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Chapter 9: Processing: Escrow Settlement, Title and Appraisal. By Dr. D. Grogan M.C. “Buzz” Chambers. PREVIEW. The mortgage loan broker does not close the loan. The process is handled by an escrow agent and the title company. The escrow agent: - PowerPoint PPT Presentation
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©2011 Cengage Learning
Chapter 9: Processing:
Escrow Settlement, Title
and AppraisalBy Dr. D. Grogan
M.C. “Buzz” Chambers
©2011 Cengage Learning
PREVIEW1. The mortgage loan broker does not close the loan. 2. The process is handled by an escrow agent and the title company. 3. The escrow agent:
• makes sure all documents are prepared and properly signed.• calculates the various charges to be assessed against each party.• deposits all the necessary funds.• gives each party an itemized list of the costs, charges and fees associated with
the transaction. 4. The title company:
• handles the existing loan payoff, if any.• receives the new loan proceeds. • records the necessary documents with the recorder’s office.
5. An appraisal is normally required for most loans. After all these items have been completed, the loan is then in a position to fund and close.
©2011 Cengage Learning
Student Learning Outcomes
1. Outline the what, why, who, and how of the escrow process.
2. Discuss escrow instructions, expenses handled by escrow and the impound account.
3. Describe title insurance, a preliminary title report, and a binder.
4. Differentiate between a title company and a title insurance policies.
5. Review the appraisal report.
©2011 Cengage Learning
What is escrow?
An independent stakeholder. A neutral depository for things of value to be
handled according to the terms and conditions of the mutually agreed upon escrow instructions given to the escrow holder, agent or officer.
Money and instruments include the down payment, deposits, deeds, and documents.
©2011 Cengage Learning
Escrow = Confidentiality Parties in an escrow must have:
an interest Lien Claim Estate into or on the property
Outside parties are not privileged to any information on the property held “in escrow”
©2011 Cengage Learning
A binding Escrow
All parties must execute written escrow instructions. All parties must deliver written escrow instructions to the
escrow holder. Represent a written statement of instructions to the
escrow agent: The lender is not required to sign instructions (refinance) Failing to sign and return the instructions may be deemed
“breach of contract” on a separate contract (usually the offer to purchase form).
©2011 Cengage Learning
Southern California Escrow
1. Title Insurance company, escrow division, under the insurance commissioner.
2. Broker-owned escrow, division of sales office, under the California Department of Real Estate (DRE) commissioner.
3. Independent escrow services, under the California Department of Corporation (DOC) commissioner.
©2011 Cengage Learning
Northern California Escrow Title insurance company Broker-owned escrow services (very few) Regulation falls under the California
Insurance Commissioner Handle the escrow and write the title
insurance policy
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Escrow Opening of Escrow
Instructions come by phone, fax, email Certified escrow instructions Verification of funds deposited Affidavit of occupancy Vesting to be held by borrower(s) Competent parties Lawful object of the subject matter
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Why is an Escrow needed? Assurance of an exchange of a deed for money Clear and marketable title Clearance of tax liens Clearance from government agencies A neutral third party to determine execution in
good faith of escrow instructions--orders
©2011 Cengage Learning
Escrow During escrow period
Property profile/Preliminary title report The escrow “take sheet” Existing liens and the assessor’s parcel number
(APN) (AIN) Amendments to escrow Lender instructions: No or Only approved junior
liens Supporting documents: Reconveyance deed, riders Buyer signs many documents
©2011 Cengage Learning
Escrow At Close of Escrow (COE)
Lien clearances Closing statements on property
Preparing the HUD-1
Insurance policies: hazard flood Earthquake other types of insurance
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When is an escrow required, by law?
Escrow is required for LIPS: L – iquor license I – mpound account involved P – robate S – ecurities transfer
©2011 Cengage Learning
Who pays the expenses of escrow?
Seller pays:Buyer pays:
Conventional escrow fee(1/2) FHA escrow fee Documentary preparation fee Drawing the 2nd trust deed Recording fee-trust deed(s) Loan tie-in fee Loan origination fee Assumption fee Appraisal fee
Conventional escrow fee(1/2) DVA escrow fee FHA escrow fee Documentary transfer tax Drawing the grant deed Recording fee-grant deed Beneficiary demand stmt Reconveyance fee Existing loan pay off Home warranty policy
©2011 Cengage Learning
Who pays the expenses of escrow?
