usually issued by a title insurance
company, which insures a home buyer against errors in the title
search. The cost of the policy is usually a function of the value
of the property, and is often borne by the purchaser and/or seller.
Policies are also available to protect the lender's interests. Title
insurance is usually required by the lender and should be required
by the buyer to insure that he or she is getting what she paid for.
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Why do I have to sign or initial so many
documents?
The purchase, sale or refinance of a home or other property
can be a complicated and paper intensive
endeavor. The escrow officer needs to obtain your signature or initial
on many documents which are legally required to notify you of the
terms and conditions of the deal, to notify you of your obligations
and rights, and to ensure that you have obtained copies of all of
the documents associated with your particular situation. While it
may seem duplicative or burdensome to you, rest assured that you
are only asked to sign or initial the documentation necessary to
complete the transaction, nothing more and nothing less.
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Why do we need a neutral third party (i.e.
Escrow/Settlement Agent/Title Company/Attorney) to close our transaction?
Most lenders require that a neutral third party close their
transactions. This protects you as a consumer and the lender from
any misrepresentation of the closing documents. Also the neutral
third party is then
responsible for getting the release documents for any loans or liens
that have been paid off with the
transaction, assuring you clear title to your property.
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Why do I need title insurance?
When you are buying a home, you want to be certain it's
safely yours. But even the most diligent search of the public records
could fail to disclose a number of title defects. Things such as
a forged will or deed, a title transfer by someone under age, a
married person conveying real estate without his or her spouse,
or fraudulent impersonations, secret marriages, undisclosed heirs,
invalid divorces, false affidavits and the list could go on. Without
the protection of title insurance, you'll be in jeopardy of losing
your investment.
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What happens on the day of closing and can
I move in on that day?
The actual day of your closing will be the day in which the buyer
deposits any remaining money due into
escrow and signs his escrow and loan documents and it is the day
in which the seller will sign the deed
and closing statements and receive a check for the money due to
him. In some parts of the country, the
buyer and seller go into the closing agent's office separately.
In other parts of the country, the buyer and
seller go in together. Either way, closing is the day in which the
deed is exchanged for the sales proceeds money. "Recording"
will normally take place on that day, which means that the deed
and any mortgage documents are taken to the county and recorded
in the official records. These documents are them made of "public
record" for anyone to see. The actual day that you can move
in will be determined by local practice and the terms of your purchase
agreement. It may be the day of closing, or it may be a day or two
after the closing.
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I do not understand why I have to
sign a mortgage or deed of trust on the property if I have already
signed a promissory note?
The promissory note is your promise to pay the lender a certain
amount of money over a specific period of time, but the mortgage
or deed of trust gives the lender an actual "ownership interest"
in the property. Until the loan has been paid in full, the lender
will retain this ownership interest in the property for his protection.
The mortgage document restates the basic information found in the
note and spells out your responsibilitie to pay principal and interest,
taxes, insurance on time, and to maintain insurance on the property
and to properly maintain the property and not allow it to fall in
disrepair.
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How do I take title in California?
Ways to Take a Title in California
There are several ways in which persons can take title to their
property in California, which are explained below. California is
a "Community Property" state and you may wish to consult an attorney,
accountant or other professional before deciding how you want to
take title. You should inform your escrow officer and lender as
soon as possible of how you wish to take title to your home and
exactly how your name(s) will appear on all documents. This allows
them to prepare all documents correctly. (Changes later, such as
adding or deleting an initial in your name, can delay your closing.)
Community Property
- Requires a valid marriage between two persons.
- Each spouse holds an undivided one-half interest in the estate. One spouse cannot partition the property by selling his or her interest.
- Requires signatures of both spouses to convey or encumber.
- Each spouse can devise (will) one-half of the community property. Upon death the estate of the decedent must be cleared through probate, affidavit or adjudication.
- Both halves of the community property are entitled to a stepped up tax basis as of the date of death.
Joint Tenancy
- Parties need not be married; may be more than two joint tenants. Each joint tenant holds an equal and undivided interest in the estate, unity of interest.
- One joint tenant can partition the property by selling his or her joint interest.
- Requires signatures of all joint tenants to convey or encumber the whole.
- Estate passes to surviving joint tenants outside of probate. No court action required to clear title upon the death of joint tenant(s).
- Deceased tenant(s) share is entitled to a stepped up tax basis as of the date of death.
Tenancy in Common
- Parties need not be married; may be more than two tenants in common.
- Each tenant in common holds an undivided fractional interest in the estate. Can be disproportionate, e.g., 20% and 80%; 60% and 40%; 20%, 20%, 20% and 40%; etc.
- Each tenant share can be conveyed, mortgaged or devised to a third party
- Requires signatures of all tenants to convey or encumber the whole.
- Upon death the tenant's proportionate share passes to his or her heirs by will or intestacy.
- Upon death the estate of the decedent must be cleared through probate, affidavit or adjudication.
- Each share has its own tax basis.
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