Real Estate Practice Unit 14

Front 1

Closing

Back 1

The process in which agreed-on costs are paid and legal title is transferred from seller to buyer in exchange for consideration—usually cash from the buyer

Front 2

Escrow holder, or escrow

Back 2

A neutral third party who carries out the provisions of an agreement between a seller and buyer, or a lender and a borrower if the transaction is a loan closing

Front 3

Escrow

Back 3

The seller and buyer always choose the escrow holder; if they do not know any, they may rely on their real estate broker or salesperson to make a recommendation. Either the buyer or seller may pay the fee, or share it equally. An escrow holder may be a bank, savings and loan, title insurance company, attorney, real estate broker, or an independent escrow company

Front 4

Open escrow

Back 4

The first step in the closing process. Usually done by the listing salesperson, who gives the escrow officer the signed purchase agreement along with the buyers’ good faith deposit. The escrow officer needs to make sure the contract is complete, fully signed, and initialed by all parties before accepting it

Front 5

The basic requirements for a valid escrow

Back 5

(1) a binding purchase agreement contract made between the parties, (2) conditional delivery of funds, and (3) conditional delivery of transfer documents

Front 6

Grant deed

Back 6

The grantor warrants that he or she has not previously conveyed the property being granted, has not encumbered the property except as disclosed, and will convey to the grantee any title to the property acquired later

Front 7

California Residential Purchase Agreement and Joint Escrow Instructions (RPA-CA)

Back 7

Form combines the offer to purchase and escrow instructions into one contract. Using the signed purchase agreement to create escrow instructions ensures that escrow reflects that agreement

Front 8

Escrow instructions

Back 8

The written authorization to the escrow holder or title company to carry out the directions of the parties involved in the transaction. The instructions, as you recall, reflect the agreement between the sellers and buyers as seen in the offer to purchase (deposit receipt) and usually include all disclosures required by law

Front 9

Unilateral escrow instructions

Back 9

Where the buyers sign one set of instructions and the sellers sign another

Front 10

Bilateral escrow instructions

Back 10

Where the sellers and buyers sign the same set of instructions

Front 11

Escrow instructions

Back 11

State any conditions that both parties must satisfy in order to close the deal, such as who will pay for what, how the escrow holder disburses monies, and what documents are recorded at the close of escrow. No matter how small the detail, if it differs from the original agreement, all parties to the escrow must agree to the change by signing an amendment

Front 12

Northern California

Back 12

Title companies conduct escrows. the escrow officer prepares the instructions at the end of the escrow period. In addition, after receiving loan approval and the terms of the loan have been approved by the buyers, the lender sends the legal documents to the escrow officer to hold for the buyers’ signature just prior to the closing. Unilateral escrow instructions are then drawn and the closing process begins

Front 13

Southern California

Back 13

Escrow companies or banks conduct escrows. The responsible parties send the instructions, required deeds, purchase money encumbrances, and notes to the escrow company designated to handle the transaction. Escrow sends copies of the same document to both sellers and buyers (bilateral instructions) or the respective salesperson for both parties to deliver them. Once both sides sign the escrow instructions, a valid contract exists and the escrow officer prepares the title for closing, and follows any lender instructions

Front 14

Preliminary report (prelim)

Back 14

Prepared to verify the legal ownership of the property. This report indicates whether the seller currently holds title to the property and includes a list of the previous owners, purchase dates, and sale dates to make sure the chain of title is correct

Front 15

Chain of title

Back 15

The public record of prior transfers and encumbrances affecting the title of a parcel of land

Front 16

Clouds the title

Back 16

If there is a missing connection in a property’s history or ownership, or if a deed was recorded in error or is incomplete, it ___________

Front 17

Easements, liens, and encumbrances

Back 17

If the sellers cannot provide clean title and eliminate certain exceptions prior to closing, the buyers have the right to accept or reject the prelim and back out of the transaction. Some of these exceptions include______, ________, _______

Front 18

Marketable title

Back 18

Title clear and free from likely challenges–reasonably free from risk of litigation over possible defects

Front 19

Title insurance

Back 19

Protects real estate owners from challenges to their property titles. It protects against loss due to errors in searching records and in reporting the status of title and guarantees that the property is free of liens

Front 20

California Land Title Association® (CLTA) or the American Land Title Association (ALTA)

