Archive for the ‘Escrow Information’ Category

How Are Property Taxes Handled in Escrow?

In Washington State most counties collect property taxes twice a year. April 30th and October 31. The April payment covers January through June and the October payment covers July through December. Lenders typically send these payments via tape to the taxing authority at the end of April and October.

What does this mean to you the buyer or seller? Transactions closing during the timeframe between payments run into a situation where the Seller has, in effect, paid their taxes via their monthly mortgage payments, yet the funds have not yet been posted to the account. This can create the need for escrow to collect taxes for the appropriate time period at closing, in effect causing the Seller to be billed twice for the same period. The Final Settlement Statement will show credit and debits to the Seller and Buyers accounts. Usually the Seller is credited for the amount of time they were owning the home and the buyer is debited for the amount from closing to the tax due date.

HUD Settlement Statement

The HUD-1 Settlement Statement is the financial picture of the closing which shows all the money flowing into and out of the purchase and sale of real estate. The purchase-and-sale agreement, or escrow instructions, is/are the written agreement between the buyer and seller which shows the purchase price of the home as well as the “who-pays-what” information relating to closing costs.

The escrow officer is responsible for preparing the HUD-1 and closing the transaction. It is also the responsibility of the escrow officer to see that all charges on the HUD-1 are substantiated in writing and to see that all deposits and disbursements are made in accordance with the HUD-1. The preliminary title commitment reflects any existing mortgages or judgment liens that must be satisfied or paid off at time of closing and should be shown on the HUD-1.

What Is Escrow and Why Is It Needed?

An escrow is an arrangement in which a neutral third party (the escrow agent) assembles and processes all of the components of a real estate transaction (including legal documents), records the transaction, and disburses and distributes funds according to the buyers’ and sellers’ instructions. In Washington State, your transaction is typically closed by an Escrow Officer or Limited Practice Officer.

People buying and selling real estate often open an escrow for their protection and convenience. Both the buyer and seller rely on the escrow agent to carry out their mutually consistent instructions relating to the transaction and to advise them if any of their instructions are not mutually consistent or cannot be carried out. If the instructions from all parties to an escrow are clearly drafted, the escrow officer can take many actions on behalf of the buyer and seller without further consultation. This saves much time and facilitates the closing of the transaction.

Escrow functions as the facilitator of all the components of a real estate transaction. The transaction is officially closed when the new deed is recorded, thus transferring ownership from the seller to the buyer. The escrow agent is a neutral third party acting on behalf of the buyer and seller under the guidelines set forth by the Sate of Washington Department of Financial Institutions.

The Limited Practice Officer

An LPO

Is a professional designation held only by lay persons who have passed the “Limited Practice Officer” test administered by the Limited Practice Board and the Washington State Supreme Court.

Has a limited license to select, prepare and complete specific legal documents approved by the Washington State Limited Practice Board.

Must complete continuing education each calendar year.

Is held to the same standard of professional conduct as an attorney.

Is subject to their own set of disciplinary rules and may also be subject to certain Rules of Professional Conduct.

Must take a comprehensive test covering the following topics;

Limited Practice Law, Contract Law, Real Property Law, Real Estate Ownership, Land Use Regulations, Ownership Transfers, Financing, Personal Property, and Title Clearing.

Who Does What in the Escrow Process?

The Seller and Seller’s Broker

• Delivers a fully executed purchase and sale agreement to the escrow agent.

• Executes the paperwork necessary to close the transaction.

• Deposits any amendments to the purchase and sale agreement.

The Buyer and Buyer’s Broker

• Deposits funds required to close, in addition to the purchase price, with the escrow agent.

• Approves the inspection reports, commitment for title insurance, or other items as called for by the purchase and sale agreement.

• Fulfills other conditions specified in the purchase and sale agreement.

The Lender (if applicable)

• Deposits proceeds of the loan.

• Directs the escrow agent of the conditions under which the loan funds may be used.

The Escrow Agent

• Obtains the order for title insurance.

• Obtains approvals from the buyer(s), the commitment for title insurance, and any other inspections that are called for in the purchase and sale agreement.

• Obtains any required payoffs/release documents to clear title.

• Receives funds from the buyer and/or lender.

• In most cases, prepares vesting documents and excise tax affidavit on seller’s behalf.

• Prorates insurance, taxes, rents, etc.

• Prepares a final statement (commonly referred to as the “HUD 1 Statement” or “Settlement Statement”) for each party, indicating amounts paid in conjunction with the closing of the transaction.

• Oversees the signing of loan documents.

• Forwards deed to the county for recording.

Escrow Offices Were Busy in November

November’s real estate reports are out and the news is very good. Closed sales in November were up 19 percent over last year in the Seattle area. This is good news for the real estate market. Prices were also on the rise in November. In Seattle, the median price was $425,000 this year, an increase of 15 percent over last year’s median price of $360,000.

The bad news is there were 14 percent fewer homes for sale this year than last year. With low inventory and lots of buyers, the real estate price wars are back. This is usually a slow time in the real estate market because of the holidays. This year, activity has yet to slow down.

If you have been thinking of listing your home for sale, now would be a great time to list. Contact me and let me show you how much you could expect from the sale of your home.

Road Map to the Escrow Process

Purchase and Sale Agreement is the first stop on the road.

