What Can Delay an Escrow?

An escrow process is the process you go through when a property changes owners, so whether you’re a buyer or a seller, you generally don’t want to delay it. These days most escrows take about 45 days; a few can be quicker and some can be much, much longer.

To keep things moving it’s best to communicate even the most seemingly inconsequential details with your Realtor and your escrow officer. Here’s a list of issues, big and small, that can delay or derail your escrow.

If you are using a power of attorney to sell a property, you’ll want to mention this ahead of time because some powers of attorney cannot be used this way.

If the property is owned by a trust, be sure to mention it so the proper papers can be drawn up. This is no big deal, but the paperwork needs to be right.

If you are a real estate investor hoping to accomplish a 1031 Exchange, plan ahead. In a 1031 Exchange, you can use the proceeds from the sale of one real estate investment property to purchase another real estate investment property, and defer paying taxes on capital gains that would be due without the exchange. When you sell an investment property and reinvest the funds, there are restrictions regarding which properties qualify and how quickly you need to complete the second transaction. And you’ll need to choose an accommodator—the person who will hold the proceeds from the sale of your investment property until you identify and close escrow on the replacement property. These are not big hurdles, but they do take time.

Another potential hurdle arises if you’re selling a property for which any of the people listed on the title have died. If this is the case, you’ll need official (certified) copies of their death certificates, and perhaps an affidavit of death of joint tenants or information from the executor of the estate; you may even need a court order. As soon as the courts are involved, major delays may be, too.

Court orders can be required for several situations: if a buyer or seller has ever filed for bankruptcy, if a minor under 18 wants to sell his or her property, if a property owner is declared incompetent and the conservator wants to sell the property, and the list goes on.

Things can get really messy if joint property owners are in the middle of a divorce or if a divorced couple did not separate assets cleanly when they ended their marriage. In the case of a divorce-in-progress, either side can hold real estate hostage to other divorce demands, and that can extend an escrow indefinitely. And a seller cannot sell a property unilaterally if the ex-spouse’s name is still on the title. He or she will have to ask the ex to sign off on the sale, which may require the seller to track down his ex-wife while she is on an extended backpacking trip through wilderness with no cell service. If the ex-wife is on foreign soil, she will have to go to the U.S. Embassy to have her signature notarized, which may not be her top priority. I’m telling you, these things happen.

If the previous loan on the property was a conventional bank loan, everything’s easy. If, on the other hand, the loan was carried by the seller 27 years ago, paid off 12 years ago, and the seller has since passed away without ever sending a reconveyance proving the loan is paid off and the title belongs to you, have fun tracking down the seller’s heirs for that reconveyance.

The moral of the story is this: communicate early and often with your escrow officer, and things should work out fine.

If you have questions about real estate, contact me at rselzer@selzerrealty.com or visit www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you’re a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 40 years.

 

Building Your Own Home – Get the Skinny Up Front

Purchasing a to-be-built home is completely different from buying an existing home. When building your own home, whether it’s customizing a spec home or creating a custom home from scratch, you can avoid expensive misunderstandings by asking your contractor some key questions up front.

Building a custom home on land you’ve purchased is a big undertaking, but so is purchasing a home in a new subdivision. When building a totally custom home, there are no templates or specifications to adhere to, so while open communication is critical, a developer is not trying to squeeze your dream home into a ready-made template.

When purchasing a to-be-built home in a new subdivision, you’ll be faced with choices within the confines of pre-approved plans. Limits on square footage, house color, and backyard fence height may surprise you. The fact that you are not allowed to park your RV where it can be seen from the street may change where the house goes on the property.

Before you get into the details, check out the builder. Ask for a list of previous clients. Ask your lender and, as always, your Realtor, what they know about him. Don’t go in blind.

Once you know you’re dealing with a reputable builder, here are some questions to ask before you jump in with both feet.

  1. Is earnest money refundable?
    Typically, in the resale market, if the purchase of a home falls through based on a loan contingency, you get the deposit back. This may not be the case if a contractor has modified a standard floor plan to suit your needs.
  2. How long will it take to complete the home?
    If you have already sold your home, are you living in a rental, or worse, with your in-laws? This may be a significant point of negotiation as you determine whether to buy a to-be-built home or find one that’s ready to move into.
  3. What is “complete”?
    If your contractor says, “Don’t worry about those six things on the punch list, we’ll take care of them after escrow closes.” Your response should be, “That’s fine, we’ll release the final ten percent hold-back funds right after that punch list is complete.”
  4. How much do you want me to stick to the program?
    Incentives are often available to encourage folks purchase a model that’s already been built. Ask about them.
  5. What’s the upgrade allowance?
    Frequently, when you inspect a model home, it has granite countertops and tile floors. When you review the contract, you may discover that it includes Formica/laminate, with linoleum in the bathroom. Each area of the home has an allowance, say $500 for kitchen countertops. If you want granite, you have to pay the difference between $500 and the additional cost of the nicer material. It’s like buying a car: the base model may be $18,000, but if you want leather seats, that’s extra.