Back 20

The title insurance policies used throughout California are standardized forms prepared by the ______________ or ____________

Front 21

Standard and Extended coverage

Back 21

The two types of title insurance policies normally used are

Front 22

Standard policy

Back 22

Title insurance issued to homebuyers only covers matters of record. No physical inspection of the property is required and the buyers obtain protection against all recorded matters, and certain risks such as forgery and incompetence. The title company does not do a survey or check boundary lines when preparing a standard title insurance policy

Front 23

Extended coverage policy

Back 23

Title insurance covers everything that a standard policy covers, plus other unrecorded hazards, such as outstanding mechanic’s liens, unrecorded physical easements, facts a properly conducted survey would show, certain water claims, and rights of parties in possession—including tenants and owners under unrecorded deeds

Front 24

ALTA Owner’s Policy

Back 24

The American Land Title Association offers an owner extended coverage policy known as_______________. Includes the same coverage as a standard policy, with the following additions: (1) protection against claims of parties in physical possession of the property but no recorded interest, (2) reservations in patents, and (3) unmarketability of title

Front 25

Payoff demand

Back 25

Shows the unpaid principal balance, the daily interest rate, and any other amounts due. The lender must disclose the exact amount of the loan payoff so the escrow officer’s accounting will be correct at the closing

Front 26

Beneficiary statement

Back 26

If an existing loan is going to be assumed, or taken subject to, a _________ that sets forth the unpaid balance of the loan amount and the condition of the debt is requested from the lender by the escrow holder

Front 27

Property Taxes

Back 27

Homeowners usually pay annual property taxes in December and April. The escrow company will prorate the taxes for the closing date to ensure that neither the buyers nor the sellers overpay

Front 28

Hazard insurance

Back 28

Protects the borrower and the lender against loss due to fire, windstorm, vandalism, and other hazards. The escrow holder will accept, hold, and deliver any policies and will follow instructions about transferring them. Required by lender to protect outstanding loan on the property and will expect the escrow holder and the buyers to be accountable for either a new policy or the transfer of an existing one

Front 29

Documentary Transfer Tax

Back 29

Charged to the owner of the property whenever real property transfers to another person. The county recorder places stamps (doc stamps) on the recorded grant deed to indicate the amount of the documentary transfer tax paid. In most cases, it is based on $.55 per $500 of purchase price, or $1.10 per $1,000 of purchase price. The money goes to local government, either city or county

Front 30

Tax assessment

Back 30

Based upon the full price of the property at the rate specified above if the sale is all cash, or if a new loan is involved, where the sellers get all cash. The tax is levied only on the equity transferred (or consideration) if the buyers assume an existing loan. When the deed records or when escrow closes, the responsible party then pays the documentary transfer tax

Front 31

How to Calculate the Documentary Transfer Tax

Back 31

If the buyers purchased a home for $300,000 assuming an existing loan of $200,000, the tax would be based on the $100,000 the buyers paid as a down payment, or the new money put into the transaction. $100,000 divided by $1,000 equals 100; therefore, 100 times $1.10 equals $110.00 for the tax

Front 32

Prepares and Records Deeds

Back 32

The escrow holder prepares the grant deed and sends it to the seller. The seller needs to sign the grant deed in front of a notary public and return it to escrow before the closing date. At close, the escrow holder records the deed and other documents

Front 33

Closing statement

Back 33

An accounting of funds made to the sellers and buyers individually, and it is required of the escrow holder at the completion of every real estate transaction. The sellers and buyers are both credited and debited for their agreed-upon share of costs

Front 34

Financial closing

Back 34

Escrow cannot close until all financial and legal items have been completed. A refinance and the purchase of a property that includes financing will require a _________

Front 35

Legal closing

Back 35

In the purchase of property, there is a transfer of ownership from the sellers to the buyers, which involves a _____________

Front 36

Grant deed

Back 36

Used to transfer title. Must be signed by the seller before a notary public

Front 37

Good funds

Back 37

Include cashier’s checks, certified checks, or wired funds. In order to close escrow, buyers must deposit sufficient funds to cover escrow and closing costs

Front 38

Final walk-through

Back 38

ust before the actual closing (generally within five days before the close of escrow), schedule a _________ of the property to be certain it is in the same condition as when the purchase offer was made