EscrowCh04 by philchen


									     Chapter 4

Consumers & Real Estate
                 Chapter Outline
   Selection of the Title Company
   What the Title Insurance Company Insures
   How the Title search is performed
   What a Title Company Does
   Payment for the insurance policy and title
   Opening the Title Order
   Analyzing the Statement of Information
   The Preliminary Title Report
   What the title search reveals
   How title is held
   Title participation at close of escrow and beyond
                Chapter 4
     At the conclusion of this chapter, you will be able to:
1)    Explain why principals should make informed
   decisions in the selection of the Title Insurance Co.
2)    Give a definition of title insurance
3)    Differentiate between a preliminary title report
            and a policy of title insurance
4)    Outline the steps used to obtain a preliminary
            title report
5)    Understand how a title search is performed
6)    Distinguish between property and people title
         Selection of the Title
Buyer has the right to select the title and escrow
     company under Real Estate Settlement
     Procedure Act (RESPA) law
Some financing limits the amount the borrower
     may pay
      low-income borrowers
      government insured or guaranteed loans
      special city or area programs for first time home
The seller generally selects the transaction
           Payment and Experience
The party that pays for the service has the
    right to select the service provider
     Seller usually has prior transaction experience
          Original purchase
          Refinance
     Buyer usually knows only agent and lender
     Selection using the former title
      insurance company may save time,
      efforts and money
                  Title Search
   searches the records
   establish the chain of property
        ownership for prior ownership interest
       current lien records
   search back to the last title policy
   computer records
      capability of scanning documents
      electronic transmission of data

      independent validation of the documents and
   Title officer
      verifies the information

      questions past data
       The Title Insurance
   insures against loss
   a non-recurring, one-time premium expense
   coverage is valid for as long as the same
    named insured owns the property
   uses a set of records referred to as the title
   title policy clears all liens except those
    disclosed in advance of ownership change
              Things That Affect Title
   The estate or interest in property .
   The recorded owner of the estate or interest.
   The legal description of the parcel of land involved.
   Taxes (city and county)
   Bonds and special assessments,
      such as street lighting, sewers, sidewalk and repairs.

   Easements, such as
      public utility purposes, alleys, sewers, light and air and
   CC&R’s (covenants, Conditions and Restrictions)
       Affecting use of the land: types of buildings, setbacks & fences.
   Existing Deeds of Trust
                Things Affecting the
                 Condition of Title
    Judgment liens recorded against persons (sellers):
      Federal Income Tax liens, money judgments, etc

   Recorded leases:
      Building, ground and mineral

   Recorded declaration of Homestead
   List of printed title policy exceptions and exclusions
   The legal and vesting are descriptions, rather than a
    condition, and are the subject of the title report
   The licensed agents (salesperson and loan agent) should
    read the title report to look for discrepancies (red flags)
                How the Title Search Is
   escrow gathers the initial information
   the title company to open a title search
   information about the property and the
       By reviewing paper documents
       by computer searches
       by going to the offices of the
             courthouse, county recorders,
            Internal Revenue Service records, tax assessor’s.
            Types of Title
   abstract of title
       A condensed version of the recorded documents
         affecting title
       The initial search, attorney opinion or certificate
   preliminary title report
       an offering that title insurance may be offered
       items preliminarily found affecting the property
   policy of title insurance
       Coverage for future claim be made against the
        property based upon past records found
                    Gap in the Chain
                        of Title