    Review allowances to be sure they are sufficient to build the quality of amenities you want for flooring, lighting, plumbing, countertops, and more. If you want to upgrade, decide up front, because change orders are expensive. Changing your mind after you’ve settled on a contract can double the price of nicer amenities.

  6. Who’s on the hook to pay whom?
    Be sure your contractor is on the hook to pay any subcontractors, not you. You’ll want lien waivers and/or releases in writing: you don’t want to find out the subcontractors weren’t paid and you’re responsible for paying them.
  7. What happens when workmanship falls short of expectations or the move-in date is postponed for the fourth time? What happens when the Internet lender can’t close escrow on your agreed-upon date?
    Brainstorm “what ifs” and get answers up front.

If you have questions about real estate or property management, please contact me at rselzer@selzerrealty.com or visit www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you’re a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 35 years.

 

 

What Exactly is an Escrow and What Should I Know About It?

If you don’t buy a lot of property and you are not in the real estate business, chances are you don’t know much about the escrow process—which is fine unless you’re buying a house.

Escrow is the neutral place where legal documents pertaining to property ownership and money to pay for that property remain safe until a transfer of ownership is complete. An escrow officer is the individual with a fiduciary responsibility to the buyer and seller, who makes sure both parties’ interests are protected. When all escrow conditions are met, the escrow officer oversees the exchange of the deed for the payment.

Easy, right? Well, yes and no. Determining exactly who pays for what is a matter of negotiation and there are several expenses that go along with the escrow process. There’s the down payment, mortgage insurance, title insurance, loan fees and points, drawing and recording fees, inspection costs, repair costs and sometimes government-mandated retrofits.

While none of these expenses is particularly onerous alone, added together they can amount to serious money. Because each transaction is different, I can’t really speak to average escrow costs, but I can tell you it is essential to be up front and honest with your realtor about the amount of cash you have so they can negotiate appropriately on your behalf.

Long before closing, you should be sure you meet all the lender’s requirements, including providing verification of income and available cash (usually in the form of paystubs, bank statements, tax returns and credit reports). By working on these requirements early, you’ll have plenty of time to explain any derogatory comments on your credit report or why the income on your tax documents doesn’t precisely match that of your paystubs.

You will also have to make arrangements for hazard insurance for you and the lender. I promise, you don’t want to be finding out that your home is in Fire Protection Class 9 (high risk) the afternoon before you plan to close, because it can dramatically change how much insurance you’ll need and how fast you’ll be able to get it. In fact, your lender will want to see insurance confirmation before they fund the loan.

You also need to be prepared to prove that you are who you say you are: your signature on the deed of trust will need to be notarized (the deed of trust is the security agreement tying the loan to the property). Notarization requires valid, government-issued picture identification in the form of a driver’s license, passport, or state-issued ID.

Once you’ve secured all this, you’ll be presented with one of the biggest piles of paper you have ever seen, and to complete the transaction you must sign to affirm that you have read, understood and agreed to all of it, including the fine print.

There’s an activity lull while documents are transferred and reviewed and, assuming no problems pop up, the lender will fund the loan shortly thereafter. Occasionally, you’ll hear the dreaded words, “We have pre-closing conditions.” If you do, talk to your REALTOR immediately to address them.

To close escrow, all of the following must happen: the loan is funded, the escrow company possess the documents, the title company issues the title policy with appropriate conditions, you and the seller sign the closing instructions, and the grant deed and deed of trust are recorded. Only then can the sales proceeds go to the seller, the deed of trust and note go to the lender, and the grant deed go to you, the buyer.

You are now the new owner. The last thing to do is move in the cat.

If you have questions about real estate or property management, feel free to contact me at rselzer@selzerrealty.com or visit our website at www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you’re a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 35 years.

Getting Through Escrow

With so little inventory available, the market is shifting to a seller’s market, even with rates at record lows. So, if you’re a buyer fortunate enough to have signed a purchase contract and gone into escrow, here’s what you need to know to complete the process.

First, let’s define “escrow.” Escrow is a neutral place where money and property are both safe. An escrow officer is like an impartial judge who makes sure everyone keeps his or her word. The escrow officer has a fiduciary responsibility to all parties (buyer, seller, and lender). When all the conditions for the transfer of property are met, the escrow officer oversees the exchange of the deed for the payment.

As a buyer, you may have already worked with a lender to become pre-approved for a loan. If not, you’ll need to find a lender and get all your financial information in order (see last week’s column for details on what you’ll need).