The primary reason to create an escrow in a real property transaction, contracted by a Purchase and Sale Agreement, is to provide a mechanism for the orderly delivery of the necessary documents and disbursements of the funds while protecting each party from the other.

Preliminary Title Report is the second stop.

The “Prelim” tells the escrow officer the condition of the title to the property, i.e., Property Taxes, Mortgages and Deeds of Trust, Liens, Judgments, Easements, etc.

Lender Closing Instructions is the next stop.

The Lender’s Closing Instructions set forth the conditions under which the lender will fund the loan. Closing instructions could be from fifteen pages to over thirty pages in length and must be read in its entirety by the closing officer.

Closing, the last stop.

Once the purchase loan is funded and all conditions have been met, the title transfer papers are sent to the County Clerk’s office for recording, and the funds are disbursed to the proper parties. Once Escrow receives the recording number from the County showing the transfer of title, the transaction is “Closed.” Break out the champagne!

The Basics of Escrow

I attended a continuing education class today at the new Library in Burien, Washington. It was presented by First American Title Insurance Company, and the instructor was Kathy McKinley. The class was on the basics of escrow. I have been doing a blog on escrow for some time now and I found it was getting harder and harder to find interesting topics about escrow. I had just about given up on doing any more blog posts on the topic of escrows, when I received an invitation to attend the class.

I now have more information about escrows then I ever thought possible. I will be sharing this information in blog posts that will be interesting as well as educational. I will be covering topics that will include the governing body of escrow, sub-escrows, the closing statements and beyond. I will be answering questions that you may have about escrow and why it is needed.

I will even be sharing information about the new settlement statements that are a result of the Dodd-Frank Wall Street Reform Act and part of the Consumer Financial Protection Bureau. The task was to create a unified disclosure form that meets TILA (Truth in Lending Act) as well as RESPA (Real Estate Settlement Procedures Act) requirements. The results may fascinate as well as amuse you.

If you are planning to buy or sell a home in the near future you will need to learn about the escrow process. The more you know about escrow the less confusing it will seem when it comes time to sign the final paper work on the sale or purchase of your new home. Most buyers and sellers of real estate are too nervous or anxious about the purchase or sale to really understand what it is they are signing. The more information you have about the whole process the less mysterious it will seem. I will do my  best to simplify and clarify this daunting aspect of buying and selling a home.

Forms of Deeds in Washington State.

There are several types of deeds that can be used for real estate in the State of Washington. The difference in the deeds are the types of warranties provided.

A Warranty Deed warrants to the buyer that the land is free and clear of all liens and encumbrances, except the liens and encumbrances noted on the deed. This is the standard deed form in Washington.

A Bargain and Sale Deed warrants to the buyer that the land is free and clear of liens and encumbrances created by the seller only, except liens and encumbrances noted on the deed. There are no warranties protecting the buyer from liens and encumbrances created by others. A Bargain and Sale Deed is commonly used; when a bank conveys title after foreclosure, a personal representative conveys title from a decedent’s estate, or a trustee conveys title through a trust.

A Special Warranty Deed though not a statutory form, contains the same language as a Bargain and Sale Deed. A Special Warranty Deed, when prepared by and Escrow Limited Practice Officer, warrants that the land is free and clear of liens and encumbrances created by the seller only.

A Quitclaim Deed contains no warranties. A Quickclaim Deed is commonly used to clear title or to create separate property.

Talk to your lawyer and have them advise you as to what form of deed is best for your purchase of a home.

The title company pays for the inspection, and does not usually pass the cost on to the customer.  If the title company does not inspect, and something that is covered would have been disclosed in an inspection, they are usually responsible for it. The inspection is not a survey, but a pretty accurate snapshot of the above issues. To find out definitively, the client would need a survey.

• that at the time the deed was delivered, the seller held good title to the land and had full power to convey it;
• that the title was then free from liens and encumbrances; and
• that the seller warrants to the buyer the quiet and peaceable possession of the premises and will defend against all persons who may lawfully make a claim against the property

• that at the time of the sale/conveyance, the seller held good title to the land;
• that the title was free from encumbrances created by the seller; and
• that the seller warrants to the buyer the quiet enjoyment of the premises    against the grantor.

Why Do They Use Blue Ink For Signings?

All escrow companies want you to sign the documents for the sale or purchase of your home in blue ink. I have always wondered why this was done. I have asked that question of escrow officers in the past and I received a less than satisfactory answer. “That’s just the way we do it.” This does not explain the reason for the blue ink.

While having my Broker’s Manager sign some documents for a HUD purchase for one of my clients, he signed in blue ink. I asked him why he did that, thinking that black was just as good. He told me that that way they could tell it was the original signature.

I finally found out the reason as to why the escrow officers use blue ink—so that there is no dispute about the signature being the original signature of the signer. All copies of the signature would be black, so and original signature is always blue.

Title Insurance

Title insurance is an insurance policy that you purchase that will cover you during the transfer of title during a sale or purchase of your home or property. It is a policy that will pay for loss of title transfer due to a lien on the property. There are a lot of issues that can cloud title, making it non-transferable. These issues can occur with or without your knowledge. A lien can be placed on your property by mistake and then the transfer of title will not take place until the lien is cleared. There may be a lien on the property due to a violation of the Covenants, Conditions and Restrictions you have in the neighborhood that you live in. Whatever the reason for the cloud, it is always a good idea to have title insurance to cover against any loss due to the inability to transfer title.