Other Types of Deeds

As noted in a previous blog the grant deed is the most commonly used deed to transfer title of property in the state of California, however, there are several other deed types that can also be used.  Here is a brief explanation of some others:

Quitclaim Deeds

Quitclaim deeds are another commonly used instrument that may be used when real estate property is changing hands.  Quitclaim deeds contrast with Grant Deeds in that a Quitclaim Deed conveys anyinterest” in the property, as opposed to transferring title as with a grant deed.  With a quitclaim the “grantor” releases any interest they may posses in the property. The grantor may have never been formally identified on a deed describing the property.
By example: If a married person holds “sole and separate” title to a property but wants to sell the property, the spouse not on the title may be asked to sign a quitclaim deed releasing any interest they have in the property.  Quitclaims are sometimes also used in a divorce to give sole title from one spouse to the other.

Deed-in-lieu Foreclosure

Deed-in-lieu of foreclosure simply means the seller has deeded the property back to the lender in order to avoid foreclosure.  This type of deed became very common throughout the recent mortgage and real estate crash.   Sellers who were behind in their mortgage payments would negotiate with the lender to voluntarily transfer title to the property back to the lender in exchange for a release from the mortgage obligation.

Warranty Deeds

Warranty deeds are very similar to grant deeds with one primary exception, warranty deeds contain three guarantees as opposed to two in a grant deed.  In a grant deed the grantor states that the property has not been sold to anybody else, and that the property is not “burdened by any encumbrances” not already disclosed by the seller to the buyer.
In addition, with a warranty deed the grantor will “warrant” and defend title against the claims from all other persons. Simply put, “the grantor is guaranteeing the grantee that title is free of any defects that may affect the title, even if the defect was caused by a prior owner.”

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Foreclosure Process

Foreclosure : A Process by which lender forecloses loan contract to default borrower

The process by which the mortgagee sells the property of mortgagor in case he fails to pay the mortgage debt and as a result of which owner terminates his/her property rights is referred to as foreclosure. In simple words, when the lender attempts to recover the balance amount of a loan from the borrower in case of any default, then as last option, the lender sells the asset which was submitted as security against the loan.

Usually the financial institutions like banks attain security, say assets, before granting loan to the borrower. If the borrower successfully makes all the interest payments of loan and that too in stipulated time, then he not only clears up his loan but also discharges his assets that were secured against the loan. But, in case the borrower defaults in making payments of the loan even after the constant reminder of the lender, he does not make any payments, the lender is not left with any option other than to sell his secured asset against the loan amount. Thus, with the procedure of foreclosure, lender forfeits all the redemption rights of the mortgagor regarding the secured assets.

There are three types of Foreclosure:

  • Judicial: This type of situation arises when the sale of mortgage property is supervised by the court and enforced by legal agencies. In this case, the proceeds from the property will be firstly used to clear the mortgage loan, then other lien holders will be paid and after that any balance amount is left its transferred to the mortgage borrower.
  • Non-Judicial: In this type of foreclosure, the lender sells mortgage property of the borrower without any type of supervision by the court. It is also sometimes referred to as Power of Sale of the mortgagee as this process is much faster and cheaper if compared to judicial one.
  • Strict: In strict foreclosure, the court orders the defaulting borrower to pay the balance amount of loan within a stipulated period of time, and if he fails to do so, the lender has the right to sell his mortgage property after that stipulated time.

The foreclosure process is applied when the borrower has stopped making payments for a loan and in turn the lender proceeds with the “deed of trust”. As per the terms of loan agreement, the lender has the right to sell the property of borrower in case when he has stopped making payments. In such a case, the lender sells the borrower’s property and keeps all the sale proceeds so as to clear out his mortgage loan. Furthermore, if the proceeds from the property are not enough to clear out the lender’s loan, then the lender can charge borrower to pay the balance of mortgage loan. If the borrower refuses to pay the amount of loan, then a legal action can also be taken against borrower. This remaining amount generally includes loan principal amount, interest, attorney fees, etc.

 

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Help Your Escrow Process

You’ve just talked with your real estate or mortgage professional and they’ve told you your real estate/mortgage transaction is “in escrow,”…Now what?

Take Responsibility

The most important thing for any principal party (buyer, seller, borrower, real estate or mortgage professional) to understand is that escrow is a process, it doesn’t happen in a day.  All parties in the transaction want the process expedited, so everyone needs to take responsibility to do their part in moving the process along.

