1. + ESCROW 190 (Escrow I) Spring Term 2016 Day 7

2. + Housekeeping: Midterm is due this morning!

3. + Ch: 8 – Closing the file Closing is the most important part of the transaction! Closing is final and can be undone with great difficulty Documents that are recorded cannot be withdrawn Title has passed to the purchaser New lender’s loan (if there is one) is secured as a lien against the property Title is obligated to issue the Title Insurance Policies Escrow is obligated to make disburse all funds per the settlement statement

4. + Pre-Closing Responsibilities: Before recording and disbursement The Escrow Agent must address many matters If Purchaser is obtaining financing through a mortgage lender, the Escrow Agent must coordinate with the lender for disbursement of loan proceeds Documents requiring recording need to be sent to the title company Deed(s) Deed of Trust Closing deposits must be received from all parties and be good funds

5. + Coordinating with the Lender Preparing the “Funding Package” Original docs or “Table funding”? Docs that are included in the package are… Lenders often require 24 hours to review signed docs before releasing loan funds (all lenders are different in requirements) Funder reviews the signed loan package What are funding conditions? … Same day closing challenges

6. + Coordinating with the Title Company Preparing the Title Package (“Recording Package”) Once the signed docs are sent to the lender, escrow must get the title documents ready for recording and transmit them to the title company All recordable docs must be complete: Legal description, names, vesting and exhibits are all correct and attached to the recordable documents; Documents are properly notarized and notary seal is legible Excise Tax check is correct and attached to the package Package includes instructions to hold pending instruction for escrow to “release for recording”

7. + Yes, written instructions again! Just as written instructions are attached to the funding package to the lender, there are written instructions that must be prepared and attached to the Title Package (aka “Closing Instructions”, “Closing Order”) The instructions direct the title company on every aspect of the closing such as: Which docs are included in the title package and what the title company is supposed to do with them What the title company is supposed to do with the attached funds What type of policy or polices are to be issued The coverage amount requested for each policy The name of the insured party to be shown on each policy Any special exceptions in the preliminary title commitment which will be shown in the final policy or policies

8. + Yes, written instructions again! Continued…. Any additional coverage or special endorsements to be issued Any special exceptions in the preliminary title commitment which are to be eliminated from the final policy Escrow Agent is willing to take responsibility via indemnity to the title company Since documents can’t be retracted once they are recorded, the instructions from Escrow to the Title Officer must be very clear about what is to be done upon receipt of the Title Package Review and record docs on receipt Review and hold pending recording authorization

9. + Receipt of Closing Funds Before the Escrow Agent can proceeds any further with closing, they must have all closing deposits due from the purchaser and/or seller in the escrow trust account, and verification that the deposits are all “good funds”. After being receipted into the trust account, a copy of any checks and receipts should be kept in the file and distributed to the customer and the book keeper

10. + Closing Balancing with the Lender (if applicable) The Escrow Agent and Loan Funder “balance” the file: Come to am agreement regarding the amount of funds needed from the lender to closer Some lenders wire the entire loan balance and require the Escrow Agent to disburse a check at closing payable to the lender for all the loan fees an escrow account deposits Other lenders “net fund”. This means the lender deducts any escrow account deposits and/or loan fees from the loan balance before the loan proceeds are wired to Escrow

11. + Closing Receipt of Loan Funds In theory, the Escrow Agent should obtain loan proceeds before the transfer deed is recorded and the deed of trust is recorded against the property In practice, some lenders require verification that their lien (deed of trust) is secured (recorded) against the property before they will release funds to escrow Escrow conundrum: Escrow agents can’t record until all funds are received, but they can’t obtain all funds until the documents record. If they want to stay in business, then the Escrow Agent needs to assume some risk by authorizing recording of the documents based on a verbal guarantee form the lender that they will fund the loan immediately upon verification that documents are recorded

12. + Closing (continued) Recording Once the file is balanced, all conditions have been met and the lender has guaranteed funding the Escrow Agent will release the documents on hold with the Title Officer to for recording Title Officer will confirm recording numbers with Escrow Agent once received from the County Recorder’s office Now the actual “settlement” begins….

13. + Preparing Final Settlement Statement Prepared based on estimated settlement statement acknowledged by purchase and seller Official notice to purchaser and seller that the transaction has closed Copies are traditionally emailed or mailed out to principals Escrow agent will notify all parties via phone as a courtesy, through their agents Many parties require the Final Settlement Statement Realtors will need for commission check for example

14. + Disbursing Funds: Recording numbers and loan proceeds are received Checks prepared in accordance with the Settlement Statement Disbursement occurs after the Escrow Agent has completed a Balance Sheet or a check/receipt register (see page 102 for a sample) All funds on deposit are listed in the balance sheet Earnest money deposits held by Escrow Agent Loan proceeds Closing funds received from purchaser and/or seller

15. + Disbursing Funds (continued) The Escrow Agent lists every check they are writing against the account Proceeds to seller Payoffs to lien holders Real estate commission Title Fees Real Estate Excise Tax Property taxes HOA dues, etc Any funds held for later disbursement (i.e. Reconveyance) should be listed as a separate item under “funds held” and deducted from the balance just like a check After all checks issued, the balance in the file should equal zero. Total receipts minus total checks (and funds held) equal zero

