Transcript
Chapter 12
POSTCLOSING PROCEDURES
Chapter Outline Close of Escrow and The Recording Process Electronic Recording Notification by the Title Company Final Closing Statement -- The HUD-1 Form (RESPA) Foreign Investors: FIRPTA & Cal-FIRPTA Escrow Holder Relationship What the Buyer, Seller, Lender and Broker Receives Paying the bills Reconveyance Title Policies Fraud and Audit File
Chapter 12
At the conclusion of this chapter, you will be able to:
1. Understand the procedures escrow handles after the close of escrow.
2. Give a definition for electronic signature.
3. Outline general sections required on the HUD-1 form.
4. Differentiate between when FIRPTA or CAL-FIRPTA withholding is required and when the exemptions exclude the withholding.
5. Explain real estate fraud.
Close of Escrow
Actual notice is when an individual has personal knowledge of an event
Constructive notice means that any recorded document at the county recorder’s office gives constructive notice to the world that the act happened
Actual Close of Escrow PracticesSeller meets with buyer and delivers the deed.Seller meets with buyer to deliver the deed with an attorney present.Buyer and seller meet at the real estate office to deliver the deed and
keys.Buyer and seller meet at an attorney’s office to deliver the deed and
keys.Buyer and seller meet at the title insurance company office to deliver
the deed that the title insurance company will record.If the buyer gets a new loan, the buyer and seller may meet at the
offices of the new lender.No meeting. The seller executes a notarized deed well in advance of
the actual closing and delivers it to escrow; escrow gives all deeds (grant deed, trust deed, reconveyance) to the title company who records the deed at the county recorder’s office.
Recording Process
Assignment of Trustee Power of Attorney Special Power of Attorney Grant Deed Trust Deed Deed of Reconveyance Satisfaction of Judgment Release of Mechanic’s Lien
Power of Attorney Must be notarized.The party signing is called the attorney in fact.
If the power of attorney is executed outside the United States: The American Consulate in that county must notarize the document. .
The form allowed in California must contain the words: “to mortgage, transfer in trust, or to otherwise encumber or hypothecate” to be valid.
The individual using the power of attorney to sign for another must execute all documents in their own personal handwriting.
The individual must have prior approval by the lender and must sign the document with an exact order: writing the name of the person they are signing for, followed by a comma, then writing their own name, followed by a comma, then include the following words for each signing: “His or her attorney in fact.”
Notary Jurat STATE OF CALIFORNIACOUNTY OF___________________________
COUNTY OF _____________________ ______________________ being first duly sworn, deposes and says: That
________________________is the Claimant named in the forgoingclaim of lien, that____has read the same and knows the contents thereof, and that the statements therein contain are true and that it contains, among other things, a correct statement of _____ demand, knows the contents thereof, and that the statements therein after credits and offsets.
Dated: this ____day of ______,20___at_________________________ (City&
State) _____________________________________________ (Signature of Affiant) Subscribed and sworn to before me
__________________________________________ ______________________________________
Notary Public in and for said State
Electronic Recording
one form of electronic document acknowledgement by the notary as to the
identity of the transferor’s authenticating the signature
existing law does allow for electronic recording of documents
Notification by the Title Company confirms receipt of all the documents receives the loan funds collects the change of ownership form transmits documents to the County Recorders
office
Final Closing Statement The HUD-1 Form (RESPA)
Sections A-K: transaction parties names & settlement date
Section J is a summary of the borrower’s transaction
Section K is a summary of the seller’s transaction
Section L is the settlement charges
Final Closing Statement The HUD-1 Form (RESPA)
Lines 100-300 – Borrower’s funds Lines 4000-600 – Seller’s funds Lines 700-1400 – Itemized statement
of all costs and fees
Foreign Investors: FIRPTA & Cal-FIRPTA
IRS requires escrow to furnish a 1099-S showing: name of the seller the individual’s tax ID number state the amount of consideration received
At Federal level, the law states that: no more than 20 days after a transfer has been made, 10% of the total consideration must be withheld at
closing and remitted to IRS Foreigner must provide a Tax Identification Number (TIN)
CAL-FIRPTA - California Foreign Investment Real Property Tax Act
Requires 3 ½% of the total consideration to be withheld form seller proceeds.