Any non professional, such as a buyer or borrower, should not hesitate to ask the escrow officer about any aspect of the escrow process they don’t understand, this holds true for professionals as well.  It is imperative that you clearly understand the escrow instructions because these are a legal contract that you’ve agreed to.

If you want to help expedite the process be sure to respond quickly to any request or correspondence from the escrow provider.  Have a clear understanding of what is needed and provide it in a timely manner.

Ask the right person

Your escrow officer can only answer questions that pertain directly with the escrow process or escrow instructions.   They cannot give you any advise as to the terms of your mortgage loan or the home appraisal or inspection. The escrow officer legally may only follow the instructions given by the principal parties in the escrow agreement.

Follow instructions & be proactive

If any additional funds are needed relative to escrow, be sure to understand what they are for and provide them in the form that the escrow company requests.  By example: if the escrow officer asks for a cashiers check, don’t write a personal check, which would only cause further delay while the funds cleared.  Also, get these funds to the escrow agent within the time frame requested, if you can’t, talk to the escrow agent.

If you have any special needs at the time of final closing, such as copies of documents etc., be sure to make that request in advance.  Processing such a request can take days, so ask in advance.

Always remember that the escrow provider wants this process to close just as quickly as you, but they have a legal obligation to be sure that it is done correctly and legally.

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Escrow Instructions

For most homebuyers or sellers  “escrow” is the often-misunderstood final stage of the real estate purchase transaction.  However, the escrow process begins with clearly defined “escrow instructions” in order that this final stage of the transaction will be done smoothly, efficiently and legally.

What are Escrow instructions?

According to the California Department of Real Estate (“DRE”), “Escrow Instructions…identify all of the terms and conditions of the escrow, as well as the escrow holder’s general provisions and legal responsibilities and limitations.”

The DRE further explains that the instructions are a tool to help the escrow officer “for every situation” in the escrow process.  The instructions also act as a legal protection for all the principal parties involved, with special emphasis in protecting the buyer and seller.

What’s in the Escrow Instructions?

Escrow instructions normally identify the escrow holders contact information, license number, along with the escrow number assigned to the transaction.  In addition they will include important dates such as the date escrow opened and the expected escrow closing date.  Also included will be the names of the parties in the escrow transaction, the property address and a legal description of the property, with the purchase price and terms.

Additional information included in the instructions define “how the buyer’s title is to vest, proration adjustments, any matters of record to which the buyer is subject when they acquire title, disbursements to be made, all fees and charges and who is responsible for payment.” There will be instructions as to documents to be signed, delivered, or recorded, and a  “roadmap” that the escrow holder must follow in handling the escrow.

Responsibilities of the Escrow Agent

Escrow instructions, says the DRE, normally “reflect the agreements made between the parties with respect to the escrow.”  The above noted road map lays out the responsibilities of the escrow officer.  These “responsibilities” may include (but are not limited to), ordering a title search, requesting payoff demands and beneficiary statements.  Duties also may include facilitating the receipt and approval of reports, and making prorations and adjustments, the paying of bills, obtaining the buyer or borrower’s signature when needed on any documents.

Other duties include requesting closing funds, authorizing recording and closing the escrow after confirmation of recording, along with preparing final closing statements, disbursing funds and delivering documents to the appropriate parties. As the DRE says, “In sum, escrow instructions indicate all of the specific steps to be completed and conditions that must be satisfied before the escrow is complete.”

The instruction should be clear, specific and avoid all ambiguity, and must accurately reflect the intention of the parties involved.  Any changes to the original instructions must be signed off or initialed by all pertinent parties.   “When fully executed by all parties, the instructions become an enforceable contract and the escrow becomes effective.”

 

 

 

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Escrow and Non-escrow States

In order to legally complete any real estate sale many states require all the involved parties to finalize the transaction by going through “escrow,” while other states use the “traditional” method of “closing.”

 

Non-escrow states

Georgia would be an example of a state that uses the traditional or non-escrow method for closing the real estate purchase.  In the traditional closing buyers, sellers and any other involved parties meet face-to-face at a closing table at an appointed time in order to complete the transaction by signing all necessary documents.  The transaction is completed as the property title changes hands along with any monies as part of the agreement’s funds disbursement for the lender or buyer.  This transaction is referred to as “the closing,”

 

Escrow states

California by contrast is an example of a state that finalizes the real estate purchase using an escrow process.  With this process the buyer, seller and any other involved parties reach a purchase agreement, which includes the “escrow instructions.”   These instructions include all of the stipulations for the transfer of the property along with any funds to be disbursed, and all these being cleared and signed-off prior to the closing.  During the escrow process, and prior to the completion and final signing of the purchase agreement, all important documents and funds are held “in escrow” by the assigned escrow agent until the time of the closing.

