The Preliminary Title Report is a Must Read During Your Escrow

If you are in escrow for a California residential property that you're buying, and if you don't know it already, there are lots of documents to read, understand and sign--within a deadline no less.  It's a lot to comprehend at once, especially since, unless you have acquired properties within a recent one or two year span, you don't see these documents more than once every few years at the most, if ever.  Transaction confusion and anxiety can be at least partially reduced by building up familiarity with some basics in advance of actually being in escrow.

Temple Lofts

The Preliminary Title Report is one of those documents:  The entire purpose of it is to review conditions about a property in case there's anything discovered in an investigation of the public record which should be cleared ("exceptions") before the title policy is issued. 

Perhaps your experience has been routine in the past, so the entire report seemed like a "no brainer".  But what if something unexpected happens?  I remember the two buyers I once represented who especially wanted two gated parking spaces with their condo purchase, neither spouse wanted to park on the street.  The MLS listing clearly stated there were two parking spaces, and they obtained an accepted offer believing that's what they would have.  However, the legal description section on the preliminary title report (which they said they completely understood after receiving it) said something different, and my subsequent review and conversation with the title officer confirmed there was only one parking space.  It was several days of huge disappointment for the buyers--but they ultimately proceeded with the purchase because the condo otherwise met with their approval.   Condos in particular can run into these parking issues, so be sure to review your report if you're wanting a condominium, in this case it was the legal description that revealed the parking space.  

Schedule B - any exceptions included here need to be reviewed--they are matters that will not be covered by the title policy: pending court actions, private transfer fees which must be paid upon sale, judgments, tax liens, notice of default, trustee's sale, junior liens.  Unpaid property taxes, assessments and deed of trust are usual items to see on Schedule B as conditions to be removed prior to closing, unlike the previous items.

Forgery is a felony and unfortunately can happen to an unsuspecting property owner who may be the victim of someone attempting to transfer legal ownership without his/her knowledge. Title insurance protects against forgeries which may have occurred prior to the issuance of an owner's policy. Otherwise, an owner would have to bear the expense of resolving legal issues resulting from a forgery.

A requirement is to provide the title company with a statement of information (early in escrow, please!) which is used to discover matters which affect the interest of both the buyer and seller, i.e.,  judgments or tax liens in the public record.  If a buyer, for example, has an unpaid lien of $10,000 filed against her for medical bills, even though it has nothing to do with the subject property, this may affect her ability to obtain a mortgage and must  be paid off before the close of escrow.  

These are just some of the issues handled by the issuance of a "prelim" report -- having title insurance is not something that should be skipped in your property purchase.

If you would like a sample copy of a preliminary title report, please contact me with your email address. 

If you would like a market evaluation of your property, I will be happy to evaluate in person or online.

Julia Huntsman, REALTOR, Broker | www.juliahuntsman.com | 562-896-2609 | California Lic. #01188996

New Transaction Closing Rules with CFPB - Part II

Note:  The new start date is October 1, 2015. 6/28/2015.
Mark August 1, 2015 as the date on which transactions will be impacted!

The Consumer Financial Protection Bureau is an independent agency which operates withoutCongressional supervision, one of the few such entities in the country, and is considered a least accountable agency (by just about everybody including Congress).  It oversees banks and financial institutions, credit unions, students loan, credit card companies, payday lending companies, mortgages, foreclosures.  (It resulted from the Dodd Frank Act which came into place as a result of the economic crash, and its director was appointed by President Obama.)

The CFPB is not federally funded, but instead issues fines to banks for their bad behavior:
Wells Fargo - $24 million; Chase - $11.7 million, NewDay Financial - $2 million; and just the other day, per their website "Green Tree to Pay $48 Million in Borrower Restitution and $15 Million Fine for Servicing Failures".  Yes, there have been failures by the banks, but how we got to a bureau that seems to have no oversight seems to be borrowing a page from the bank failure book.

But for now, consumers, lenders, escrow, title and real estate agents are at the beginning of changes will are most certainly to lengthen the average 30-day transaction to 10-15 days longer.

