Section 5: Escrow, Title, Closing, and Insurance Flashcards
In AZ, we use ______ companies to close the transaction and transfer ownership of property.
Escrow Companies
______ = A third party that has a neutral non-interested position in the sale. The intention of these companies is only to follow the written instructions provided.
Escrow Companies
Escrow Companies:
The intention of escrow companies is only to follow the written instructions provided.
o Buyer and seller purchase agreements and addendums numbered and in order.
o Any other supplements to the contract.
o Lenders (if any) instructions for loan funding and conditions.
o Commission and funds disbursement ______ to all parties.
o All docs must be in order before real estate transactions are executed and closed.
o If there is a discrepancy in the docs, the escrow agent will need clarification from all parties.
Instructions
Escrow Companies:
* The buyers and sellers typically do not meet in AZ they usually have _____ signings.
* Some states use a style of closing known as face to face where all parties are at same table at the same time and pass documents to each other.
Separate
Escrow Companies:
* Escrow companies are normally chosen by the ____ in the transaction but is negotiable.
- There is no law that dictates who chooses the escrow company, but it’s nearly always this agent Ex. Common Law!
Buyer
Escrow Companies:
* ______ is held by the escrow company in a trust account.
* Funds from lender and buyer are also held in a different trust account that is set up and held by the escrow company.
Earnest Money Deposit
Title Company Vs Escrow Company:
____________:
o **Firms that provide a title search on a property and bring any title issues up. **
o Ensure that title is legitimate and can issue a title insurance policy.
o **Regulated by the AZ Dept of Financial Institutions. **
These firms do not in fact handle or touch the money in the transaction.
**NOT bonded since they don’t handle the money. **
Title Companies
Title Company Vs Escrow Company:
____________:
FATCO, Stewart Title, Security Title Company are examples.
Title Companies
Title Company Vs Escrow Company:
____________:
o Firms that are the intermediary between all parties.
o Close the transaction and are responsible for all funds and recordings.
o Regulated by the AZ Dept of Financial Institutions.
Since they are handling the money, MUST be BONDED.
Escrow Companies
Title Company Vs Escrow Company:
____________:
AZ Escrow Co, Thomas Escrow are examples.
Escrow Companies
Title Company Vs Escrow Company:
o Many escrow companies are owned by title companies.
One office CAN act as _____ Title and Escrow company.
Both
Escrow Agents:
* Any employee who works for an escrow or title company, bank or brokerage firm.
Acts as a ______ for all parties to the transaction.
Fiduciary
Escrow Agents:
_____= Involving trust, especially with regard to the relationship between a trustee and a beneficiary.
Fiduciary
Escrow Agents:
Agent must be impartial and neutral and ______ have any interest in the transaction.
o Any agent who is working for the escrow/title company who has a financial interest in the property that is under contract with this company, all parties must be made aware.
o Disclosure to all parties up front (usually at time of contract or listing).
Cannot
Escrow Agents:
* In many States (especially back East States) the escrow agent is an attorney.
* The escrow agents will complete the paperwork, organize the file and act as point of contact.
* If working with a COMBINED Escrow/Title office, could be called the _____.
Title Agent
Escrow Agents:
IMPORTANT: * Agent’s Duties During Escrow can vary but generally include:
o Ordering payoff statements on behalf of the seller for HOA/Loan’s.
o Organizing the priority and status of all liens.
o Calculation the prorations between buyer and seller.
As part of the contract, a close of escrow date is to be determined which customarily will belong to the _____ (prorations – paid for by the buyer).
Buyer
Escrow Agents:
o Notifying parties of transaction and file updates.
o Collecting and organizing all of the loan documents.
o Issuing of ______ and receipt.
Title Insurance Commitment
Escrow Agents:
o Acting as Notary for signing of documents for both buyer and seller.
o Preparing the ______.
o Disbursing all funds to all parties at successful close.
o Recording the new deed and buyer with the county where property is located.
Settlement Statements
Escrow / impound Account:
* Once a buyer is ready to close on their loan they will set up an ______ account.
* Normally it is set up by mortgage lender during the escrow.
* Account is made to collect future property taxes and insurance.
At the close of escrow, this account is transferred to the lender.
Impound
Escrow:
* ______ = An account set up and maintained by the mortgage company to collect insurance and tax payments on behalf of the owner.
* The lender then pulls from that account as needed to pay taxes and insurance.
Impound Account
Escrow / impound Account:
* _______ = Payments include Principal, Interest, Taxes and Insurance.
o P.I.T.I is the most common type of loan.
Budget Loan (PITI)
Escrow / impound Account:
o Owners pay their taxes and insurance in ______ increments.
o Money is held in the initial escrow account until payments are made.
1/12th
Escrow / impound Account:
o Lender makes payments on behalf of owner to ensure their interests.
Non-payment of property taxes, ______ could sell property.
Result of total loss, insurance would make lender whole again.
Government
Title Searches:
* ______ do extensive research and examination of historical records from court records, property and name indexes to verify the seller’s right to transfer ownership.