As of 2004. Includes those who make a profit from the sale of
real property.For failure to withhold, the Buyer may become subject to a penalty in the amount equal to the greater of Ten Percent (10%) of the amount required to be withheld or Five-Hundred Dollars ($500.00).
FIRPTA ExemptionsNo Buyer will be required to withhold any amount or be subject to
penalty for failure to withhold if:
Total Consideration of California subject property is $100,000.00 or less
Seller is a Corporation with a permanent place of business in California
The property is the Seller’s principal residence.
The Seller is selling the property at a loss for California Income Tax purposes.
The Seller is selling the property as part of an Internal Revenue Code Section 1031 exchange.
The Seller is selling the property because of an involuntary conversion and will replace the property within the provisions of Internal Revenue Code Section 1033.
Escrow Holder Relationship When an escrow is opened the escrow holder is a dual
agent who acts for both the buyer and the seller After the conditions of the escrow had been met, the role
of the escrow holder changes to being an agent for each of the individual parties
The status of the escrow holder is a limited agency or specific agency and not a general agency.
The escrow holder has the duty and responsibility of acting as a fiduciary to the principals and to third parties that affect the escrow
Buyer Receives From Escrow:
termite report
• HUD-1 closing settlement statement Sometimes a check payable from the escrow trust
account insurance policy binder policy of title insurance mortgage insurance policy
From mail from the county recorder’s office Grant Deed, AITD
Seller Receives From Escrow:
Termite Completion Report HUD-1 closing settlement statement net proceeds check or wire transfer IRS Form 1099-S
•From the from the county recorder’s office
•Deed of Reconveyance
New Lender Receives •From Escrow:
•Insurance policy binders naming the lender
•hazard insurance policy binder
•flood insurance
•voluntary earthquake insurance
•flood insurance
•ALTA title insurance policy
•mortgage insurance policy
•HUD-1 closing settlement statement
Old Lender Receives
From Escrow
Substitute of Trustee
Reconveyance Deed
Assignment of the Deed of Trust
HUD-1 closing settlement statement
Broker Receives
HUD-1 closing settlement statement
final termite completion report
commission check
IRS Form 1099
Paying Bills brokerage commission vendor checks
Termite Inspection and Report Home Warranty Policy
tenant security deposits insurance premium(s) seller’s proceeds
Reconveyance Deed of Reconvenance Title company County recorder’s office
Title Policies ALTA title insurance policy
CLTA title insurance policy
Fraud and Audit File Department of Consumer Affairs DRE legal department Government prosecuting agencies
Investigation
Mediation
Arbitration
Litigation
Think About It! Closing Cost Error:
As a licensed real estate agent in California you like the sales part of each transaction but are not particularly fond of the math. To help build your confidence and reduce office liability, your office manager required you to print a copy of your buyer’s cost sheet and have the a copy signed by the buyer placed into the file. You used the MLS form at first, but later used real estate specific Top Producer software program. The buyer signed each and you reviewed the numbers carefully against the lender’s estimated closing costs form mailed directly to your buyer.
At the close of escrow you review the HUD-1 RESPA form that shows the exact figures used at the closing. In reviewing the figures you find a mistake that would result in a $50 credit to the buyer. What would you do?
Think About It! Closing Cost Error:
Answer: You would first go to your office manager or broker to determine if your $50 credit is correct, as a double check on your math computation. Then you would contact the escrow holder to correct the mistake for your buyer. The mistake may have come from the title company calculations or the new lender may have miscalculated a charge or fee. You would also go over the figures with your buyer and explain the steps you are taking to correct the situation.
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