Archive for the 'Escrow' Category

What Is Escrow?

We hope you find this information helpful when trying to answer the question, “What is Escrow?”

How to Handle Power of Attorneys in Escrow

 

 

 

 

 

 

Sometimes the perfect home, or the perfect buyer comes at an inopportune time. That long planned trip is right around the corner and buyer or seller will not be in town for the escrow process. There are options. One is utilizing a Power of Attorney to execute documents on behalf of the party in escrow.

The Title Company will need to approve any Power of Attorney used during the transaction. Title will need the original to be recorded with any recordable document that was signed by the Power of Attorney (Grant Deed, Quitclaim Deed, Deed of Trust). The sooner Title can review the notarized Power of Attorney, the better, to avoid any potential problems.

If a buyer is using a Power of Attorney to sign loan documents, the Lender will need to be notified well in advance. They will want to approve the Power of Attorney ahead of loan documents being drafted to ensure the loan documents are drawn properly.

Power of Attorneys have to sign documents in a specific format. If John Doe gave Jane Small specific Power of Attorney to sell his home, Jane would need to sign and initial in cursive like the below.

Signatures:

John Doe by Jane Small, his attorney-in-fact

Initials:

JD by JS, his attorney-in-fact

If you have a client who is going to need a Power of Attorney, please reach out to us and we would be happy to assist you in any way we can.

What You Need to Know About Proposition 60 / 90

Sellers who are 55 and over may be eligible via Proposition 60 (intracounty transfer) /90 (intercounty transfer) for a transfer of property tax base on their primary residence.

Eleven counties in California have ordinances for intercounty tax transfer.

 

 

Here’s the list:

  1. Alameda
  2. El Dorado
  3. Los Angeles
  4. Orange
  5. Riverside
  6. San Bernardino
  7. San Diego
  8. San Mateo
  9. Santa Clara
  10. Tuolumne
  11. Ventura

Counties may update their ordinances. Call the county for the most current information on their policies. Each county assessor has their own 60/90 application. The application must be filed with the assessor for the county where the replacement property is located. A list of all counties (even those who do not have Proposition 90 ordinances) can be found here: http://www.boe.ca.gov/proptaxes/assessors.htm )

While the ordinances are generally understood, there are some fine points that should be noted when advising your clients.

If your seller has the home in a trust: Being the trustee of the trust does not mean they are the sole beneficiary of the trust. To be able to apply for Prop 60/90, your seller will need to be the beneficial owner of the trust, not only the trustee.

Sale price is not always the market value: The replacement property needs to be of equal or lesser market value than the original property. This is not always the sale price.

Co-owners cannot both qualify: Only one of the owners can receive the 60/90 benefit. They must discuss it amongst themselves to see who will be taking the benefit.

For more information on the propositions and the necessary qualifications to apply go to the California Board of Equalization’s website.http://www.boe.ca.gov/proptaxes/faqs/propositions60_90.htm#1

 

Escrow vs. Title

We get asked this question a lot: “What is the difference between title and escrow?” We’ve created this educational infographic to help people understand, click on the image for a larger view! Contact your escrow officer if you have any questions!

Escrow Terminology 101

definition

The language of escrow and the real estate transaction doesn’t need to be a stumbling block; once you know the terms, these words become what they are meant to be – valuable tools to help smooth the road to a successful transaction.

Contingency
This is a clause in the sales contract that says something must happen before the sale goes through. The sale is contingent on this event, in other words. Common contingencies are the arrangement of financing, a successful home inspection or wood pest inspection, or a roofing or sewer report.

FIRPTA
The Foreign Investment in Real Property Tax Act of 1980 is important if you are buying a property from a person or corporation that is not US-resident. FIRPTA rules state that the buyer must withhold up to 15% of the realized sale price for tax purposes.

Cal-FIRPTA
The California version of FIRPTA, this legislation requires the withholding of a percentage of the sales price for most California real estate transactions. Talk to your Realtor or escrow officer to get a full explanation of how this law affects your transaction.