IMPORTANT: The purpose of all this research is to discover claims, defects and/or other rights or “clouds” against the chain of title which could impact the potential transfer of real property.
Title Plants
Title Searches:
o ______ = any type of hindrance or encumbrance that might invalidate or impair the title to real property or make the title doubtful.
o These are usually discovered during a title search.
o These are resolved through initiating a quit claim deed or a commencement of action to quiet title.
Cloud on Title
Title Searches:
______ = To establish free-and-clear ownership of the property, and to resolve any defects or clouds found in a property title search.
* These can clear up any outstanding liens on the property due to any errors or to correct a liens status.
Quiet Title Action
Title Insurance:
IMPORTANT: * An insurance policy issued by the title agency that will insure the buyer or lender from any future claims that arise from the sale of the property.
* Best type of proof of good title is to have a ______ - in other words, if the title company will take the risk, it’s a good indication of clear unencumbered title.
* This will provide Marketable Title
Title Insurance Policy
Title Insurance:
Seller must be able to provide this Title.
o _______ title: Another term for “clear title” – this title is evidenced by having clear title and the rights to transfer ownership freely.
o Some encumbrances and liens can be insurable.
Current year taxes
Current deed restrictions.
Known special assessments
Marketable Title
Title Insurance:
* Two types of title insurance policies:
o ________ - which insures the BUYER of the property
The SELLER almost always pays to insure they aren’t liable for future claims brought to the new owners pays to insure they aren’t liable for future claims.
If the new owner incurs a loss or damages from a defect in the title, the title insurance company who issued the policy will satisfy and defend the owner.
Title insurance company will defend against claims brought against owner.
Owner’s Title Insurance
Title Insurance:
* Two types of title insurance policies:
o ________ - policy which insures the LENDER against claims.
Buyer pays for policy on behalf of lender to protect lenders asset.
Insurance that pays the insured for a financial loss resulting from a title defect that existed when the insured received the title.
NOTE: An extended coverage policy goes above and beyond that of the standard policy and is commonly found in commercial policies and covers the owner against more defects that may have not been found in the preliminary title search reports.
Lenders Title Insurance
Title Insurance:
* Commitment For Title Insurance:
o The title company’s promise to issue a title insurance policy for the property after closing.
o _____: contains the basic information such as the legal description of the property,
sale price, loan amount, lender, name and marital status of buyer and seller.
Schedule A
Title Insurance:
* Commitment For Title Insurance:
o The title company’s promise to issue a title insurance policy for the property after closing.
o _______: “Exceptions” are items which are tied to the property. (CC&Rs, easements, assessments, etc.) which will remain of record and transfer with the property.
Schedule B
Title Insurance:
* Key Terms found in the Title Policies:
o ______ = Rights to retain ownership of property against someone else’s future claims.
Bona Fide Purchaser
Title Insurance:
* Key Terms found in the Title Policies:
o ______ = No reasonable reason to suspect any problems with property.
Innocent Purchaser
Title Insurance:
* Key Terms found in the Title Policies:
o ______ = Title companies clause giving them the right to take legal action against any third party responsible for their losses for which a claim has been paid. (the title insurance company can recoup loses they paid to protect the new buyer/owner).
Subrogation
Title Insurance Endorsements:
* ______ = An addition or limitation of coverage that is attached to a title insurance policy.
Title Endorsement
Title Insurance Endorsements:
* Endorsements provide coverage that tailors the policy to fit the needs of the insured for a specific transaction.
* Most mortgage companies require endorsements on a Lender’s Title Insurance Policy.
* ________ - regulates the different types of endorsements.
American Land Title Association (ALTA)
Title Insurance Endorsements:
* There are literally 100’s of endorsements and are a ONE time charge at close of escrow:
o Condo and or PUD Endorsement.
o Restrictions and Property Encroachment Endorsements.
o Mineral, Natural Gas, Oil Endorsements.
o ______ Mortgage Endorsements.
Reverse
Other Types of Insurance:
* Private Mortgage Insurance (PMI):
o This policy protects the lender in case you default on your loan.
o The upfront premium is financed at time of close monthly payments are included in the ‘budget’ loan and paid to insurance company.
o Normally carried on conventional loans with less than 20% equity.
o ________ loans carry it for the life of the loan now.
FHA
Other Types of Insurance:
* ______:
o Protects your home and the possessions inside from serious loss such as fire.
o This is required by all lenders to protect their investment.
o Evidence of insurance must be obtained before closing on your home loan.
o If lapse in insurance, lender will place insurance on your property automatically.
Costs of lender placed insurance are substantially higher than normal.
Homeowner’s Insurance
Other Types of Insurance:
* Hazard and Flood Insurance:
o Required for FEDERALLY-related loans if the property is in a specific type of hazard areas.
o Flooding, Hurricane or Earthquake areas would REQUIRE flood insurance
o Flood and water damages typically NOT covered under homeowner’s insurance.
o Coverage is available in a separate policy from the ______ and from a few private insurers.
