American Trust Escrow

The Short Sell Process: Escrow Explains What You Need to Know

In a prior post we explain the terminology associated with Short Sales. In order to further clarify the short sale process, this post explains the process a seller must go through if they find themselves facing a short sale.

A Short Sale comes in to play when a seller must sell their home and the value of the property is just not sufficient to cover the balance owed to the existing lender. In order to accomplish this the seller must work with their existing lender(s), and any other existing lien holders, to request approval of the sales price, the sale terms, and payoff of their loan to be at a reduced amount.

The Short Sale process is as follows:

• The owner or their agent/negotiator must contact the existing lender.
• The lender will direct them to their website, or will advise how, to obtain specific forms, instructions and lender requirements.
• This group of documents, along with the lender’s financial forms (Short Sale Package*) is then sent to the lender as per the lender’s instructions.
• After the lender receives the package it is then assigned to a contact person in the lender’s Loss Mitigation Department. This process can take anywhere from two weeks to two months and sometimes even longer.
• At this point the Loss Mitigation Dept then reviews the package and will contact the homeowner to request any additional items that may be required by the lender. This request is usually made verbally to the homeowner or negotiator but can sometimes be found via the lender’s website.
• The lender will then request a Broker’s Price Opinion (BPO) from an agent chosen by the lender.
• Once the lender has received the BPO as well as the Short Sale Package they submit it for final review. Once the lender has completed their final review they may give approval as is or their approval may be subject to changes such as sales price changes. Or the lender, at this time may decide that the seller did not have ample reason for the short sale and therefore deny the request for the short sale.

*Short Sale Package can consist of 100 to 200 pages including, but not limited to, the following items:

1. Listing Agreement

2. Short Sale Addendum

3. Offer to Purchase

4. Proof of Buyer’s funds

5. Owner’s Tax returns

6. Paystubs

7. Owner’s Bank Statements

8. Hardship letter from owner (explaining why the short sale is needed)

Remember that every lender and every situation is a different story so it will help to keep a handle on each request by staying in touch with the lender constantly through the process.

Interested in what you are reading? To automatically receive these Escrow Tips in your email box, subscribe to these articles at the top right corner of this site (www.AmericanTrustEscrow.com) in the box titled “Subscribe via Email”.

Become a fan of American Trust Escrow on Facebook and follow us on Twitter.

An Explanation of Property Tax Prorations in Escrow

One of an escrow officer’s simpler jobs is calculating the amount of property tax that is payable by the buyer and the seller on any given real estate transaction. One of the agent’s tougher jobs can be explaining to the buyer why they may get an official property tax adjustment bill months after the sale is done. Let’s wade into the arithmetic and explain the situation.

Property Tax Defined

Every property gets assessed by the county assessment office every year, establishing the amount of tax due on that property. At the time of a sale, it’s a simple matter for the escrow agent to find out the property’s tax for the full year, and apportion the correct amount to the seller for the year to that date, and the right amount to the buyer for the remainder of the year.

Say, for example, the property tax of the year is $1200, and the transaction closes on May 1. The seller pays $400 for the first 4 months, and the buyer pays $800 for the last 8 months. These numbers show up on the closing statements.

Sale Triggers Assessment

The complication arises because a property sale triggers a new assessment. This assessment happens according to the schedule and timetable of the county assessment office; this means it could happen months after the transaction has closed, when the buyer has long since thought the sale over and done with.

When it eventually occurs, the property has a new assessed value – and a new tax burden – retroactive to the date of the sale. It might be more or less than what the buyer paid on the closing statement, but chances are good that it will be different. Therefore, the assessment office will issue an adjustment notice. If it’s a tax increase, the buyer needs to pay more. If it’s a decrease, each county handles the situation differently. Check with the links below for your own area’s procedures.

Escrow Works With The Numbers

The escrow officer’s job with prorating property tax is just to work with the existing numbers. They use the property tax amount provided to them by title at the time of the escrow (the current property tax amount). They take this current tax information and allocate the charges to the parties accordingly.