Termite: Correction Survey Unpaid liens CLTA title insurance Sub-escrow fee (1/2) Prepaid rent/taxes/assn dues Unpaid taxes/insurance
Buyer pays:
Termite: Prevention Credit report Appraisal ALTA title insurance Sub-escrow fee (1/2) Preliminary Title report Assumed taxes/insurance
Seller pays:
©2011 Cengage Learning
Escrow documents
Contingent upon: Sale of another property Purchase of another property Loan rate not to exceed “X%” Appraised value of not less
than “$X” Loan amount to be “$X” Seller carrying back a second
trust deed for “$X”
Memorandum Items Personal property included in
sales price Working conditions of utilities &
appliances Date for transfer of physical
possession Any other agreement or event
outside of escrow
©2011 Cengage Learning
Supplemental/Additional Escrow Requirements
Foreign Investors Real Property Tax Act (FIRPTA) Additional tax assessments Preliminary Change of Ownership Report (PCOR) Smoke detector requirements Internal Revenue Code (IRC) Section 6045 (E) Revenue & Taxation Code Sections 18805 &
26131
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Homeowner Association
www.hoacerts.com Current Budget Balance Sheet Evidence of Fidelity Bonding and/or Directors
& Officers Liability Insurance CC&Rs Articles of Incorporation By Laws
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Vesting
Sole Ownership A single man A single woman An unmarried man An unmarried woman A married man (or woman)
as his (or her) sole & separate property
Corporation Trust
Co-Ownership Community property Joint tenancy Tenancy in common Partnership
©2011 Cengage Learning
9.2 Statement of Information (SI)
Areas:
Name, birthplace, date of birth, marital status
Residences for past 10 years
Occupation/employment for past 10 years
Former marriages or deceased spouses
Signature & date
Purposes: Not intended as any invasion
of privacy Strictly confidential Not available for public
examination Accuracy is important Not used for credit check Available in most all
languages
©2011 Cengage Learning
9.3 Impound Account& Property Taxes
P I T I – Principal, Interest, Taxes (Property), Insurance(s)
Prorate Taxes at close of escrow Prop 13 – 1% of PCOR at close of escrow Mello-Roos Supplemental property tax bill
©2011 Cengage Learning
9.4 Title Insurance Preliminary Title Report shows:
Encumbrances on subject property Easements affecting subject property
Policy of Title Insurance Lenders require Special Endorsements
Mineral leases Street address Street access Private road agreement All-include endorsements to protect lender
Recordation of document: Deeds & Riders
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Title company personnel
Advisory title officer (ATO) Title officer (TO) National Title desk Inner counties department Customer services department Market department Sales department
©2011 Cengage Learning
Title company customer service for loan originators
Farm package – information on people, geographic area, type of property
Address labels – for marketing plan Property profile – recorded documents Legal and vesting – existing title holder Property information – liens, room count, lot
size, CC&Rs, public record (year built)
©2011 Cengage Learning
What is a Preliminary Title Report?
Designed to provide interim response to an application for a title insurance policy.
Identifies existing title, estate, interest and land description.
Contains a list of defects, liens, encumbrances & restrictions to be excluded from coverage.
©2011 Cengage Learning
3 elements of a prelim1. An offer to issue a title insurance policy.
2. A partial reporting of the chain of title.
3. A statement of the terms and conditions of the offer to issue a title policy.• Note: See Appendix F.
©2011 Cengage Learning
Types of Title Insurance CLTA
Standard coverage To shield buyer from unforeseen claims
ALTA Coverage for the lender
Extended Coverage To cover above standard coverage
Binder When a future sale is anticipated in a short time
©2011 Cengage Learning
9.5 APPRAISAL Uniform Residential Appraisal Report
(URAR) (10-0-4) Depository Institutions Deregulation & Monetary
Control (DIDMCA of 1980 Regulated under Financial Institution’s Reform &
Recovery Act (FIRREA) Appraisers abide by Uniform Standards of
Professional Appraisal Practice (USPAP) Appraiser receives a state license
©2011 Cengage Learning
Appraisal format
Subject property description Neighborhood characteristics Planned unit development (PUD) Description of site and improvements Three approaches to value sections
Cost approach Sales Comparison analysis Income approach
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Appraisal form has 5 areas: Complete visual inspection of the interior &
exterior areas of subject property. Inspection of the neighborhood. Inspection of each comparable sale. Collection, confirmation & analysis of data. Recording of analysis, opinions &
conclusions in the appraisal report.
©2011 Cengage Learning
Appraisal Report
Reconciliation may be with conditions Appraiser date – license number & signature Sketch of property exterior measurements Recorded plat map Map location with subject and comparables Disclaimer, certification & limiting conditions Photographs of subject and street view
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FHA Appraiser shall: Be certified by the state in which the property
is located. Be certified by a nationally recognized
appraisal organization. Demonstrate verifiable education in FHA
appraisal requirements.
©2011 Cengage Learning
Appraisal
Non state licensed appraiser work: Used for non-federally related or portfolio loans Used for quality control purposes
Review Appraisal Responsible for clarifications on appraisal report May add conditions or reject the appraisal report
Appraisal report Used to qualify the property for LTV Used for solutions to conditions of the appraisal
©2011 Cengage Learning
Appraisal Management Company (AMC)
AMC specifically authorized by the lender. AMC selects, retains & provides payment of
all compensation to the individual appraiser on behalf of the lender.
Appraiser correctly identifies the lender as the lender/client on the appraisal report.
Lender policies & procedures in place to comply with the code.
©2011 Cengage Learning
Appraisal Licensing Criteria: Trainee
150 hours/education – no experience-property that supervising appraiser is permitted to appraise
Residential 150 hours education – 2000 hours experience in past 12 months,
1-4 unit up to $1million & non-residential up to $250,000 Certified Residential
200 hours education – 2500 hours experience in past 30 months, 1-4 unit & non-resident up to $250,000
Certified General 300 hours education + 3000 hours experience in past 30 months
w/1,500 hours must be non-residential.
©2011 Cengage Learning
Lender approval for appraiser:
Copy of current state license or certificate Current resume Sample work References Copy of errors & omissions insurance Sample appraisal review
©2011 Cengage Learning
Conditions and Reconsideration
Appraisal conditions: Specific property conditions
for the appraisal to be valid Loan broker, lender or
appraiser may verify that condition has been met
Usually work on the property
May be permits or work of others: termite, survey,etc
Reconsideration: Must submit a cover letter
with explanation and summary
Documented closed comps or backup data must be provided
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