The Short Sell Process: Escrow Explains What You Need to Know

In a prior post we explain the terminology associated with Short Sales. In order to further clarify the short sale process, this post explains the process a seller must go through if they find themselves facing a short sale.

A Short Sale comes in to play when a seller must sell their home and the value of the property is just not sufficient to cover the balance owed to the existing lender. In order to accomplish this the seller must work with their existing lender(s), and any other existing lien holders, to request approval of the sales price, the sale terms, and payoff of their loan to be at a reduced amount.

The Short Sale process is as follows:

• The owner or their agent/negotiator must contact the existing lender.
• The lender will direct them to their website, or will advise how, to obtain specific forms, instructions and lender requirements.
• This group of documents, along with the lender’s financial forms (Short Sale Package*) is then sent to the lender as per the lender’s instructions.
• After the lender receives the package it is then assigned to a contact person in the lender’s Loss Mitigation Department. This process can take anywhere from two weeks to two months and sometimes even longer.
• At this point the Loss Mitigation Dept then reviews the package and will contact the homeowner to request any additional items that may be required by the lender. This request is usually made verbally to the homeowner or negotiator but can sometimes be found via the lender’s website.
• The lender will then request a Broker’s Price Opinion (BPO) from an agent chosen by the lender.
• Once the lender has received the BPO as well as the Short Sale Package they submit it for final review. Once the lender has completed their final review they may give approval as is or their approval may be subject to changes such as sales price changes. Or the lender, at this time may decide that the seller did not have ample reason for the short sale and therefore deny the request for the short sale.

*Short Sale Package can consist of 100 to 200 pages including, but not limited to, the following items:

1. Listing Agreement

2. Short Sale Addendum

3. Offer to Purchase

4. Proof of Buyer’s funds

5. Owner’s Tax returns

6. Paystubs

7. Owner’s Bank Statements

8. Hardship letter from owner (explaining why the short sale is needed)

Remember that every lender and every situation is a different story so it will help to keep a handle on each request by staying in touch with the lender constantly through the process.

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Exclusion from Reassessment of Property Taxes Can Save You Money

Did you know that in several counties in California, Propositions 58 and 193 can save homeowners money in the transfer of property between parents and children and even grandchildren? These propositions are geared towards keeping property “in the family” and both propositions help avoid a forced sale if the home is reappraised and the taxes go up exponentially making it too difficult for the family member to make the payments on the home.

Proposition 58 provides property tax relief by preventing an increase in property taxes when real property is transferred between parents and their children.

Proposition 193 broadens the tax relief to include transfers between grandparent and grandchildren, or from grandchildren to grandparents. This transfer is only exempt in cases where both parents of the grandchild are deceased.

The Parent-Child Exclusion applies to any real property purchases or transfers between parents and children, which occurred on or after November 6, 1986.

The exclusion applies to natural children, children adopted before the age of 18, stepchildren (as long as the parents are still married), and sons- and daughters-in-law are considered children under this exclusion program.

What most homeowners do not know is that the claim must be filed within three years after the date of the purchase/transfer or prior to the transfer of the property to a third party, whichever is earlier or within six months after mailing of the notice of supplemental assessment.

What type of property can be transferred without a tax increase?

A parent may transfer their principal residence and any other property valued up to $1,000,000 to their children. The properties will not be reappraised providing that the proper Claim for Exclusion from Reappraisal form is filed and approved by the Assessor’s Office.

An inheritance or transfer to children within a trust may qualify for this exclusion. The trust documents must be provided with the claim.

You may request a Parent-Child or Grandparent-Grandchild Exclusion claim form by contacting your local County Assessor/Recorder/Clerk office. You may ask your Escrow Officer for the contact information for your local Assessor’s office, too.

The Los Angeles County Office of the Assessor did a great writeup on this topic, as well, and included links to the forms that are used in exclusion claims. Their summary can be found here.

The points presented here are meant as an informational summary and are not inclusive of all of the nuances of the propositions. For full definitions of Prop. 58 & 193, please view Revenue and Taxation (R & T) Code Section 63.1 online at www.leginfo.ca.gov and consult with your tax or legal professional.