National Flood Insurance Program (NFIP)
Other Types of Insurance:
* _______:
o Under FEMA, providing affordable insurance to property owners, renters and businesses against flooding.
National Flood Insurance Program (NFIP)
Other Types of Insurance:
* National Flood Insurance Program:
o ______ = An insurance certificate which is to be used to provide elevation information necessary to ensure compliance with community floodplain management
ordinances which is to determine the proper insurance premium rate.
Elevation Certificate
Other Types of Insurance:
* Property Insurance:
o Many landlords wish to be added as an “______” to protect them against suit or liability on behalf of their tenant (leaseholder).
Additional insured
Other Types of Insurance:
* Property Insurance:
o ______: The loss payee is the party to whom the claim from a loss is to be paid, the insured or the party entitled to payment is the loss payee.
Loss Payee
Other Types of Insurance:
* Business Insurance
o Again, since there is no statute in place, there is no set “______” rate set. It is up to each broker to determine their own liability and what coverage they need.
Liability Coverage
Other Types of Insurance:
* Property Insurance:
o ______: A secondary policy that is in place to cover you in cases of large payouts where the insurance policy is maxed out on the payout, this policy will kick in to cover amounts over the original policy.
Umbrella Policy
Different from Insurance policy, this is OPTIONAL.
______:
* Covers the repair/replacement of major home system components and appliances.
* Optionally coverage can include items like the pool/hot tub, Solar Panels etc.
Home Warranty
Home Warranty:
* Charged on a yearly basis and typically has a service call fee and a deductible.
* Many policies have excluded items based on age of home or location
o Exclusions could be ______, electrical wiring, swamp coolers etc.
Septic Tanks
Insurance Loss History Reports:
* CLUE = _______
Comprehensive Loss Underwriting Exchange
Insurance Loss History Reports:
* Home insurance companies contribute claims history information to a database.
* Underwriters use the information in a CLUE report to rate insurance policies.
AZ contracts now state that a copy of the CLUE report is to be given to buyers.
o Sellers have _____ days after contract to furnish buyer with a CLUE report.
o Helps potential buyers understand the history of a home before they buy.
5 Days
Duties in Settlement:
Seller’s and Buyer’s Duties:
REMEMBER: This is known as having either an equitable or marketable title.
o Fill out the ______ and sellers information sheet.
o Disclose any mortgages or other known liens.
Owner’s Declaration
Duties in Settlement:
Seller’s and Buyer’s Duties:
* Seller’s = _______ (Giv-or)
o Person offering, giving, borrowing, etc.
o Sellers duty in escrow is to provide EVIDENCE of ownership.
Grantor
Duties in Settlement:
Seller’s and Buyer’s Duties:
o Buyers duty in escrow is to provide funds to purchase the property.
o Buyer should do their ______ also, but the only DUTY is to bring the money!
Due Diligence
Duties in Settlement:
Seller’s and Buyer’s Duties:
* Buyers = _______ (Receiv-ee)
o Person “receiving” (receeving).
Grantee
Deeds & Closing:
* Transfer of ownership doesn’t take place when the property ______ as most people think.
Records
Deeds & Closing:
_______: Legal document signed by the seller or grantor of real property used to convey ownership rights”.
Deed
Deeds & Closing:
**_________ actually, OCCURS when the Deed passes from seller to buyer.
*If the deed is never delivered to the grantee, then the conveyance did NOT take place and the grantor is still the owner. **
* The seller of the property is still liable for the property, its contents and the estate as a whole.
Transfer of Ownership
Deeds & Closing:
Insurance must be kept on the property up to the day of close of escrow.
o Day of closing belongs to the buyer
* Only the Grantor signs the deed, the buyer/grantee DOES NOT sign the deed.
* Recording of the Deed gives ______ that a new owner is in possession.
Constructive Notice
Deeds & Closing:
If the deed has been signed by the seller, death by either party does NOT _____ escrow.
o Parties can be forced to perform even if death by one party:
If the GRANTOR DIES, the grantee can sue the estate for performance.
If the GRANTEE DIES, the grantor’s estate can sue the buyers estate.
Cancel
Deeds & Closing:
Imagine the real world. If you were the buyer of a property and got a great deal, and then the seller dies, does it seem fair to you that you wouldn’t get the property now? Same is true if the buyer died suddenly during escrow - the spouse or heirs can be ______ to proceed. . . rare, but yes, legally it can happen!
Forced
Deeds & Closing:
** In Arizona the assessor will use an “______” to determine the tax assessments.**
o Affidavit of value is recorded along with the deed in the county recorder’s office.
o Used to track property values in order to aid the assessor in taxation rates.
o This document is signed by both buyer and seller to affirm validity.
Affidavit Of Value
Deeds & Closing:
IMPORTANT: *
_____ = It is possible with the appropriate disclosures to have the
escrow/title company perform a double escrow or a simultaneous closing where the seller sells to a buyer, who then in turn immediately sells to a new buyer.