That’s why, in an appreciating market, a buyer can get an additional tax bill, months after the sale, when they thought it had already been covered. And that is why, in a depreciating market, the potentially reduced taxes on the home cannot be determined and applied at escrow. For specific tax questions related to a particular parcel, further information can be gained by contacting your county’s tax recorders office:

• Riverside County
• Orange County
• Los Angeles County
• San Diego County

Interested in what you are reading? To automatically receive these Escrow Tips in your email box, subscribe to these articles at the top right corner of this site (www.AmericanTrustEscrow.com) in the box titled “Subscribe via Email”.

Become a fan of American Trust Escrow on Facebook and follow us on Twitter.

Patience Is Key for a Successful REO Escrow

In a previous post, the nuts-and-bolts differences between REO (Real Estate Owned) escrows and standard escrows were discussed. This post is designed to highlight a significant psychological difference that can help you and your clients successfully navigate the REO terrain: patience.

For a number of reasons, the process for an REO escrow can take longer than a standard escrow:

• The Seller of an REO is a Bank or Lending Institution who may have many properties in escrow at once. This means that what may seem like a simple response to a question can take days to be considered, much less answered.

• An accepted offer or contract may take several days to be uploaded onto the Seller’s online system where it will only then be listed as a “task” to open escrow.

• Banks must follow specific, strict procedures that can take longer than a standard escrow.

• Finally, the HUD process takes approximately five days after the Buyer has signed the loan.

Realtors: Realizing these differences and delays can help you keep your Buyer calm and confident while working through an REO escrow.

Buyers: Knowing it can take longer to work through an REO escrow can help make the process much less stressful.

When all parties understand how these differences add time to the process, they can sit tight and allow the escrow officers to focus their time on processing the transaction. Ultimately, your patience can lead to a successful (and less stressful) transaction for everyone.

Interested in what you are reading? To automatically receive these Escrow Tips in your email box, subscribe to these articles at the top right corner of this site (www.AmericanTrustEscrow.com) in the box titled “Subscribe via Email”.

Become a fan of American Trust Escrow on Facebook and follow us on Twitter.

What Buyers Need to Be Aware of After Close Of Escrow – Part 1: Taxes

As Escrow Holders we often get inquiries from Buyers and Sellers well after the close of an escrow. It is a common belief that our responsibility as Escrow Holder continues after the close of escrow, when, in fact, escrow no longer has any connection with the transaction once it is officially closed. As a neutral third party in the transaction, escrow may not always have all the answers but your escrow officer can guide you to a source that can help you.

In this series of posts, I will address some of the most common questions asked by new home owners after the close of escrow. This first post addresses the issue of taxes.

TAXES

Almost always, we get calls from Buyers after the close of escrow, asking about property taxes. As a new home owner it is important to remember the following dates:

• The fiscal year begins July 1 and ends June 30 of the following year.
• The first installment of taxes is due November 1 and is delinquent December 10.
• The second installment is due February 1 and is delinquent April 10.

It is the Homeowner’s responsibility to make tax payments on time. Keep in mind the County Tax Collector will not waive tax penalties, regardless of the reason. To avoid paying any penalties, make sure to pay the bill on time. If you have not received a bill as the due date approaches, contact your County Tax Collector and request for a duplicate bill.

Keep an eye out for my next post where I will explain what a home buyer needs to know about the Residential Property Report.

Interested in what you are reading? To automatically receive these Escrow Tips in your email box, subscribe to these articles at the top right corner of this site (www.AmericanTrustEscrow.com) in the box titled “Subscribe via Email”.

Become a fan of American Trust Escrow on Facebook and follow us on Twitter.

Per Diem: Two Little Words that Can Impact a Buyer in an REO Sale

Buyer’s of a “bank owned” property, or REO sale as they are often referred to, may come across some verbiage in the Banks Addendum to the Real Estate Purchase Contract that catches their eye: Per Diem Penalty. Escrow Officers are often asked, what does this mean?

Latin for “per day”, per diem has many uses. What per diem is referring to in this instance is in the event escrow does not close by the date set forth in the contract, the Seller can impose a daily penalty to the Buyer for each day beyond the initial agreed upon closing date until the day the escrow officially closes.

The amount of this penalty differs depending on terms of the contract. It can be a percentage of the purchase price or a set daily amount (ie $100 per day). It is important to note, agreements can be made between the Buyer and Seller to waive the penalty when applicable.