Easement
An easement is an allowance, written into the property’s title, for another person or company to have access to a portion of the land for some purpose. Often an easement allows access to power lines or utilities running through the property. A registered easement gives the other party legal access, and restricts what the owner can do on that piece of the property.

Encroachment
An encroachment is any structure or physical thing that intrudes on somebody else’s space. Encroachments must be agreed upon before building, resolved if discovered, or removed if objected to.

Escrow
An escrow is a financial arrangement where a third party (the escrow company) holds and regulates payment of the funds required for two parties to complete a transaction. It helps make transactions more secure by keeping the payment in a secure escrow account which is only released when all of the terms of an agreement are met as overseen by the escrow company.

Deed of Trust
In many states, including California, this document takes the place of a mortgage. The Deed of Trust places a property’s title in the hands of a Trustee, usually a title company, along with the specifics of the buyer’s loan and repayment provisions.

Lien
This is a legal claim on a property by someone the owner owes money to. In real estate transactions, the lender will attach a lien to the property title, saying any money from sale of the property will first be used to pay off the loan.

Prorations
In a real estate deal, the escrow agent will need to figure out the buyer’s and seller’s portions of expenses that get paid according to a certain date – eg taxes, interest or utility bills. The agent will pro-rate the expense, doing the arithmetic based on the transaction’s closing date.

Grant Deed
This is the actual document of the real estate sale. It states that the seller, or Grantor, is selling the property to the buyer, or Grantee. It states the specifics of the property, and that the seller has revealed any liens or encumbrances. The Grant Deed is usually notarized and recorded.

Title Insurance
This is an insurance policy for buyers that protects them against unanticipated defects in the property title. These could be anything from hidden liens, ex-spouses, unrevealed heirs, or recording errors, to forgery. Title insurance policies carry different specifics and exceptions, so examine yours carefully.

Closing Costs
The buyer and seller have expenses associated with the transaction other than that of the actual cost of the home. For example, the buyer has a variety of fees due for obtaining a new loan and the seller must pay commission to both agents.

Closing Disclosure
A form that provides the final details about the mortgage loan. It includes loan terms, projected monthly payments, and how much the extra fees will be.

Closing
This is the final meeting where the buyer and seller sign the necessary paper-work, complete the transaction, and release/take possession of the property. Usually the representing agents and attorneys attend.

Property Taxes
These are the taxes that are enforced by the city, town, county, and state government entities. These taxes are included in the total monthly mortgage payment and are held in escrow by the lender.

Please share with your clients, these terms are a great resource for all parties in a transaction to be familiar with.

Become a fan of American Trust Escrow on Facebook! 

City Property Report Requirements

Screen Shot 2016-08-12 at 3.29.46 PMSeveral cities have updated their retrofitting and property report requirements. We have the latest report requirements here on our website: http://americantrustescrow.com/city-property-report-requirements/. Check back often for updates!

Form 593-C: An Explanation For Sellers

When real estate is sold in California, the state requires that income tax for that sale must be withheld.  In this post we will discuss sellers who are individuals or who may qualify as an individual.  We will also explain qualified exceptions and exemptions to withholding.

What is the 593-C Form?
The seller will need to fill out the State of California Real Estate Withholding Certificate, form number 593-C.  The escrow company will provide this form to the seller, typically when the escrow instructions have been prepared and sent out for signatures.

Completing the 593-C Form

The standard amount of taxes to withhold is equal to 3 1/3% of the total sales price.  (Note: If the seller is claiming an exemption by filling out the 593-E form, the percentages will be different on if it is reduced withholding.  Those percentages are reflected on the form itself.)

If the seller is an individual, enter the social security number (SSN) or individual taxpayer identification number (ITIN) as indicated on the 593-C form.  If the sellers are spouses/registered domestic partners (RDPs) and plan to file a joint return, enter the name and SSN or ITIN for the spouse/RDP on the 593-C form in the space provided.  If there is more than one seller and the sellers are not married/RDPs, then each seller must complete their own 593-C form.

