Home Matters with Yvonne
More About Escrow And The Sequence Of Events During Escrow
By Yvonne Hefner
May 1, 2003 - 6:12:00 PM

LOS ANGELESDuring the month of April, in Canyon News territory, approximately 292 single-family homes were listed for sale and approximately 120 closed escrow. Also, during this time period there were approximately 178 properties listed for lease with approximately 71 properties leased. Low interest rates are expected to keep the housing market active regardless of a sluggish economy. While the war in Iraq has caused some economic uncertainty, the housing industry is better positioned to survive negative influences. It is projected that the war and weak economic growth will keep interest rates low for the foreseeable future. Continuation of low rates should result in the housing market remaining stimulated and fast paced. Thirty-year fixed mortgage rates are expected to remain affordable and rise slowly to 6.3 percent by the end of the year. The rate of home price appreciation hasn't slowed as yet but there may be some moderation this year. The percentage of households in California able to afford a median priced home was 30 percent in February, unchanged compared to the same period a year ago. However, there was an increase of one percentage point from 29 percent in January 2003. The High Desert was the most affordable region in California with Monterey and Santa Barbara the least affordable regions.

The events in an escrow consist of: 1) Preliminary title search and report, 2) Lender's demand, 3) Request for new loan documents, 4) Completion of conditions and depositing of funds, 5) Adjustments and pro-rations, 6) Transfer of existing fire policies or creation of new ones, 7) Recording and issuing of title policy, 8) Disbursement of funds and 9) Escrow statement sent to each party. After these steps have been completed and all other escrow conditions have been met, the closing of an escrow is usually routine.

Photo by Kibiwot Limo

The closing date of escrow which can vary from 14 days to 60 days or longer must be mutually agreed upon between buyer and seller. The closing date is the date that the documents are recorded. Escrow approximates the closing date reflecting the agreed upon date by buyer and seller but the actual date is when all the conditions of the escrow have been completed, the buyer's remaining money is received (cashier's check or wired) and when all the documents are recorded. In closing statements, the buyer's and seller's totals are different. However, each closing statement must balance within itself. In the buyer's closing statement the purchase price is debited.

A Pest Control Report is usually a condition of the escrow. Pest control inspection reports are not required by law in California but most lenders will require this report. Who pays for the pest control report and the required or recommended repair work is up to the buyer and seller but is most often paid for by the seller. Most lenders require a pest control inspection report before making a loan and many will require repair work completed prior to funding the loan.

Fire insurance is a must. A lender will require coverage for the amount of its loan. However, it is in the owner's best interest to carry sufficient fire insurance to replace the structure if it is totally destroyed. It is only necessary to insure the current replacement value of the dwelling since the land itself cannot be destroyed by fire. California Fair Plan is the primary insurer of residential homes located in high-risk areas such as hillside located homes or beach homes.

All real estate transactions must be reported to the Internal Revenue Service. This is done by the escrow company. A 1099 Form is required for any sale or exchange. Title insurance also insures a lender against losses that result from imperfections in title. Title insurance companies examine the records documenting chain of title, review any risks that might not be found in the public records, help the seller correct any defects and insure marketable title to the property. Title insurance is only paid once. The first event to occur in a title search is the ordering of the preliminary title report by the escrow officer. The preliminary title report gives the current status of items from the county records that affect the property's title. In Southern California it is customary for the seller to pay the title fees. Since there is no law determining who must pay, it should be stated in the purchase contract to prevent any misunderstanding.

The law states that the closing settlement cost of a real estate transaction must be made known to the borrower, at his or her request, one business day before escrow closes. Until this law was passed, buyers were unaware of the exact amount needed until the actual escrow closing day. Sometimes the buyers were surprised or more accurately, upset to find that more money than expected was needed to complete the escrow. This unexpected discovery would be made when the buyer would arrive at the escrow company to sign the loan documents and any other unsigned documents pertaining to the transaction. An astute Real Estate Agent will request a copy of the Buyer's or Seller's Estimated Settlement Statement from the escrow company. The agent will review this with the buyer or seller before scheduling the date for the buyer or seller to meet with the escrow officer for signing of the documents and remitting the balance of funds due. Any errors contained in the Statement can be corrected and any questions can be answered eliminating any last minute surprises and frustrations. Until next time, home matters.

Yvonne Hefner, a licensed Real Estate Agent, can be reached at 323-650-8812 or at yvonne@canyonnewspaper.com


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