One way a Buyer can strive to close escrow on time and avoid penalties is to complete escrow and mortgage paperwork and provide requested documents in a timely manner. However, circumstances may still arise that are beyond the Buyer’s control. In this event, a Buyer should ask their agent to renegotiate the terms of the contract to extend the closing date or to waive the penalty with the Seller and Seller’s agent.

In REO transactions, as with any real estate transaction, it is very important to be sensitive to all time frames in order to alleviate unnecessary charges.

If you have further questions about the Per Diem Penalty, do not hesitate to contact your escrow officer for further clarification or leave us a note in the comments.

Interested in what you are reading? To automatically receive these Escrow Tips in your email box, subscribe to these articles at the top right corner of this site (www.AmericanTrustEscrow.com) in the box titled “Subscribe via Email”.

Become a fan of American Trust Escrow on Facebook and follow us on Twitter.

Life of an Escrow – Buyer's Perspective

When purchasing a home the escrow process can appear to be complex, especially for a first time home buyer. Following is an overview of the escrow process from the buyers perspective:

Escrow is officially “open” once the Escrow Holder receives a purchase contract signed by both the Buyer and Seller. Escrow holder then assigns an escrow number, opens a title order and follows up on the Buyer’s initial deposit. The initial deposit must be received by the Escrow Holder within 3 business days after acceptance. Now that escrow is open – what happens next?

Like anything else – things usually have a beginning, a middle and an ending. Escrow is no different and we will attempt to demystify the Buyer’s escrow process by breaking it down into three distinct parts:

1) Opening
2) Processing
3) Closing

Opening: The opening phase is the information gathering segment of the escrow. It allows the Escrow Holder to gather the necessary information from the Buyer and to communicate with all applicable parties. In order for the Escrow Holder to do this effectively, it is very important for the Buyer to complete and expediently return all documents in the initial escrow package.

Opening escrow packages for the Buyer will typically contain the following:

1) Escrow Instructions
2) Statement of Identity
3) Vesting Form
4) New Lender Info
5) Fire Insurance Info
6) PCOR
7) Buyer’s Affidavit

This may appear to be a mountain of paperwork, but it’s purpose is designed to let the Escrow Holder know who their Buyers are, which lender is in need of an escrow lender package, how the Buyer(s) are taking title and who will be insuring the subject property.

Processing: The second phase of escrow is commonly referred to as the processing phase. In this segment, the Escrow Holder gathers and distributes reports and disclosures to applicable parties. Depending on the specific terms of the purchase contract, reports and disclosures may include all or some of the following:

1) Preliminary Title Report / CC&Rs / Plotted Easements
2) Natural Hazard Disclosures
3) Termite Report – Inspection/Completion
4) Homeowner’s Association Documents
5) City Report
6) Rent Statement

These reports provide information regarding various aspects of the subject property such as title, taxes, liens, hazardous zone determinations, pest infestation assessment and rental amounts to name a few. These disclosures may be information overload but are necessary and mandatory to provide full disclosure to Buyers. Buyers are asked to review all reports/disclosures provided and acknowledge receipt of same via signature within the time frames specified in the purchase contract.

Closing: In the final phase of the escrow process, the Escrow Holder gathers information in the opening and processing segments and incorporates same with terms of either lender financing or an all cash closing.

In the case of lender financing, Escrow Holder will contact Buyers as soon as loan documents have been received and schedule a time for signing with a notary public. Signing of loan documents will take approximately 30-45 minutes and ideally should occur several business days prior to the scheduled close of escrow to allow ample time for the following:

1) Signing of Loan Documents
2) Lender Review of Loan Documents
3) Lender Release of Loan Funds

Upon signing of loan documents, Buyers will review an estimated closing statement prepared by the Escrow Holder. The estimated closing statement provides an accounting of all applicable fees, closing costs, credits and prorations pertinent and particular to the transaction such as lender fees, title and escrow fees, property taxes, HOA dues, and Seller credits etc. The estimated closing statement also provides Buyers with the dollar amount required to close the transaction. Note: all closing funds must be certified and received by Escrow Holder via wire transfer or cashier’s check 2 business days prior to close of escrow.