Entities That May Be Considered “Individuals” by the Franchise Tax Board

Single Member LLC:
If the seller is a single member disregarded LLC, enter the name and the tax identification number of the single member.

Grantor Trust:
A grantor trust is created when the trust is formed by the grantor(s) and the grantor(s) are also the trustee(s) of the trust.  A good example of a grantor’s trust is a Family Trust.  The grantor trust is disregarded for tax purposes and the individual seller must report the sale and claim the withholding on his/her/their individual tax returns.  If the trust was a grantor trust that became irrevocable upon the grantor’s death, enter the name of the trust and the trust’s federal employer identification number (FEIN) on Form 593-C.  Do not enter the decedent’s name or trustee’s name or SSN.

Exceptions to Withholding
Certain real estate transactions are exceptions to state income tax withholding.  The exceptions are:

  1. the total sales price is $100,000.00 or less;
  2. the property is being foreclosed upon pursuant to a power of sale under a deed of trust, or sold by a deed in lieu of foreclosure;
  3. the transferor is a bank acting as a trustee other than a trustee of a deed of trust;
  4. the seller certifies to an exemption.

Exemptions to Withholding
There are several exemptions.  The most common exemption is the seller’s principal residence as set forth under Internal Revenue Code (IRC) Section 121.  Generally speaking, the seller must have owned and lived in the property as their main home for at least two years during the five-year period ending on the sale of sale.  Another exemption would be a loss or zero gain.  Claiming this exemption will require form number 593-E to be filled out and signed by the seller.

If any of the first three exceptions are applicable, the seller checks the appropriate exception on the 593-C form and signs the form.  If the seller checks number 4 on the 593-C form, claiming an exemption, there is an additional form which will need to be filled out.

The California Franchise Tax Board website has provided more information with a complete list of exemptions, as well as forms 593-C and 593-E.

It is always important for the seller to check with their tax advisor when filling out the 593-C and it is even more important if the seller is filling out a 593-E exemption form.

TRID Closing Timelines

We did an analysis of what effect the ‪#‎TRID‬ implementation had on the median days to close for all closings before the 10/3/2015 implementation of TRID and all closings under the new rule which were opened after 10/3/2015.

Here’s the data for Refis (R) and Resales (S).

We have seen no significant closing delays since the TRID rule was implemented.

How have your transactions been going since the TRID rule rollout?

Screen Shot 2016-03-17 at 11.13.35 AM

 

 

 

 

 

 

Owner’s Title Insurance Policy Update

New RegulationThe CFPB is requiring that the owner’s policy be disclosed as “optional” due to the fact that unlike the lender’s policy which is required by most institutional lenders in the country, an owner’s title insurance policy is not a transactional requirement nationwide.

This new descriptor was written to and applied nationwide with no allowance for customary contractual requirements in Southern California. Some parts of the country do not have the risk and liability of real estate transactions as we do in the highly populated State of California and thus Owner’s policies are considered optional and not a contractual obligation as they are here. As a reminder, the Closing Disclosure is a lender document and does not release the seller of any obligation to provide the buyer with required items per the mutually signed purchase agreement.

Here is a consumer friendly link on title insurance that might be helpful to your clients: http://www.consumerfinance.gov/eregulations/sxs/1026-38-g-4/2013-28210?from_version=2015-01321

LexisNexis® Discontinues The Sale of C.L.U.E.® Reports

news-1C.L.U.E.® Home Sellers Disclosure Reports will no longer be available through American Trust Escrow or any other disclosure companies. LexisNexis®, the company that owns the C.L.U.E.® Report, has decided to discontinue the sale of the report through third party vendors such as California disclosure companies. Should a buyer request this report, sellers can obtain one free copy of his/her consumer file during each twelve month period. If a second report is needed in a 12 month period, a $19.50 fee will be charged. Proper C.L.U.E.® Reports can be ordered here.

Sign-Up for Email Updates 


Invalid email

Thanks for subscribing!