New terms:
Escrow=settlement agent
Lender=creditor
Day loan docs are signed=consummation day
Close of escrow day=settlement day
LE=loan estimate (no longer a good faith estimate)
CD=Closing Disclosure (replaces HUD-1)

Buyers and sellers, get familiar with all terms but know that "CD" is a 5-page disclosure which must be received by the borrower a minimum of 3 business days before signing of loan documents.  It doesn't matter if you can read and sign in 3 hours, you must wait 3 business days before loan documents can be signed.  What if you ask the seller, and the seller agrees, to compensate the buyer $350.00 towards the buyer's closing costs during escrow?  The borrower receives a new CD and must wait 3 business days.  If the lender decides to mail out the CD to the borrower instead of allowing digital signature time, then the lenders will give a total of 7 business days from send out.

Sellers, I can only say this:  Make reasonable repairs, including all carbon monoxide and smoke detector placements where required,  prior to listing to avoid delays with appraisers calling out such repairs, which will require a second visit by the appraiser, and which also costs the borrower more, in order to avoid these delays.
Buyers, If you decide to make an offer on a property which requires numerous or even just a few, repairs, be prepared for a longer transaction, because everytime a change is made, a new 5-page CD goes out to the borrower from the lender.  You can see how the time starts adding up, going well beyond the existing 17 and 21 days for buyer to investigate and remove contingencies.
Other examples of changes which will require 3 business day re-disclosure:
Changes in APR; changes in the loan product; addition of a pre-payment penalty.
Realtors must be prepared for these changes and be able to work with their clients on these timelines.

A sample calendar provided to me recently shows Day 1 starting on a Monday (Saturdays are included as business days, Sundays are excluded), going all the way through to Day 38 in a NORMAL transaction showing the lender's schedule, but this calendar did not take into account what else could be happening between the buyer and seller during the various contract contingency period, which is how further issues and additional time periods could come up. There is much that will be found out on a practical level when the time comes, because there are still unknowns in these new requirements.
Additional issues:  Lenders may refuse to work with certain escrow companies, and therefore buyer and seller may not be able to choose in some circumstances, because the lender may force both parties to transfer the file to another company.  Please remember, California escrow companies already are "vetted" and responsible to the Department of Business Oversight which maintains their own rigorous standards.

At this point, consumers need to change some of their expectations, both with their loans and the property transaction itself, and who they may be able to select for services.
These are nation-wide changes, not just something happening in one county or one state.  Some industry professionals are saying they've never seen anything like this during their 30 or 40 years in real estate (and they don't mean it in a nice way), so what happens after August 1 will be different--that much we know.

New California Bill Will Cost Property Owners Addtional Recording Fees

Since the downfall in the economy and the upswing in distressed property sales, sellers of short sale properties were not taxed by the federal government on what was called "unearned income".  Thus, if the loan balance before the sale was $200,000, but the owner could only sell at $150,000 as the current market value, there was no IRS tax on the difference and mortgage debt was forgiven.  California's Franchise Tax Board followed the IRS provision, so there was no California tax either.

But that state provision was due to expire and the bill to renew that provision, SB 30, has been up for vote by the Assembly and the Senate. However, a surprise amendment last May added Senate Bill 391 (California Homes and Jobs Act of 2013), and now is tied to the first bill and which includes a provision that requires a $75.00 recording tax to all recorded documents, which could be as many as 28 different types of documents, on a property.  The idea behind SB 391 is to fund a low-income housing trust with these $75 fees.  Bear in mind, not only the California Association of Realtors objected to this, but also the county recorders, assessors and title industry opposed this bill.

If the current impasse isn't overcome in the next few days, homeowners who sold a short sale this year might end up with a big tax bill.

Some people think that only "irresponsible" people are involved with short sales (really? what about if you just lost value in your home because the market went down?), however as one person recently pointed out:  "Why should just one subset of society, those that happen to need to record a document, be on the hook for funding subsidized housing?"  So true, jskdn, who wrote to The Sacramento Bee. 

27388.1.

