Title Insurance and Escrow 2011©Cengage Learning. All Rights Reserved.

NATURE OF TITLE INSURANCE Insures that title to real estate is free from defects in title, undisclosed liens, and adverse claims. The title company agrees to pay any covered loss up to the face amount of the policy 2011©Cengage Learning. All Rights Reserved.

Title insurance is Legally Optional. 2011©Cengage Learning. All Rights Reserved.

TITLE INSURANCE Title companies are regulated by the insurance commissioner. Title insurance involves only one premium, payable at close of escrow. Title insurance has become essential and customary in most California real estate transactions. 2011©Cengage Learning. All Rights Reserved.

TYPES OF TITLE POLICIES The homeowner’s policy (CLTA) The lender’s policy (ALTA) 2011©Cengage Learning. All Rights Reserved.

Other Types of Policies Preliminary title report Foreclosure guarantee reports Litigation guarantee reports Name run reports ALTA-Residential policy 2011©Cengage Learning. All Rights Reserved.

Elements of a Policy Title page Schedule A Schedule B Schedule C Conditions and Stipulations 2011©Cengage Learning. All Rights Reserved.

California Land Title Association Policy is designed to cover the risks commonly demanded by homeowners. 2011©Cengage Learning. All Rights Reserved.

ESCROW AND ESCROW COMPANIES The seller entrusts the deed and other documents to the escrow agent. The buyer deposits all funds and instruments necessary for the purchase of the property. The escrow agent collects the data for documents, prepares instruments for signature, makes prorations, and arranges for title insurance. 2011©Cengage Learning. All Rights Reserved.

Regulation of Escrow Escrows must be licensed escrow corporations, having specified monetary reserves, and bound by strict regulations under the escrow law. 2011©Cengage Learning. All Rights Reserved.

ESCROW IS A DOUBLE AGENT Dual Agency Limited Agency 2011©Cengage Learning. All Rights Reserved.

Elements of an Escrow Valid Contract Form of Contract Escrow Instructions Prevail over Earlier Contract Delivery, Title, and Risk 2011©Cengage Learning. All Rights Reserved.

REAL ESTATE SETTLEMENT PROCEDURES ACT A broad act that among its provisions (1) Simplifies the wording of settlement cost statements (2) Requires borrowers to be given a good faith estimate of the costs (3) Prohibits kickbacks on others disallowed fees 2011©Cengage Learning. All Rights Reserved.

Good Faith Estimate Form Lenders must use the standardized Good Faith Estimate HUD form See text page ©Cengage Learning. All Rights Reserved.

Limits On Good Faith Estimate Increase Three categories of good faith estimates First category represents settlement values that cannot change from the GFE Second category limits any settlement values from exceeding 10% more than the GFE unless there are “changed circumstances Final category includes all other costs, and these can vary without limit 2011©Cengage Learning. All Rights Reserved.

Limits First category includes items totally under a lender’s control such as lender’s origination fees, points, and transfer taxes 2011©Cengage Learning. All Rights Reserved.

Limits Second category includes all other lender- required services, title insurance policy and government recording charges. 2011©Cengage Learning. All Rights Reserved.

Limits Final category examples include title insurance policy costs not identified by name on the GFE, services chosen by the borrower such as homeowners insurance, and daily interest costs. 2011©Cengage Learning. All Rights Reserved.

When the limits are exceeded and this error is brought to the lender’s attention, the lender must reimburse all excess charges. 2011©Cengage Learning. All Rights Reserved.