Double Escrow [Simultaneous]
Deeds & Closing:
__________:
“A form that is required by the Real Estate Settlement Procedures Act (RESPA), that discloses all funds received, all disbursements made, and all expenses and all credits at closing in a real estate transaction using a federal loan.”
** Given to both buyer and seller in any transaction that involves a FEDERAL loan.**
o ** Federal Loans, VA, FHA, USDA:**
Uniform Settlement Statement
Deeds & Closing:
__________:
* Shows the amounts that both buyer and seller will pay in the closing.
* Displays both the buyers and the sellers Debits and Credits.
* Both Buyer and Sellers Side will always have Debits/Credits that match.
Uniform Settlement Statement
Prorations, Debits and Credits:
* _____ = Any Charge or Cost (Use a Debit Card at a store when you pay for something).
Debit
Prorations, Debits and Credits:
* _____ = Any money you get back (Stores ‘credit’ you when you return something).
Credit
Prorations, Debits and Credits:
* _____ = divide or distribute money evenly depending on usage of items or service.
o Whoever used the item/services pays for it based on time used.
o Remember that everything in a real estate transaction is negotiable.
o Used in calculating taxes, insurance, HOA, loans etc.
Prorated
Buyer’s and Seller’s Closing Costs:
* Buyer’s Debits (Money that the buyer will pay):
o ______ - Fees the escrow company earned in the transaction.
Escrow Fees
Buyer’s and Seller’s Closing Costs:
* Buyer’s Debits (Money that the buyer will pay):
o ______ - Discount points, origination points etc.
Lender Up Front Fee’s
Buyer’s and Seller’s Closing Costs:
* Buyer’s Debits (Money that the buyer will pay):
o ______ - Prepaid in the impound account.
Up front Taxes and Insurance
Buyer’s and Seller’s Closing Costs:
* Buyer’s Debits (Money that the buyer will pay):
o ______ - An insurance policy for the lender that ensures 1st place.
Lender’s Title Policy
Buyer’s and Seller’s Closing Costs:
* Buyer’s Debits (Money that the buyer will pay):
o ______ - Homeowners insurance impound account.
Prepaid Insurance
Buyer’s and Seller’s Closing Costs:
* Buyer’s Debits (Money that the buyer will pay):
o _______ – Taxes that will be impounded and paid up front.
Prepaid Taxes
Buyer’s and Seller’s Closing Costs:
* ______ - Money that the buyer will get back.
Buyer’s Credits
Buyer’s and Seller’s Closing Costs:
* Buyer’s Credits - Money that the buyer will get back.
o ______ - Initial deposit already deposited with the Escrow.
Earnest Money Deposit
Buyer’s and Seller’s Closing Costs:
* Buyer’s Credits - Money that the buyer will get back.
o ______ - If seller has offered assistance to the buyer.
Seller ‘Credits’ to the Buyer
Buyer’s and Seller’s Closing Costs:
* Buyer’s Credits - Money that the buyer will get back.
o ______ -Any money delivered to escrow that isn’t buyers.
Gifted Funds [or Grant Funds]
Buyer’s and Seller’s Closing Costs:
* Buyer’s Credits - Money that the buyer will get back.
o ______ - Money from original loan that buyers don’t have to have.
Assumption of Seller Loan
Buyer’s and Seller’s Closing Costs:
* Seller’s Debits (Money that the seller will pay to sell the property):
o ______ - Typically split between buyer and seller.
Escrow Fees
Buyer’s and Seller’s Closing Costs:
* Seller’s Debits (Money that the seller will pay to sell the property):
o ______ - Normally paid real estate commission to agents and brokers.
Commissions
Buyer’s and Seller’s Closing Costs:
* Seller’s Debits (Money that the seller will pay to sell the property):
o ______ - Seller will pay any prorated taxes for time used.
Taxes
Buyer’s and Seller’s Closing Costs:
* Seller’s Debits (Money that the seller will pay to sell the property):
o ______ - Paid by the seller to protect the buyers.
Owner’s Title Insurance Policy
Buyer’s and Seller’s Closing Costs:
* Seller’s Credits (Money that the seller has coming back to them)
o ______ - The adjusted sales price brought down after paying all debits
Sales Price After Paying All Fees
Other Closing Costs:
* _____ = A small fee is collected at close that goes to a 3rd party which monitors the payment or NON-payment of property taxes and alerts the lender – the lender is in this case protecting their collateral.
Tax Service
Other Closing Costs:
* ______ = Charged by a mortgage lender for preparing the loan and associated paperwork.
* There can be additional fees charged by other lenders or escrow companies and can vary based upon each settlement.
Underwriting Fee
Prepaids and Day of Closing:
* In Arizona – the DAY of CLOSING belongs to the ________. This means they MUST pay for day of closing).
* YOU MUST KNOW WHAT TYPE OF YEAR WE ARE USING TO CALCULATE INTEREST IN ARREARS!!