 (a) (1) Commencing January 1, 2014, and except as provided in paragraph (2), in addition to any other recording fees specified in this code, a fee of seventy-five dollars ($75) shall be paid at the time of recording of every real estate instrument, paper, or notice required or permitted by law to be recorded except those expressly exempted from payment of recording fees. “Real estate instrument, paper, or notice” means a document relating to real property, including, but not limited to, the following: deed, grant deed, trustee’s deed, deed of trust, reconveyance, quit claim deed, fictitious deed of trust, assignment of deed of trust, request for notice of default, abstract of judgment, subordination agreement, declaration of homestead, abandonment of homestead, notice of default, release or discharge, easement, notice of trustee sale, notice of completion, UCC financing statement, mechanic’s lien, maps, and covenants, conditions, and restrictions.

Don't panic yet, home sales are excluded (normally there's about two recorded documents on a home sale).  But to return to the low-income housing trust fund, Dan Walter of The Sacramento Bee states: "One of the rare times the supermajority functioned was last spring when the Senate voted 27-0 for Senate Bill 391, which would impose fees on real estate transaction documents to raise money for low-income housing, at least $300 million a year."   This is another great example of how real estate is seen as the mother's milk for every funding idea/tax/fee that comes along.  $300 million to be gained from recording fees?  I wish there was an explanation for that projected amount of income. 

Did someone count 4,000,000 documents recorded statewide last year?

Read more here: http://www.sacbee.com/2013/09/06/5711663/dan-walters-posion-pill-would.html#mi_rss=Dan%20Walters#storylink=cpy

The Terms in Your Offer to Purchase

In a 10-page contract, there are quite a few terms and conditions to cover with a buyer when they're writing one with the agent, or with sellers when they receive one from an interested buyer. If using a Realtor as your agent, then you should be using the standards forms with the California Association of Realtors logo imprinted at the top and which are used statewide in residential transactions (logo at right). This post won't answer all questions, by the way, your own case will be individual to your concerns and interests.

• Expect to take some time meeting with your agent the day you make an offer. It's pretty hard to do in five minutes (as I've had some people actually expect). You need to understand buyer contingencies; you should have already contacted a loan officer and bring a letter or certificate or pre-approval with you to the meeting; and be prepared to write a check for the deposit money, which will be held in trust by your agent until submission to escrow.



• The Loan: While funding the loan could remain a contingency throughout the escrow (it's negotiable with the seller), obtaining your down payment and costs of the loan is not, and the contract says "buyer shall act in good faith to obtain the designated loans"--which means that even if one source in this volatile market may no longer be able to help you, you have to do your very best to find another loan in order to honor your agreement with the sellers. After all, you said you would buy the house from them, they've made their arrangement to move one, they may in contract themselves with another purchase they worked hard to find and negotiate, and they're counting on you to perform. Also, you should have already worked out what monthly payment you're comfortable with, because if your agent does not write in a maximum interest rate for your loan on the contract, you could be legally obligated to pay any interest rate, no matter how high.


• Escrow Time: This is another negotiated item, both the provider and the length of time. The usual time is 30 days, but what if the buyer has to give notice, or sell, or what if the seller needs more time to move out, or has a contingency to buy a new home; or what if the buyer's loan is FHA which typically takes a little longer for cosing ... then 30 days might mean 45-60 days. AND, if you decided to purchase a "short pay" property, your escrow time would more likely be 60-90 days because most banks aren't working that quickly on those approvals ... so then if you're financing that property, your interest rate environment could change in that period of time. Be prepared.


• The Appraisal: The appraiser is sent out by the lender to appriase the property, and often the contract requires the buyer to remove that contingency within 17 days. The seller wants to move one, and the buyer wants to know the selling price and appraisal are in agreement. This is just one of several areas where if there is no agreement, the buyer may cancel (not will, "may"). Appraisal reviews are more common, take up additional time in escrow, and even if they don't delay the close, nerves could be frayed over this issue.


• Buyer Inspection(s): This is a major contract contingency, so on the day the buyer has his/her physical inspection, you should be able to follow the inspector around as much as possible and ask questions, or certainly at the end, and most certainly when you get your report, which also the seller receives. Because the buyer has only so many visits to the property before it closes, it's tempting to use that time for home decorating ideas and measuring for furniture. But later on, if an issue comes up, you the buyer might wish you had paid more attention to that inspector while he/she was there, and whom you paid for the inspection.