In an all cash closing, the estimated closing statement and final escrow amendments are also be presented to Buyers for review and signatures. Funds will then be requested from Buyers and the escrow will be considered “funded” upon Escrow Holder’s receipt of Buyer’s certified closing funds.

Upon Escrow Holder’s confirmation that loan funds have been released, Buyer’s certified closing funds received, receipt of signed documents from both Buyer and Seller, and all terms of the purchase contract fulfilled – the transaction is now ready to close/record. Recording typically takes place 1 business day after all of the above has occurred. The term “close” refers to the day on which the transfer deed (grant deed) is stamped and recorded by the County Recorder’s Office. This is the official date on which transfer of ownership occurs and the Buyer becomes the new owner of the subject property.

Upon Escrow Holder’s notification from the title company that the recording has been confirmed – escrow has officially “closed”. The Escrow Holder will then prepare the final accounting of the file and disburse funds and documents accordingly, normally by the next business day.

Escrow is closed – congratulations!

Interested in what you are reading? To automatically receive these Escrow Tips in your email box, subscribe to these articles at the top right corner of this site (www.AmericanTrustEscrow.com) in the box titled “Subscribe via Email”.

Become a fan of American Trust Escrow on Facebook and follow us on Twitter.

What is the Foreclosure Process? Escrow Explains.

With the increased amount of foreclosures on the market today, escrow officers are often asked about the foreclosure process. The first thing to know is the foreclosure terminology, which we discussed in a prior post. What is important for homebuyers and sellers to understand is that foreclosures happen to loans not properties therefore it is a process that is handled between the lender and the lender’s trustee company. In an effort to answer the many foreclosure questions that we get following is a simplified breakdown of the steps that lead to and complete the foreclosure process.

• The borrower fails to make more than one monthly mortgage payment
• The lender would have their trustee company prepare, record and send the borrower a Notice of Default (NOD)
• The borrower now has 90 days to bring the loan current (reinstatement period)
• If the borrower is still unable to bring the loan current the trustee company will set a sale date approx. 4 weeks out
• The trustee will prepare, record and send to the lender and borrower a Notice of Trustee Sale (NTS)
• The NTS will also be posted at the property in a conspicuous place and published in a local newspaper (publication period)
• This Notice will contain the date, time and place where the Trustee Sale will take place
• During the publication period the borrower can still bring the loan current up to 5 days prior to the sale date
• The sale is held at the courthouse in the county where the property is located
• The lender sets an opening bid that would cover the loan balance, interest, attorney fees and any other accrued fees and costs
• The property is then sold to the person with the highest bid over the opening bid set by the lender
• If no one bids over the opening bid then the lender retains the property as a banked owned property (REO)- Real Estate Owned

During the foreclosure process there are several stages in which the homeowner has the opportunity to bring the loan current and avoid foreclosure. Foreclosures contain many nuances and affect each party involved differently. Don’t hesitate to ask your agent for information about foreclosures and your situation or for further information see the links below.

• http://www.biggerpockets.com/foreclosure-process.html
• http://www.realtytrac.com/foreclosure-laws/california-foreclosure-laws.asp

Interested in what you are reading? To automatically receive these Escrow Tips in your email box, subscribe to these articles at the top right corner of this site (www.AmericanTrustEscrow.com) in the box titled “Subscribe via Email”.

Become a fan of American Trust Escrow on Facebook and follow us on Twitter.

Answering the Realtor Question: What is a Widget Anyways?

Every Tuesday, here at the American Trust Escrow blog, we post Technology Tips designed to help you, the REALTOR®, grow your business, keep up to date on the latest technologies, and move you forward into the new era of real estate.

As I speak with Realtors I am reminded that technology is bringing to agents a whole new vocabulary. In my constant endeavor to discuss the opportunities that technology provides the modern Realtor, I have written on many basic technology terminology which Realtors need to understand in order to put together a strategy for success in today’s market. Terms such as: Web 2.0, Social Media, Social Networking, and Blog. Today I’m adding another terminology to the list – Widgets. Many have heard the term, but most don’t have an understanding of what a widget is or how a widget can help them. This post is designed to clarify a thing or two.