The escrow closing includes all documents and monies required to transact the loan. Escrow may include any earnest money given to the buyer’s agent during the contract period, which may be applied to the closing costs or purchase price.

If all stipulations of the purchase agreement have been met according to the escrow instructions the closing is finalized with the signing of all documents and all funds being disbursed. The purchase transaction is complete. The finalizing of the escrow process is also referred to as the “closing of escrow,” and it usually does not require a final face-to-face meeting with all interested parties.

 

 

 

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Your Escrow Account is as Safe as the Strength of the Mutual Neutral Contract

The escrow system is a simplified third party financial arrangement catalyzing major financial deals. Essentially, the tripartite agreement involves a neutral third party who holds a set amount as a guarantor of payment at project completion according to the terms and conditions. Escrow services can be Government licensed organizations, or they can be independent organizations working with a broker or realtor service. In California, they classify the two categories as ‘licensed’ and ‘controlled’. You need to find a trustworthy agency. Check the various aspects of verifying the suitability of the services.

 

Check credibility parameters

First, inquire whether the service is a licensed agency, or is an independent organization. In the latter category, invest some research in finding the reputation of the company. Look up the following aspects in selecting a compatible escrow accounts facility.

  • Confirm the digital security protocol of the service. If the transaction is online, you need to be sure of the money transfer safety parameters.
  • Always verify whether the company has a brick-and-mortar office. Ask for the office address and verify it. (You have Google Maps). Make sure it is a genuine establishment. This also includes confirmation of the biometrics enrollment of the company. They must employ staff only after a clean background check.

Neutrality and accreditations

The service must be neutral. Since you are taking the initiative to look for the company, proceed with the discussions only after consulting with the other party in a transaction. Explain your choice of services, and if everything seems fine, proceed with a mutual discussion. Always make it a point to include the other party in communications with the escrow service. Inquire on the business accreditations of the service. See whether the company is a registered service at major business organizations at your state. You need to present certain documents proving your participation at the project. The other party also has the same obligation. Make sure you are fully aware of the paperwork submitted.

Check the contract

A compact contract is critical in any financial arrangement. Finding a suitable escrow service is not an exception. Ask for a sample contract for evaluation. See whether the clauses in the deal ensure complete safety of the transaction. If you are the assigned recipient on project completion, verify your end of the agreement. If you are the client, look up your end of the agreement. Make sure to discuss all apprehensions with the agency.

They must have a robust customer support system. Call up the phone number on their website. Explain your situation in finding whether they can assist you. Ask for referrals. Call up the referred numbers in interpreting the accountability of the company.

Full or installment options

You need to draw a three-party agreement. This would require a tripartite discussion at the offices of the escrow agency. Sometimes, online services arrange for video conferences in finalizing the deal. You may sign into a full-escrow, or an installment-escrow. In the second system, you need to set milestones for project completion. The company releases payments successively. Check all essential parameters into selecting the right escrow service.

 

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The Foundation of Credibility is Essential in Playing your Part at Escrow Process

Entering into an escrow arrangement is common in the real estate sector. Another quite interesting usage site for escrow is at the leading freelancing platforms on the web. The major online sites require the client and contractor to reach an arrangement, and then it holds the payment from the former to dispense to the latter on project completion according to the terms and conditions. This stable system offers the freelancer peace of mind and a guarantee of quality work from the client. In the real estate industry, you need to find a credible and neutral third party service. The escrow process is simple in execution and offers the essential financial guarantee necessary for quality project completion.

 

Start by consulting

Start by consulting the company at their phone number on the website. Verify whether they have a brick-and-mortar office. Ask for the address and verify it with Google maps. Ask for referrals from the service. Talk to the referred numbers in interpreting the guarantee of credibility. Keep in mind the following golden rules into proceeding with your lookout for a credible agency.

  • Always involve the other party in a transaction while deciding on the service. Make it a point to continue your communications on email, and c.c the other party in the recipient list. This ensures complete transparency into setting up the agreement.
  • Check whether the service is a licensed entity or an independent organization. The licensed services usually charge a little higher rate than the other types of companies. However, an unlicensed service may have a good reputation in the market.

