1. ©2011 Cengage Learning

2. California Real Estate Principles
Chapter 10
The Role of Escrow and Title Insurance Companies
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3. Chapter 10
Define escrow and list the legal requirements for a valid escrow.
Describe the basic services provided by title insurance companies.
Explain the differences between a CLTA standard and an ALTA extended coverage title insurance policy.
Explain various closing costs and indicate who normally pays for each closing cost.
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4. LEGAL REQUIREMENTS FOR VALID SALE ESCROW
Binding contract between Buyer and Seller
Conditional Delivery of
Money: Deposit funds and monies
Documents: Transfer instruments
Remember that . . .
Escrow instructions are confidential
The escrow agent must be strictly impartial agent for both buyer & seller
The escrow agent may not give tax, law or real estate advice to either party
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5. Escrow Disagreements Escrow agent cannot give legal advice.
Halt until mutual agreement.
Interpleader: Legal court action to resolve dispute between the parties.
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6. Who May Act Escrow Laws Corporation Independent* Bank** Saving &**
Loan
Attorney**
Title** Insurance Company
Real** Estate Broker
Corporation Commissioner
FSLIC Commissioner
Insurance Commissioner
Bank Commissioner
Bar Association
Real Estate Commissioner
*License by Corp. Commissioner
**Exempt from escrow licensing law.
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Only if Broker is involved in the Transaction

7. Different Practices Northern California Escrow handled by
Title insurance Co
Southern California
Independent escrow co. or
Title co. or
Broker-owned escrow co.
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8. TYPES OF ESCROWS Residential Sales Liquor License Bulk Sale Re-Finance
Income Property
Business Opportunity
Exchange
Probate
Commercial
Industrial Land Sales
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9. ESCROW Neutral Third Party – Stakeholder
We'Close'M Escrow
Neutral Third Party – Stakeholder
Closing costs are usually negotiable
Provides custodian for funds and documents
Provides Clearing House for Payments
Acts as an Agent for Prorations
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10. LIFE OF AN ESCROW
Continued . . .
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11. LIFE OF AN ESCROW
continuation
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12. LIFE OF AN ESCROW (cont)
Title
Financing
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13. LIFE OF AN ESCROW (cont)
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14. ESCROW FUNCTIONS A depository for funds and documents.
Clearinghouse for documents and funds
Calculate and compute closing costs
Prepare escrow instructions
Order status of loans and beneficiary demands
Process termite, home inspection & pest control reports
Prepares financing instruments
Order title search and buyer preliminary title report
Transfer impounds
Requests hazard insurance policies
Computes prorations
Obtains documents and prepares Deeds to be recorded
Disclose Appraisal
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15. Escrow Functions Collects monies needed to close Request new loans
Prepare closing statements
File Non-Foreign Status certificate
Execute Bill of Sale for inventory and/or personal property
Disburses monies and documents after close
Disclose Appraisal
File Change of Ownership Tax Assessor Data
Report Funds to IRS
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16. TERMINATION OF ESCROW
Full Performance of the sale, exchange or refinance
Mutually agreed - Cancellation
Revocation or Refusal by one party; Legal problems
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17. Non-Recurring CLOSING COSTS
Non-Recurring = One Time Costs
Loan Fees
Appraisal Report
Credit Report
Pest Control
Escrow Fee
Tax Service Fee
Drawing, Notary, Recording Fees
Title Insurance Policy Fee
Broker Commission
Transfer Tax $
Note: ALL costs are negotiable between the parties unless restricted by the loan.
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18. Recurring CLOSING COSTS
Recurring = Continue repeated costs
Insurance : Hazard, Flood, Mortgage (MIP, PMI)
Property Taxes
Interest on Loans
Impound Deposits $
Note: ALL costs are negotiable between the parties unless restricted by the loan.
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19. PRORATIONS Equitable division of costs
Every month = 30 Days
Every Year = 360 Days
# of Days x Rate Per Day = Share of Expense
Common items prorated: association dues, interest, taxes, insurance & prepaid rent
Credit is an Entry Made in Favor of the Party
Debit is an Entry to be Paid by the Party
Deeds typically record at 8:00 a.m.