A widget is a piece of code that can be embedded within a web page. Basically, it is a mini-application provided by a 3^rd party that you choose to install on your website or blog. Why would a Realtor do this? Well, because there is lots of information out there that consumers want and this is a good way to give it to them. Many 3^rd party vendors are offering a no-maintenance way for you, the Realtor, to provide valuable information on your site. If you are interested in providing the consumer what they want on your website (and why wouldn’t you…this is how you get traffic and have people come back to your site), you should look into the myriad of real estate widgets that are available out there. Many of them are even free.

Another perspective and great article on additional widgets for the Real Estate world was authored by Nicole Nicolay of MyTechOpinion.com. In it, she points out that there are great real estate widgets out there that provide helpful information for visitors in a variety of categories such as Property Search, Home Valuation, Industry News, Information and Statistics, and Calculators. The article was written last year so things have evolved (for example, check out some of the neat free real estate widgets that Trulia now offers Realtors here), but her article still gives a great list of useful real estate widgets by functional category.

Think widgets might be for your website or blog? Great. Widget-away. BUT, a word of caution – plan your widgets carefully. There is a thing as too many widgets on a site! It is very easy to add too many widgets to your website and the result can not only be disruptive to the visual integrity of your site, but also cause your site to load slowly. I’d say a good rule of thumb is to add 1-3 widgets to your site.

Lets look at a great application of widgets by a Realtor:

Heather Elias of Century 21 in Ashburn Virginia incorporates widgets into her her blog at www.locomusings.com:

Heather has included a widget on the right hand side that provides consumers with a slideshow of featured listings. This is a widget or what the company calls a module on their website but it’s effectively the same thing (a piece of code added to your website). The featured listings module that Heather uses is available through Diverse Solutions as an MLS IDX search option for agents. Diverse Solutions has three available website modules for featured listings, the Slideshow, Map and Map Search modules. When a visitor clicks on the featured listing they are taken to a page hosted by diverse solutions that provides a very detailed property listing and a way to contact the agent.

Heather also incorporates a Facebook widget lower down the right hand column. This widget displays her current Facebook activity and allows the visitor to become a fan with one instant click.

She has a Chat widget that invites the visitor to “Chat with Heather Elias”. At the moment of this screen capture, Heather was busy, but when she is online and available, visitors have the ability to simply type her a question and have her respond in real time. Talk about rapid feedback and being available to the consumer! There are several chat widgets that are out there such as the one provided by Meebo.

Heather Elias is an outstanding example of an effective use of widgets. Her use of widgets is useful to consumers, not overwhelming, and maintains the attractiveness of her site and blog.

So, widget sparingly and appropriately, and you too can effectively extend the value of your website and/or blog.

Interested in what you are reading? To automatically receive these Tuesday Technology Tips in your email box, subscribe to these articles at the top right corner of this site (www.AmericanTrustEscrow.com) in the box titled “Subscribe via Email”.

Become a fan of American Trust Escrow on Facebook and follow us on Twitter.

Mello-Roos: What it is and How it Affects Your Property Taxes

When purchasing real property in California you may discover that the property is subject to Mello-Roos. Mello-Roos is the common verbiage used to describe a tax that is imposed upon real property that falls within a Mello-Roos District. This tax or fee, which is a form of financing, can be used by cities, counties, and special districts (such as school districts) to help pay for major improvements and services within the district which might include schools, roads, libraries, police and fire protection services. Mello-Roos taxes are imposed in addition to the normal tax base applied to the real property for that area or development.

The tax was initially developed due to the limited ability of local governments to use property taxes to construct public facilities and services. The taxes usually are levied on a specific development for approximately 10-15 years or until the infrastructure bonds are paid off. You will need to check with your County Assessor’s office for the fees for your particular property.

It is important to know about this long-term additional expense when buying a home within a Mello-Roos District due to the costs added to the property’s tax base.

The California Land Title Association has written an in-depth description of Mello-Roos. You can read the full article. Below are key points from that article:

What is a Mello-Roos District?

A Mello-Roos District is an area where a special tax is imposed on those real property owners within a Community Facilities District. This district has chosen to seek public financing through the sale of bonds for the purpose of financing certain public improvements and services. These services may include streets, water, sewage and drainage, electricity, infrastructure, schools, parks and police protection to newly developing areas. The tax you pay is used to make the payments of principal and interest on the bonds.