Buyer
Prepaids and Day of Closing:
* Must identify calendar year or statutory year:
* ______ = 365 days, each month has actual number of days
o COE is Feb 15 = 14 days of interest (28 days in Feb = 13 days remaining interest in the month + the day of closing).
Calendar Year
Prepaids and Day of Closing:
* Must identify calendar year or statutory year:
* ______ = 360 days, each month has 30 days.
o COE is Feb 15 = 16 days of interest (30 days in Feb = 15 days remaining interest in the month + the day of closing).
o Also known as a “______” in accounting practices.
Statutory Year [a.k.a. Banker’s Year]
Prepaids and Day of Closing:
* Must identify calendar year or statutory year:
* From day of closing/funding to 30 days ______1st mortgage payment is due to the lender.
o MORTGAGE PAYMENTS ARE PAID IN ARREARS.
Before
Prepaids and Day of Closing:
* Must identify calendar year or statutory year:
o _______- Means you pay for the month you just used the lender’s money.
Arrears
Calculating Prorations Math:
Calculating debits and credits in 6 steps.
1. Does day or closing ______ to buyer or seller?
2. Are we using a Calendar Year or ______ Year?
3. Identify debits and credits and _____ they belong to in the transaction.
4. Calculate the actual amount of ______ remaining in the month.
5. Calculate the amount of money owed with per diem interest per ____.
6. ______ the amount per day by the applicable amount of days.
- Belong
- Banker’s / Statutory
- Who
- Days
- Day
- Multiply
Calculating Prorations Math:
Assuming a calendar year, the day of closing belongs to the buyer with a close of escrow of March 15th. Total taxes for the year were $2,100 and HOA assessments $1,300. Assuming the taxes have been paid in full on January 1st, what amount will the seller receive back at close of escrow?
QUESTIONS:
1. Does day or closing belong to buyer or seller?
2. Are we using a Calendar Year or Banker’s Year?
3. Identify debits and credits and who they belong to in the transaction.
4. Calculate the actual amount of days remaining in the month.
5. Calculate the amount of money owed with per diem interest per day.
6. Multiply the amount per day by the applicable amount of days.
7. Determine who will recieve the credit or debit and the amount.
- Day of closing belongs to the buyer
- Using a calendar year
- Seller will be given a credit at Close
- Calculate the days that the seller has used the property
- January has 31 days
- February has 28 days
- March has used 14 days
- Total of 73 days
o $3,400/365 days = $9.32/day
o 73 days * $9.32 = $680.36
o ($2,100 + $1,300) = $3,400
o $3,400 - $680.36 = $2719.64 - Seller will Receive a Credit (Money Back) in the amount of $2,719.64
Calculating Prorations Math:
Buyer closes on a house September 3rd. The HOA is paid monthly at $35 and the September payment was made by the seller. The taxes for the year were prepaid by the seller in the amount of $980. There is a special assessment on the property that the seller paid up front also in the
amount of $4200 for the year ending December 31. Assuming day of close belongs to the buyer and using a calendar year, what will the buyer be charged as a debit at closing?
QUESTIONS:
1. Does day or closing belong to buyer or seller?
2. Are we using a Calendar Year or Banker’s Year?
3. Identify debits and credits and who they belong to in the transaction.
4. Calculate the actual amount of days remaining in the month.
5. Calculate the amount of money owed with per diem interest per day.
6. Multiply the amount per day by the applicable amount of days.
7. Determine who will recieve the credit or debit and the amount.
- Day of closing belongs to the buyer
- Using a calendar year
- Buyer will be debited and seller will be credited
- Calculate the days that the seller has used the property.
- January has 31 days
o February has 28 days
o March has 31 days
o April has 30 days
o May has 31 days
o June has 30 days
o July has 31 days
o August has 31 days
o September has used 2 days
o Total of 245 days were used by the seller and 120 days belong to the buyer
Buyer owes 120 days back to the seller for Taxes/Assessment
Buyer owes 28 days back to seller for HOA
o Taxes/Special Assessment $5,180/365 days = $14.19/day;
o HOA $35/30 days = $1.17/day
120 days x $14.19 = $1,702.80 + 28 days x $1.17 = $32.76
$1,702.80 + $32.76 = $1,735.56
*The seller will receive a $1,735.56 (credit).
Calculating Prorations Math:
A commercial building sold on March 25th. The building has a total of 6 tenants. Each tenant pays rent to the owner of the building at a rate of $1,250 per unit. The owner collects rent on the 1st of every month and rent for the month of March was collected. How much of the total rent
will be turned over to the new buyer from the seller at COE assuming day of close belongs to the seller using a calendar year?