Hopefully, you’ve been working with a real estate agent who walked you through the process of carefully outlining contingencies you need, exactly what is included in the purchase and who will pay for inspections, any repairs, closing costs, etc.

Inspections are a big part of an escrow. My advice to buyers is to take advantage of as many inspections as you can. Yes, you will probably have to pay for them, but better to know what you’re buying, than to end up with nasty surprises after the property is yours. Unless you are buying a property and planning to tear it down and build from the ground up, order inspections!

Here’s a list to consider:

○     Home Inspection

○      Electrical

○      Plumbing

○      Roof

○      Heating & Air conditioning

○      Foundation

○      Structural

  • Well – both quantity and quality of water
  • Septic – physical condition of the tank and function of leach field
  • Pest and Fungus – check for dry rot and bugs, both of which are abundant in Mendocino County
  • Hazardous Materials – e.g., asbestos and lead paint. Although both were outlawed in 1978, contractors still had supplies on hand and sometimes used those supplies illegally for some time.
  • Soil/Geology – if you are unsure of the history of the property and plan to plant vineyards, for example, you will want to know what you’ve got. Are you on the side of a cliff that may be about to give way? Check it out.
  • Energy Audit – are you going to need new windows and insulation as soon as you purchase the house? Best to know ahead of time.
  • Structural Engineering – two-story house with cracks in the walls, any house with cracks in the foundation? In addition to inspections, making sure you are aware of any liens, easements, or tenant rights connected to the property can save you from big headaches later. Many easements aren’t a big deal; they assure that your neighbor can access their driveway or that a utility company can pass behind your property to access communication or electricity lines.

However, some legal restrictions could prevent you from inhabiting your home for several years or require you to pay bills that weren’t yours in the first place. An easement through the only building site could reduce the value of the property dramatically. If the property has renters, be sure to get written verification of the rental terms (called an estoppel agreement). Because, verbal agreements are only worth the paper they’re written on.

The escrow process is based on everyone acting in good faith. If inspections or the preliminary title report indicate problems, the buyer can withdraw from the contract if the seller is unwilling to remedy the problems. However, the contract is a legally binding document, so there must be a compelling reason to dissolve the contract. Most escrows go through, and the property changes hands in 30-45 days.

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Qualifying for a Loan

 

The market continues to be good for buyers. Home prices are low (but starting to climb), and rates remain incredibly low compared to historic norms. While there’s not a lot on the market, spring and summer are traditionally times when more inventory becomes available, so we may see an upswing in houses listed for sale.

However, while it may be a buyer’s market as far as housing prices and rates, there’s not much for sale so seller’s can be choosy. How can you be the buyer that gets the home you want? One of the best ways is to demonstrate that you’re qualified to buy that home.

There are basically two levels of loan qualification – “pre-qualified” and “pre-approved.” Pre-qualified consists of sitting down with a Real Estate agent and doing some simple calculations. Getting pre-qualified allows you to figure out what you can afford so you can narrow your search. An agent will ask you about your income and how much debt you carry (car payments, insurance payments, tuition payments, etc.), and whether you have any savings for a down payment. Being pre-qualified is much better then not being pre-qualified, but it’s not as good as being pre-approved.

To become “pre-approved” for a loan is more involved, but it’s a GREAT way to increase the chances of getting the property you want. Becoming pre-approved means working with your agent to find a loan broker who will review all your assets, liabilities, tax returns, W-2s, credit history, and any other relevant financial information to begin the process of applying for a loan. Basically, the only difference between being pre-approved and applying for a loan is that when you’re pre-approved, you haven’t found your property yet.

Getting pre-approved increases the chances of having your offer accepted, and it puts you ahead of your competition, if you have any. Because loans are so much more difficult to get than they used to be, a buyer who is pre-approved gives sellers piece of mind. Sellers won’t have to go through the frustrating experience of starting an escrow, only to have it fall through because the buyer can’t get a loan.

So how do you get pre-approved? Work with your agent to find a local loan broker. In this case, local matters. The incentive to provide excellent service and solid results is greater when your loan broker knows he may run into you in town. But that’s not the only reason local loan brokers are better than, say, someone on the Internet.

Internet brokers are playing a numbers game. If it takes months to find a type of loan that you may qualify for, that’s fine with them. They have hundreds, maybe thousands, of customers and so there’s no great rush to get you what you need.

Loan brokers who work in Ukiah only have the local population to work with, so it’s not efficient for them to throw a bunch of spaghetti at the wall to see what sticks. Basically, they make a living by being efficient and doing their homework so they can find you the best loan as quickly as possible. It takes more work up front, but it pays off for them and it pays off for you. Once they’ve found a loan that will work, the next incredibly compelling reason to find a local loan broker is so you can take advantage of their business relationships. Local brokers know people with whom they can work, people like title officers, escrow officers, pest and fungus inspectors, and insurance agents.

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