The governing regulations

Always check the experience of the service. Verify that they are aware of the laws and regulations governing the setting up of an escrow account. You should do your own research on this also. The statutes vary by state. Besides, there are Federal laws governing the credibility of these deals. The transactions facilitate via a designated bank account. Ensure that the agency has good contacts with the bank. Consider calling up the bank in inquiring about its association with the escrow services. If it is very new account, opened only a few months back, consider it as a red flag alert. An experienced service must have longstanding arrangements with the financial institution.

The full and installments system

Essentially, there are two kinds of transactions in this category. In the full-payment system, the payee receives the full payment after completing the project. The assignment must meet the terms and conditions of the original deal. In the second type of arrangement, the payee receives the amount in installments at the successful completion of the project. In this process, setting realistic milestones is very important. This is not suitable for all kinds of projects. However, when you are hiring a talent-based service like computer programming, graphic designing, or content writing, the installments system is highly effective.

Read the terms and conditions

Always read the terms and conditions of the tripartite arrangement. The service deal must clarify the neutral position of the escrow services provider. You need to submit paperwork proving your participation at the agreement. The other party must do the same. You should make it a point to keep matters in all transparency. If a face-to-face conference is not possible, see if you can communicate over an online video arrangement. Consent to the deadlines only when you are sure of committing to them. It is wise to keep some buffer time unless you need to work in an emergency.   

 

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More Tax Breaks

As noted in a previous blog the mortgage interest deduction is the most notable and beneficial of the homeownership tax breaks, but there are even more beneficial deductions.

 

Points

Points are considered “prepaid interest” by the IRS.  Thus, if the homeowner paid ‘points’ as part of the mortgage loan, the IRS allows these to be deducted on their taxes.

There are several caveats to deductibility, some being: If your acquisition debt exceeds $1 million or your home equity debt exceeds $100,000, you cannot deduct all the interest on your mortgage and you cannot deduct all your points. Points are deductible only in the year that they are paid, and they must be part of the loan to purchase or build the home. Also points are only deductible if they are an established business practice in the area and they are within the range that is generally charged in the area.  Homeowners can also fully deduct (in the year paid) points paid on a loan to improve the main home.

Several other qualifiers do apply, and all must be met in order to get a full deduction.  Please see a qualified tax professional for all details and tax help.

A homeowner who pays points on a refinanced loan or an equity loan or line of credit may also be eligible for this tax break, but in most cases the points must be deducted over the life of the loan.

 

Selling a Home

Another huge tax benefit is in the sale of a home.  Prior to 1997 the only way a homeowner could avoid paying taxes on the proceeds on the sale of a home was to purchase another house.  In that year the law changed allowing homeowners to exclude from taxation the gains made on the sale of a home of up to $500,000 for a married couple, or $250,000 if single or married and filing separately.  The homeowner must own the property for at least two years, and they must have lived in the property for at least two of the five years prior to the sale.  There are certain exemptions to this rule so see a tax professional for the details, as well as for several other homeowner tax benefits.

 

 

 

 

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Interest Rates to Stay Up

We’ve grown accustomed to low mortgage interest rates, with rates hitting 3.5% or lower in late 2012 and early 2013.  However, Mike Fratantoni, chief economist at the Mortgage Bankers Association (MBA) says that, “It’s highly unlikely that we’re going to get back to those levels again.”

Thanks to the Federal Reserve Board’s Quantitative Easing program the benchmark U.S. mortgage rates hit record lows not seen in more than forty years.  The Fed had been buying $85 billion of Treasury bonds and mortgage-backed securities each month in a bid to drive down rates on mortgages and other long-term debt.  They succeeded.

When the Fed hinted last May that they might begin to cut back on the QE3 program interest rates shot up a full percentage point in just one month., later stabilizing in the mid four percent range.  The Fed has now begun to cut back on QE3 over the past two months with the $85 billion per month purchase of the mortgage –backed securities being reduced to $75 billion and now to $65 billion in purchases each month.

Market analysts now expect that mortgage rates will be pushed up over 5 percent as a result of the quantitative easing phase-out and the strengthening of the national economy.  They also anticipate a rise in inflation rates.  Fratantoni predicts rates will hit 5% by summer and 5.3% by the end of this year.

Zillow’s economic research director Svenja Gudell says interest rates will hit 5 percent later this year, but that rate levels will rise slowly enough to give consumers plenty of time to buy or refinance before then.

She adds, “I don’t think there’s the need to rush out and buy a house this very second,” but I’d recommend locking in a mortgage below 5%, because I expect rates to continue rising.”

Gudell believes lenders will have to loosen up on the current relatively tight lending standards in order to keep their “home-loan operations humming.”  She notes that, higher interest rates normally reduce consumer demand and mortgage activity.

 

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