QUESTIONS:
1. Does day or closing belong to buyer or seller?
2. Are we using a Calendar Year or Banker’s Year?
3. Identify debits and credits and who they belong to in the transaction.
4. Calculate the actual amount of days remaining in the month.
5. Calculate the amount of money owed with per diem interest per day.
6. Multiply the amount per day by the applicable amount of days.
7. Determine who will recieve the credit or debit and the amount.
o Day of closing belongs to the seller
o Using a calendar year
o Buyer will receive a credit and seller will have a debit (Seller has to pay the buyer for the
rents collected that the seller won’t get to keep/use)
▪ Total of 6 days
o $1,250 x 6 tenants = $7,500; $7,500/31 days = $241.94/day
o 6*$241.94 = $1,451.64
▪ The BUYER will receive a $1451.64 (credit) from the seller The seller ‘used or enjoyed’ the rent only
for the first 25 days but collected all the 31 days and as such, owes the buyer for the remaining 6 days.
Calculating Prorations Math:
A home owner’s insurance policy is $612.87 per calendar year. What’s the daily proration for the homeowner’s insurance policy?
o $612.87/365 days = $1.68
▪ The daily proration is $1.68 per day
Calculating Prorations Math:
In a banker’s year, close of escrow is January 29th. Day of escrow belongs to the buyer. Taxes on the property are $900 per year, but only the first half of the taxes have been paid by the seller. The homeowner’s insurance policy of $600 per year is paid bi-annually, the first
payment of which was made. How much does the buyer owe the seller?
QUESTIONS:
1. Does day or closing belong to buyer or seller?
2. Are we using a Calendar Year or Banker’s Year?
3. Identify debits and credits and who they belong to in the transaction.
4. Calculate the actual amount of days remaining in the month.
5. Calculate the amount of money owed with per diem interest per day.
6. Multiply the amount per day by the applicable amount of days.
7. Determine who will recieve the credit or debit and the amount.
o Day of closing belongs to the buyer
o Using a banker’s year
o Buyer will be debited and seller will be credited
o Calculate the days that the buyer will use the property
▪ January has used 1 day
▪ February has 30 days
▪ March has 30 days
▪ April has 30 days
▪ May has 30 days
▪ June has 30 days
▪ Total of 151 days
o $900 + 600 = $1,500; $1,500/2 - $750. $750/180 days = $4.17/day
o 151 days * $4.17 = $629.27
▪ The buyer will owe $629.27 (Debit).
Escrow Companies:
All docs must be in ______ before real estate transactions are executed and closed
IMPORTANT :If there is a discrepancy in the docs, agent will need clarification from all parties:
This is why they refer back to what is in written format in front of them.
Whatever is agreed upon by all parties in writing, signed and dated is what will be used as the matter of fact in the contract.
Order
Escrow Companies:
Escrow company provides an agent or Escrow officer to oversee the closing process, answer questions from clients, compile paperwork on behalf of lender(s) and this individual _______ the transaction.
Close
An escrow agent would do all of the following except which one(s)?
Settle the transaction
Interpret the contracts
Collect the contracts and addendums
Negotiate fee’s on behalf of the clients
Act as an intermediary between parties
They do everything on the list EXCEPT Interpret the contracts & Negotiate fee’s on behalf of the clients.
The escrow agent would never negotiate on any parties behalf, nor can the interpret the contracts as they are not attorneys.
This agent needs to be bonded in a real estate settlement company.
Escrow Agent
Escrow / impound Account:
As part of the initial offer and acceptance of a real estate contract, a close of escrow date is to be determined which customarily will belong to the buyer and is chosen by the buyer. This is a negotiable point, but it is nearly always the ________ who chooses.
*Note: In Arizona it is customary for the day of close of escrow to belong to the BUYER!
Buyer
The impound account is used to pay what on behalf of the new property owner?
Property taxes
Mortgage
HOA dues
Interest to the lender
Property Taxes
An Escrow Agent notices a discrepancy in the documents provided from the seller. Who must the escrow agent receive clarification from?
If there is a discrepancy in the documents, agent will need clarification from all parties.
Who chooses the escrow company?
Escrow companies are normally chosen by the buyer in the transaction but is negotiable.
Briefly, what is the difference between a Title Company and an Escrow Company?
Title Companies are the firms that provide a title search on a property and bring any title issues up while, the Escrow Companies are the firms that are the intermediary between all parties.
What is the difference between an Escrow and an Impound account?
Once a buyer is ready to close on their loan they will set up an impound account. Normally it is set up by mortgage lender during the escrow. Account is to collect future property taxes and insurance. At the close of escrow, the impound account is transferred to the lender. Impound Account is basically an account set up and maintained by the mortgage company to collect insurance and tax payments on behalf of the owner.
Earnest money is held in what type of account?
Brokers Personal Account
Impound account
Escrow account
Savings account
Escrow account
Different lenders may require different Title Policy Endorsements. In addition, sometimes builders or even communities may want or need a title endorsement. Which of the following would best describe what endorsements would commonly do?
Designed to protect the lender in case of fraudulent sale
Be tailored to fit the specific needs of the seller or lender
Provide an endorsement of the properties condition
Ensure the seller will pay for any damages caused by fraud
Be tailored to fit the specific needs of the seller or lender
What is the purpose of an Impound Account?