What are my Mello-Roos taxes paying for?
Your taxes may be paying for both services and facilities. The services may be financed only to the extent of new growth, and services include: Police protection, fire protection, ambulance and paramedic services, recreation program services, library services, the operation and maintenance of parks, parkways and open space, museums, cultural facilities, flood and storm protection, and services for the removal of any threatening hazardous substance. Facilities which may be financed under the Act include: Property with an estimated useful life of five years or longer, parks, recreation facilities, parkway facilities, open-space facilities, elementary and secondary school sites and structures, libraries, child care facilities, natural gas pipeline facilities, telephone lines, facilities to transmit and distribute electrical energy, cable television lines, and others.

When do I pay these taxes?
By purchasing an interest in a subdivision within a Community Facilities District you can expect to be assessed for a Mello-Roos tax which will typically be collected with your general property tax bill. These special tax payments are subject to the same penalties that apply to regular property taxes.

How much will the Mello-Roos payment be?
The amount of tax may vary from year-to-year, but may not exceed the maximum amount specified when the district was created. In the case of the purchase of a new house within a subdivision, the maximum amount of the tax will be specified in the public report. The Resolution of Formation must specify the rate, method of apportionment, and manner of collection of the special tax in sufficient detail to allow each landowner or resident within the proposed district to estimate the maximum amount that he or she will have to pay.

How are Mello-Roos taxes affected when the property is sold?
The Mello-Roos tax is assessed against the land, but is not based upon the value of the property, therefore, the possible increased value of the property does not affect the amount of the tax when property is sold. The amount of the tax may not exceed the original maximum amount stated in the Resolution of Formation. Any delinquent payments must be satisfied before the sale of the real property, since the unpaid amounts are a lien against the property.

When purchasing a home in California, buyers should be proactive in ascertaining if the home falls within a Mello-Roos District so they are knowledgeable about the additional tax on the home. Here are some avenues to obtain more information about the precise amount of taxes that will affect the property you are considering purchasing:

• Inquire with your Realtor who has the resources to investigate if the property has a Mello-Roos tax associated with it.
• The information can be found on the Seller’s transfer disclosure statement disclosing if the property is in a Mello-Roos District.
• The information is in the Mandatory Natural Hazard Disclosure report that the seller is required to provide to the buyer during the escrow process.

Interested in what you are reading? To automatically receive these Escrow Tips in your email box, subscribe to these articles at the top right corner of this site (www.AmericanTrustEscrow.com) in the box titled “Subscribe via Email”.

Become a fan of American Trust Escrow on Facebook and follow us on Twitter.

How to Email Articles (Posts) to Your Clients

Every Tuesday, here at the American Trust Escrow blog, we post Technology Tips designed to help you, the REALTOR®, grow your business, keep up to date on the latest technologies, and move you forward into the new era of real estate.

You may have noticed that we’ve been providing some escrow education and answering a lot of great questions here on our blog (even though you may be getting this in your inbox, the article is still also part of the American Trust Escrow Blog and permanently archived/available there). Topics like Options for How to Hold Title – The Vesting Form Explained and What Day Is Best To Negotiate Close of Escrow? Although there is new topics/articles on our site every week, the old topics remain on the site and are available for you and your clients anytime. And, it is simple to share these articles via email with your clients. Here’s how:

Step 1: Go to the site and find the post you are looking for. Say you want to email the article Choosing A Notary When It’s Time to Sign Your Escrow Documents. Go to the site and locate the post so that it appears in the main area on the left of the site

Step 2: Scroll to the bottom of the post and locate and click on the “Share This” icon.

Step 3: Click on the Share This link and select the Email option under Send.

Step 4: Fill in the form and select the Send button.

That’s it! Your client will now receive an email from you that links them to the post and includes your message.

It works for any of the posts we do. Share away!

Interested in what you are reading? To automatically receive these Tuesday Technology Tips in your email box, subscribe to these articles at the top right corner of this site (www.AmericanTrustEscrow.com) in the box titled “Subscribe via Email”.

Become a fan of American Trust Escrow on Facebook and follow us on Twitter.