   results in a cloud on the title
   court action needed to establish ownership
   current owner does not have valid title
   abstractor must validate any gap in the title
   current owner cannot convey title
   cannot obtain a policy of title insurance
                   Warranty Deed
   Seller warrants that the grantor can pass title to
    the grantee in good condition.
   What if a title attack fails and the property owner
    suffers a financial loss?
   Go back to the grantor from which title to the
    property was received
   Problem # 1: locating the grantor
   Problem # 2: grantor may be insolvent
   Problem # 3: time and expense to bring an action
        Title Companies in California
   Structure: corporations whose assets are
        reviewed by the governmental agency
   Business practices: Licensed by the state
   Insurance commissioner review of the company’s
        past performance, current claims and
        projected resources.
   Controlled by the integrity and financial structure
        of the company that issues the policy
      What a Title Company Does
   performs a thorough and diligent search of
       the title records and public documents
   insures a principal against hazards
       inherent to real property ownership
   insures the legal right for an individual
       entity to possess and use the property
       within the restrictions found on the
        Difference: Deed vs
             Title Policy
   Recordation of a deed
       only delivers all the rights that the grantor had
         in the property
       the buyer might not have received any interest
         in the property
   Title policy
       legal defense will be provided if the title to the
         property is under attack
       policy is insurance up to the face amount of
         the policy if the title attack should fail.
    Payment for the Insurance
     Policy and Title Search
   The cost of title insurance is by local practices
   The party requesting the service is normally
        the one responsible for the expense
   Premium rates are in the same general range
   Difference in service
   A single, non-recurring premium is paid only
                 Opening the
                 Title Order
   Performed by online, fax or telephone
   By real estate agent, escrow officer
   With title receptionist or order entry clerk
   The basic file information is transmitted for
       the property data, seller information and
       the name of the buyer and vesting
   Existing known liens and the type of
       financing the buyer will be obtaining
          Statement of Information
   completed by each principal
       information on employment, residences, social
        security number, and former marriages
   Information used to search
       state and IRS income tax records
       court index records for any judgments or suits
   title company searches the general index
         (GI) with the name of the person
                   Title Examiner
   searches the general index (GI)
         with the name of the person
   uses the place of residence and employment
         to establish the likelihood of the record
         not matching the proposed insured.
   All clouds would have to cleared
   title technician and the title unit will
         determine if the title officer will allow the
         title insurance company to place the
         insurance policy on the transaction
     Preliminary Title Report (Prelim)
   a signed and dated report used to facilitate
       the issuance of a policy of title insurance.
   a report of the conditions found on the
       property upon which the title insurance
       company is willing to issue a policy of title
   shows existing items that are currently
    recorded or are of record against the
         What the Title Search
   Data found against the property
       encumbrances of record
   Data found against the people
   Voluntary and involuntary liens
                      Title Defect
   Anything in the entire history of the real property
        ownership that may encumber all or any part of
        the property owner’s right to quiet enjoyment of
        the property.
   May cause the owner to lose some portion of the
   Results may be a turn down of the application if the
        company determines that the title cannot be
   The title company will not provide insurance when
        the title is found to be uninsurable.
                 How Title Is Held
   Vesting
       how title is held
       to secure a person’s authority or
        right to title ownership of property
   Legal and
       Tax Consequences
    Title by Only One Legal Entity
   Corporation
   Limited Partnership
   Living Trust
   REIT
   Separate Property
   Joint Venture
   Individual
      Title With More Than One
   Joint Tenancy
   Tenancy in Common
   Community Property
   Partnership Property
   Community Property with right of
    Title Participation at Close
      of Escrow and Beyond
   when someone makes a challenge to
        the ownership of the property
   defend the title at the expense of the
        title company
   future claims against the title
                   Think About It!
    Two real estate students, A & B, decide to buy an
    investment property duplex together. A has more funds
    available than Band puts 2/3 of the cash needed to close
    escrow and B pays 1/3. The Grant Deed states only their
    names with no other mention about vesting. A & B live in
    one side of the 3 bedroom duplex and they rent out the
    other side of the duplex for the rental income.
   After a while they begin to disagree on everything. A
    asserts the greater ownership interest and orders B to use
    only 1 bedroom because A will be using the other two
   How is the title to the property held?
   What are the rights of A & B?
   The interests are not equal and no vesting was stated at
    the time they acquired the property, so each holds title as
    a tenant-in-common (TIC).
   Each has a right to possession to the entire property with
    no limit on specific portions of the property. B could sue A
    to regain possession.
   B could also sue for partition. A judge would most likely
    have one buy out the other or order the property sold and
    the proceeds split with A getting 2/3 of the net proceeds
    and B getting 1/3.
   Escrow would need the signature of both A & B to
    transfer ownership to a third party in the event of a sale.
    Escrow would need the signature of B to grant all interest
    to A if A & B agreed that A could refinance the property
    and pay B his or her 1/3 net proceeds.

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