• Are tenants currently living on the property? Make sure your contract covers their departure or their continuing occupancy.


• Seller Disclosures: The contract spells out the timeline and the nature of these disclosures, and the buyer right to cancel. Carefully look at the Transfer Disclosure Statement, and if you still have questions, take the time to follow up with your agent. The seller is supposed to disclose known defects, but the sellers don't always know absolutely everything about their property. Buyers must do their "due diligence", which is the buyer is given 17 days and a separate buyer inspection form to let them know all the issues to look into if necessary. There are other numerous documents to sign, including the natural hazard report, California tax report, lead-based paint, water heater, smoke detector, and other required or recommended forms, as much as 17-18.


• Taking Title: You need to instruct the escrow officer , and if necessary, get legal advice about how to do this, whether you're single, divorced, married, have a trust, etc. Are you taking joint tenancy, community property with right of survivorship, sole proprietor? How title is taken can affect future legal rights.

These are just a few of the basics of dealing with an offer, other issues include dealing with homeowner associations, liquidated damages and arbitration/mediation. Buying or selling a home is a significant event for most people, it's important to set aside the right amount of time for it. The more you prepare yourself in advance the less chance you will have buyer or seller remorse about how your transaction was handled. Dian Hymer's "Starting Out" is a good publication for buyers.

Long Beach long beach real estate 'Voice this!

Buying a Home at Auction

With more talk about foreclosures, there’s more awareness of buying a property at auction. But it’s important to do your research first if you think you want to buy a property this way. You need to get information about the property, i.e., amenities and square footage, how much is owed against it, and what is the expected opening bid, either required or suggested.

Have your financing already in place, and be prepared for the required deposit for an accepted bid. Your financing must be in place within a specified period of time.

Price at an auction is based on the loan amount owed plus fees and expenses that the foreclosure process has incurred. It may be less than market value, but realize that once the lender owns the property, it may sell with the help of a real estate broker or through auction.

You usually have to have the money in hand and your loan ready to fund. Each auction has different time requirements.

Most of the time, you don’t have the option of getting inspections and may not see what you’ve bought until you’ve bought it. Most homes are sold in “as is” condition without any warranties of any kind. There are no disclosures or guarantees. There are some auctions where you are allowed an advance preview which may afford an inspection.

Consider all your costs, including the auctioneer’s fee and taxes owed against the property. And during this time, all your research could be wasted (is any knowledge really wasted though?) as the borrower may be able to cure the loan at the last minute!

Last but not least, a property sold at auction may not have clear title, depending on how they are sold. There could be various liens and encumbrances which could require a lot of work to clear up.

Be prepared, if necessary, to walk away. If the deal is not right for you, it’s not a deal.

Information courtesy of eHow.com.

Long Beach

Foreclosure Auction

Talking to Your Realtor

With so much focus right now on housing affordability and on the financial capacity of the buyer to buy, you would think the only thing holding someone back is whether they have money, or access to it. But in fact there are other reasons why a buyer may have to wait.

Most recently, I met a man and woman who seemed very ready to buy together and told me they were pre-approved for a loan, and that they could get the letter of pre-approval I asked for. After getting them to a table where we could talk, and presumably write the offer on a house they seemed most interested in, it turned out there was more information not previously revealed. Buyers, first of all, please realize that when a Realtor asks certain questions, they’re not just prying. There’s a reason for finding out, for example, what your marital status is. Just know that California is one of the several community property states in this country, and if you’re still married—that means your divorce decree is not yet finally granted by the court—that new property you’re going into escrow with will also be owned by your current spouse.

See this Marital Status flyer from North American Title.

If you’re planning on buying with your new partner, that could complicate things. If your current spouse is not willing to quitclaim his/her interest in your new purchase, and you don’t want him/her on title with you, that could completely prevent the transaction from going forward, and might have certain consequences to you depending on the terms of the contract—losing your deposit (in this market often at least about $10,000-$12,000) could be one of them.

So please, disclose information concerning taking title to all parties at the outset of your working relationship. It will save everyone, including you, from transaction problems which might actually be negotiated in some way if known up front.


Long Beach, CA, community property, divorce

Title Insurance

Why do you need Title Insurance?