Hold commissions on behalf of agents
To Hold the buyers Earnest Money
Seller deposits keys for escrow to hold onto until transfer of ownership
To collect upfront money used to pay buyers taxes and insurance
To collect upfront money used to pay buyers taxes and insurance
An Escrow Agents duties include all of the following except?
Collecting loan documents
Acting as a Notary for buyer and seller
Negotiating closing costs
Preparing settlement statements
Negotiating closing costs
How can a buyer of real property ensure the validity or quality of a sellers title?
A sellers agreement that the title is good is all that is required
Preview the title report looking for defects
Delivery of and acceptance of the deed satisfies clear title
A homeowner’s insurance policy would be granted to the new buyers
A seller’s agreement that the title is good is all that is required.
Which party would be responsible for handling of all monies in a real estate conveyance?
Buyer’s Broker
Seller’s Broker
Escrow Agency
Title Agency
Escrow Agency
True or False: To prove to a buyer that a seller has clear title, the seller would purchase a title report.
True
False
False. The seller would furnish and pay for a title insurance policy!
Choose the correct terms that’ll be found in Title Policies;
Bona fide purchaser
Innocent purchaser
Subrogation
Policy Endorser
Bona fide purchaser
Innocent purchaser
Subrogation
These are all types of insurance you can provide for your property. Which of the following are types of insurance you can obtain for your property?
Flood
Hazard
Property
Business
Underground
Flood
Hazard
Property
Business
Insurance Loss History Reports:
Note: Clue Reports
Used sometimes where the seller may not be disclosing all the known damages to a home, a CLUE report will show if the insurance company has paid on any ____ on the property.
Insurance Claims
What are other types of insurances besides title insurance?
Hazard and Flood Insurance
Business Insurance
Landlord Insurance
Homeowner’s Insurance
Hazard and Flood Insurance
Business Insurance
Homeowner’s Insurance
What does it mean when a cloud is on a title?
Cloud on Title is any type of hindrance or encumbrance that might invalidate or impair the title to real property or make the title doubtful.
What are the two types of Title Insurance?
Two types of title insurance policies are:
1. Owner’s Title Insurance which protects the buyer of the property
2. Lenders Title Insurance policy which insures the lender against claims.
How is a CLUE report used?
CLUE report helps potential buyers understand the history of a home before they buy. [aka HOUSE FAX]
When would a Title Insurance Endorsement be used?
Most mortgage companies require Title Insurance Endorsements on a Lender’s Title Insurance Policy to cover extended requests like an HOA in a condo complex, bare land, easements that are known etc.
A seller paid her property taxes upfront for the year. In late September of that same year she sold her property. The seller is entitled to a _________ for roughly _______ months?
Debit, 3 months
Credit, 3 months
Debit, 9 months
Credit, 9 months
Credit, 3 months
Private Mortgage Insurance:
Protects the seller in case of judgements that arise after the sale
Protects the buyer from future losses in equity due to market fluctuations
Protects the Brokers from being sued after the transaction closes
Protects the lender against borrower default
Protects the lender against borrower default
A homeowner who resides on the banks of the Apache Wash Basin in North Phoenix suffers catastrophic damage to their home due to flooding from the 100 year floods in 2018. They would be covered if they had flood insurance which is backed by which government agency?
FEMA
HUD
PMI
Fannie Mae
FEMA
Which party in a transaction can claim a loss as a result in a title defect?
Listing Brokers
Grantor
Grantee
Lessor
Grantee - Person receiving the house.
To further protect against large losses, a lessor might want to obtain what type of insurance policy that would cover them once their primary insurance is exhausted or runs out?
Jumbo Policy
Umbrella Policy
Gap Insurance Policy
Lender Comprehensive Policy
Umbrella Policy
The CLUE Report provided by the seller would identify what type of defects:
Title errors and Omissions
Liens from a previous lender
Previous Claims made to Insurance
Improperly transfer of title
Previous Claims made to Insurance [RESULTING IN LOSS]
Duties in Settlement:
During the settlement, both buyer and seller have specific duties and obligations. These obligations can be both financial (money) or ______ (showing up and signing).
Physical
It is this parties duty to bring the funds in escrow:
Buyer
Seller
Escrow agent
Buyer
The affidavit of value form would be used by the __________ to help determine other property values in the same area.
County Tax Assessor
______: “A form that is required by the Real Estate Settlement Procedures Act (RESPA), that discloses all funds received, all disbursements made, and all expenses and all credits at closing in a real estate transaction using a federal loan.” It is given to both buyer and seller in any transaction that involves a federal loan. Federal Loans include: VA, FHA, USDA
Uniform Settlement Statement
Who does the day of closing belong to in a real estate transaction?
Seller
Buyer
Grantee
Agent
Buyer
In escrow, a buyer must provide funds to purchase the property, what must the seller provide?
Sellers duty in escrow is to provide evidence of ownership. It also referred to as equitable or marketable title.
What best describes a Deed?