16. + Disbursing Funds (continued) Once funds are disbursed it is darn near impossible to get them back. If file does not equal zero (there is not enough money in the file to cover ALL the checks), the Escrow Agent should not disburse any funds until they can determine WHY there is a shortage If it all balances then then checks are issued and closing is complete Lenders often sell their loans immediately after closing and the lender will need the final title policy completed to do this

17. + Post Closing Responsibilities 1099 Reporting Unless a seller obtains some sort of exemption or deferral, the seller must pay income tax on earnings form the sale of real estate Its not the Escrow Agent’s responsibility to determine what taxes are owed It’s the Escrow Agent’s responsibility to report the sale to the IRS under Section 6045-E of the IRS Code In order to report properly, the Escrow Agent must “solicit” information from the seller including Tax ID # (Social Security Number) and forwarding address The original 1099 form is mailed directly to the seller and a duplicate to the IRS

18. + Obtaining Final Title Policies Post closing, the Title Company will issue the Final Title Policy Policies are issued directly to the policy holders, but Escrow needs a process to follow up on all policies to ensure they are issued Mortgage companies often intend to sell their loan immediately and will require the final title policy be issued before they can do it

19. + Reconveyances – What is this? When a deed of trust is is used to secure a promissory note (typical in WA State), there are three entities involved in this one document The Grantor: Borrower The Beneficiary: Lender The Trustee Commonly a title insurance company or an attorney Act as neutral third party to the transaction (similar to the Escrow Agent but with different responsibilities) Through the execution of a deed of trust, the Grantor is “conveying” a clear title to the Trustee The Trustee then “holds” the deed “in trust” for the borrower and the lender

20. + Reconveyances (continued) Trustee has two obligations in conjunction with the deed of trust Act as an independent party in the event of a trustee’s sale This is a non-judicial foreclosure proceeding that allows for an expedient foreclosure process The Trustee sells the property, since technically the Grantor did “convey” title to the Trustee They then pay the lender out of the proceeds of the sale Anything remaining goes to the Grantor

21. + Reconveyances (continued) The second function of the Trustee is the act of reconveyance Once the deed of trust is paid off, the lien holder is obligated to release that lien from title of the property The Reconveyance acts as a paper trail WA State RCW 60.16 says that upon payment in full of a mortgage, the Beneficiary has 60 days to comply with the request to release the lien from the property The Escrow Agent has to be diligent in ensuring the Reconveyances are recorded timely.

22. + Four things the Trustee needs to prepare and record a full reconveyance 1 Trustee’s Fee 2 Original Promissory Note 3 Original Deed of Trust 4 Request for Full Reconveyance signed by the legal note holder: NOTE: Many lenders sell the servicing of their loans, and the current holder of record may not be the same as the legal holder. Therefore, the Trustee will need to see a copy of the Assignment of Deed of Trust

23. + Reconveyance (continued) All these documents must be obtained from the Beneficiary When sending out the payoff funds, its good practice for the Escrow Agent to request that the original note, deed of trust and request for reconveyance be forwarded to them Why? Escrow has indemnified the title company that the liens will be removed from record. Surrendering control of this process to an out of state lender is scary. Maintaining control of the entire transaction, even after closing, is the most prudent way to close

24. + Reconveyance (continued) Once the original documents, request for reconveyance and the Trustee’s fee are received by the Trustee, the process of removing the lien from record is almost complete The Trustee prepares a Full Reconveyance This is the document that transfers the title back to the Grantor (Borrower/Purchaser) from the Trustee This document is recorded in the county where the property is located and the lien is removed from record

25. + Release of Privately Held Deeds of Trust Process is virtually the same as an institutional lender The prudent Escrow Agent will request the release documents be deposited with them prior to closing, or to exchange documents for payoff funds

26. + Other types of release documents Request for reconveyance / partial reconveyance Used in the event that a deed of trust which encumbers the property being sold is also encumbering other properties This is common in the case of a builder having taken financing on an entire plat and payoff off a portion of this loan with each lot sale These documents work the same as a request for full reconveyance, except they release only a portion of the deed of trust on the property sold, not the entire lien

27. + Other types of release documents Release of mortgage/partial release of mortgage Releases a mortgage, which is different from a deed of trust, the same way we just discussed, but there is no Trustee All releases are executed by the Beneficiary Mortgages are mainly used for agricultural purposes, so are not very common Statutory Warranty Fulfillment Deed This document is used when paying off a Real Estate Contract Since the seller, in the case of a Real Estate Contract, is not the owner of record, this document transfers title to the seller upon satisfaction of the contract Its very important to have this original document held in Escrow prior to closing This document can stand up even if one or more of the parties is deceased

28. + Other types of release documents Satisfaction of Judgment If there is a judgment being paid off in escrow, you will need to file and possibly record a satisfaction of judgment before the lien is removed from title Like all other release documents, this document will complete the “paper trail”

29. + Final Close-Out of the file Some lenders will release their own liens from record If this is the case, and a release number is obtained from the Trustee, then funds held at closing for the reconveyance must be returned to the proper party When all funds have been disbursed, final title policies have been issued and the Escrow Agent has confirmation that all pertinent liens have been cleared the Escrow Agent can move the pending file to storage WA State statutes require that Escrow Companies and DEO’s store closed files for a minimum of 6 years