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20. TYPICAL CLOSING STATEMENT
Buyer Seller
Debit Credit Debit Credit
Prepaid rents xxxx xxxx
Documentary transfer tax xxxx
Prepayment penalties xxxx
Termite inspection/correction xxxx
Seller’s CLTA title ins policy xxxx
Brokerage commission xxxx
Recording Fees xxxx xxxx
Payoff of Existing Loan xxxx
Discount points xxxx xxxx
Any “seller pays” fees xxxx
Seller’s Net Proceeds xxxx
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21. TYPICAL CLOSING STATEMENT
Buyer Seller
Debit Credit Debit Credit
Sales Price xxxx xxxx
Buyer’s initial deposit xxxx
Buyer’s new loan xxxx
Balance of Buyer’s Deposit xxxx
Appraisal xxxx
Loan origination fee xxxx
New fire Ins. Policy xxxx
Credit report xxxx
Drawing Fee/Notary xxxx
Lender’s ALTA Title xxxx
Any “buyer pays” fees xxxx
Tax service & impounds xxxx
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22. TITLE INSURANCE PROCESS
Search
Examine
Chain of Title
Preliminary Title Report
Escrow
Title Policy
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23. TITLE COMPANY BASIC FUNCTIONS To assure marketable title
Search and Gather Title Records
Courthouse search
Title Plant search
Examine and Interpret Title Records
Compile a Chain of title
Identifies existing encumbrances
Issue a Preliminary Title Report with encumbrances
Issues insurance policies
Insured against defects in title
Additional assurance over seller’s representations
Escrow the Real Estate Transaction
Collect all instruments of transfer
Close transaction
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24. TITLE INSURANCE COVERAGE CLTA Standard Coverage
Types: Owner’s * Lender’s * Joint Protection
Risks Insured against
Undisclosed public record
Forgery
Incompetence of Parties
Marketable Title
Street Access
NOT Insured:
Matter not of public record
Zoning and use of the property
Mining and water claims
Undisclosed KNOWN defects not revealed to title company
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25. TITLE INSURANCE COVERAGE ALTA Extended Coverage
Types: ALTA Lender’s * ALTA-R Homeowner's
Risks Insured against
All Items under standard coverage, plus
Unrecorded liens & encumbrances not shown in the courthouse
Potential mechanic’s liens
Easement by prescription
Encroachments and adverse possession
Parties in possession, other than the property owner(s)
Mining claims & water rights
NOT insured:
Zoning and property use
Known defects not disclosed to title company
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26. Review Quiz Chapter 10
Which of the following is not exempt from the escrow licensing law?
(a) trust companies
(b) escrow companies
(c) title insurance companies
(d) real estate brokers when acting as an agent in the transaction
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27. Review Quiz Chapter 10
A history of title transfers for a particular parcel of land is a/an:
(a) preliminary report
(b) title insurance policy
(c) abstracter index
(d) chain of title
3. Which insurance policy requires the title company to make a physical inspection of the property?
(a) CLTA
(b) standard
(c) RESPA
(d) ALTA
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28. Review Quiz Chapter 10
4. There are certain requirements that must be met before a transaction can be placed in escrow. They are:
(a) a binding contract between buyer and seller
(b) a neutral third party is employed
(c) conditional delivery of all documents related to sale
(d) all of the above
Which of the following is normally paid by the seller?
(a) prepayment penalty
(b) credit report fee
(c) recording fee for the trust deed
(d) loan origination fee
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29. Review Quiz Chapter 10
When an escrow officer receives conflicting instruction that cannot be resolved by the parties, the escrow officer can file a legal action in court called:
(a) arbitration
(b) hold harmless
(c) interpleader
(d) settlement suit
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30. Review Quiz Chapter 10
Which law prohibits a real estate agent from receiving a referral fee from an escrow or title company?
(a) Truth in Lending
(b) Regulation Z
(c) RESPA
(d) all of the above
Title insurance does not cover publicly disclosed:
(a) easements
(b) zoning ordinances
(c) deeds of trust
(d) corporation commission
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31. Review Quiz Chapter 10 Title insurance rates are set by:
(a) title companies
(b) insurance commissioner
(c) real estate commissioner
(d) corporation commissioner
On behalf of the buyer and seller, the escrow officer acts as:
(a) an employee
(b) an independent contractor
(c) an agent
(d) a licensee
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32. Review Quiz – Chapter 10 Answers
B C
D C
D B
D A
A C
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