A Deed is a written instrument that is used to convey real property ownership. It’s signed by the Grantor and delivered to the Grantee.
What best describes a Debit and a Credit?
Debits are charges or a cost and could be a charge to either the buyer or seller. A Credit is money received and again could go to either the buyer or seller, usually for money back as a refund for something already paid for.
Regarding closing on a property, when does the transfer of ownership occur?
Transfer of ownership is actually when the deed passes from seller to buyer.
During Escrow, the buyers main obligation is:
To obtain homeowners insurance
To provide funds to purchase
To investigate title defects
To close on the escrow as per contract
To provide funds to purchase
When in Arizona does the ownership transfer to the new buyer?
When the deed is recorded
When the deed is recorded
When escrow agent has proof of funds
When deed is delivered to the buyer
When deed is delivered to the buyer
What is not a sellers duty in escrow?
Disclose mortgages or known liens
Provide financing options to the buyer
Complete owner’s declaration and seller’s information sheet
Provide financing options to the buyer
A seller would want to be able to prove that they have Marketable Title in order to show what?
The ability to transfer their real property to the escrow company
The ability of the sellers or agent to market the property to others
The ability for the general public to view recorded liens on the property
The ability of the escrow company to provide a title insurance policy
The ability of the escrow company to provide a title insurance policy
We are starting to head towards the end of a real estate transaction and it’s escrow. Let’s go into detail now on the who, what, how much and when in a transaction.
Remember, there are ______ sides to each transaction!
Two
REMEMBER:
_____ = a cost/charge to me
_____ = a return or money back to me.
Debit
Credit
A “debit card” is what we use when we need to pay for something and a “credit” to our card is what we get when we return something.
Match the following to who get’s what:
1. Pre-Paid Taxes (PAID)
2. Earnest Money
3. Lender’s Title Policy
4. Down Payment
5. Owner’s Title Policy
Prepaid Taxes is a credit to the seller (they paid them already and get that back)
Earnest Money is a credit to the buyer (they paid that already, and get that back)
Lenders Title Policy is a charge [or DEBIT] to the buyer.
Owners Title Policy is a charge [or DEBIT] to the seller
Prepaid Taxes is a credit to the seller (they paid them already and get that back)
Earnest Money is a credit to the buyer (they paid that already, and get that back)
What is one type of closing cost for a buyer? What about a seller?
Following are closing cost for a buyer.
1. Escrow fees - Fees the escrow company earned in the transaction
2. Lender up front fee’s - Discount points, origination points etc
3. Up front Taxes and Insurance - Prepaid in the impound account
4. Lender’s Title Policy - An insurance policy for the lender that ensures 1st
place
5. Prepaid Insurance - Homeowners insurance impound account
6. Prepaid Taxes – Taxes that will be impounded and paid up front
Following are closing cost for a seller.
1. Escrow fees - Typically split between buyer and seller
2. Commissions - Normally paid real estate commission to agents and brokers
3. Taxes - Seller will pay any prorated taxes for time used
4. Owner’s Title Insurance Policy - Paid by the seller to protect the buyers.
How many days of interest remain in the month for a July 16 closing under a Calendar Year? How about a Statutory Year?
A: Calendar Year equals 365 days, each month has actual number of days. COE is July 16 = 16 days of interest remain (31 days in July total, but the first 15 days were paid, so there is a remainder of 15 days remaining interest in the month + the day of closing for a total of 16 days remaining interest)
Statutory Year equals 360 days, each month has 30 days. COE is July 16 = 15 days of interest remain (30 days in Feb total for a Statutory or Bankers Year, but the first 15 days were paid, so there is a remainder of 14 days remaining interest in the month + the day of closing for a total of 15 days remaining interest)
Option 2
THESE ARE CONFUSING, so if you fee more comfortable go backwards, 30 days total (statutory) - 15 days used = 15 days left and same thing for Calendar, 31 days total - 15 days used = 16 days left.
What is the purpose of the Lender’s Title Policy?
Lender’s Title Policy is an insurance policy for the lender that ensures 1st place in subordination.
What is the difference between a Seller Credit and a Seller Debit?
Seller’s Debits is the money that the seller will pay to sell the property while. Seller’s Credits is the money that the seller has coming back to them).
Which document would be used to assist the county assessor in determining property values?
County Assessment Valuation Document
TRID Settlement Statement
Assumption of Value
Affidavit of Value
Affidavit of Value
During a closing, which party would pay for the escrow fees due to the statutes?
The agreed upon party identified in the contract
Both parties would split it according to the statutes
There are no statutes that state who would pay for escrow
Buyer would pay for the close of escrow
There are no statutes that state who would pay for escrow.
When the IRS is owed money and takes it from personal property, this is referred to as a:
Impound
Repossession
Collection
Levy
Levy
Which of the following would most likely not be considered a cloud in a property’s title?
IRS Liens
Title transfer from an LLC to an individual
Missing ownership history
A recorded personal easement in gross
Title transfer from an LLC to an individual.