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The Importance of Wiring Funds to Escrow for Foreign Investors

Do you have a foreign investor or buyer looking to purchase a home in California? If the client writes a personal check drawn on a foreign bank, it may take several weeks to be able to verify that the check has actually cleared. On the other hand, deposit checks we take from a customer drawn on a U.S. bank typically clear within 3-4 days.

Wire Transfers Expedite Process

There are steps you can take to ensure the escrow closes on time by working with your buyer to understand the need for a wire transfer to expedite the closing process. When you write an offer and are presented with a check drawn on a foreign bank, write on the first page of the purchase agreement that the buyer will arrange to wire transfer the deposit to the escrow company upon acceptance of the offer.  Sometimes Realtors will go so far as to actually take the check to present with the offer, but state that the check will be replaced with a wire transfer upon acceptance.  Either way works.  Please keep in mind, that some escrow companies may require a wire from a foreign buyer (and not accept a check at all) due to the possibilities of delay. Contact the escrow company directly to inquire what the required procedures are.

There are problems that could arise if a check drawn on a foreign bank IS deposited into escrow:

1. Buyer could call his bank to put a stop-payment order on the check and escrow may not even be notified of this for 6 to 8 weeks.  Our escrow officers have experienced buyers who decided against the purchase of the property and placed a stop payment on the check and then were unaware the stop-payment had been done.
2. Costs are being incurred on the strength of the buyers’ earnest money deposit.  If the Sellers are holding their property off the market, they deserve to be assured that the buyer has “good funds” in escrow to back up the offer they have made to purchase
3. If the escrow is scheduled to close rather quickly, for example 14 days, and the initial deposit check drawn on a foreign bank is deposited into escrow, the escrow company may not be able to verify clearance of the check as a way of guaranteeing that there are “good funds” in the escrow and allowing the escrow to close.

Generally there is little resistance from the buyer to following these suggestions when the implications are explained. When a buyer is told up-front by the Realtor that any funds coming into escrow must be made by wire transfer, it conveys to the client that we are all on the same page and have the same goal: closing the escrow successfully.

Here is an example of a wire transfer request form.

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Patience Is Key for a Successful REO Escrow

In a previous post, the nuts-and-bolts differences between REO (Real Estate Owned) escrows and standard escrows were discussed. This post is designed to highlight a significant psychological difference that can help you and your clients successfully navigate the REO terrain: patience.

For a number of reasons, the process for an REO escrow can take longer than a standard escrow:

• The Seller of an REO is a Bank or Lending Institution who may have many properties in escrow at once. This means that what may seem like a simple response to a question can take days to be considered, much less answered.

• An accepted offer or contract may take several days to be uploaded onto the Seller’s online system where it will only then be listed as a “task” to open escrow.

• Banks must follow specific, strict procedures that can take longer than a standard escrow.

• Finally, the HUD process takes approximately five days after the Buyer has signed the loan.

Realtors: Realizing these differences and delays can help you keep your Buyer calm and confident while working through an REO escrow.

Buyers: Knowing it can take longer to work through an REO escrow can help make the process much less stressful.

When all parties understand how these differences add time to the process, they can sit tight and allow the escrow officers to focus their time on processing the transaction. Ultimately, your patience can lead to a successful (and less stressful) transaction for everyone.

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Per Diem: Two Little Words that Can Impact a Buyer in an REO Sale

Buyer’s of a “bank owned” property, or REO sale as they are often referred to, may come across some verbiage in the Banks Addendum to the Real Estate Purchase Contract that catches their eye: Per Diem Penalty. Escrow Officers are often asked, what does this mean?

Latin for “per day”, per diem has many uses. What per diem is referring to in this instance is in the event escrow does not close by the date set forth in the contract, the Seller can impose a daily penalty to the Buyer for each day beyond the initial agreed upon closing date until the day the escrow officially closes.

The amount of this penalty differs depending on terms of the contract. It can be a percentage of the purchase price or a set daily amount (ie $100 per day). It is important to note, agreements can be made between the Buyer and Seller to waive the penalty when applicable.

One way a Buyer can strive to close escrow on time and avoid penalties is to complete escrow and mortgage paperwork and provide requested documents in a timely manner. However, circumstances may still arise that are beyond the Buyer’s control. In this event, a Buyer should ask their agent to renegotiate the terms of the contract to extend the closing date or to waive the penalty with the Seller and Seller’s agent.

In REO transactions, as with any real estate transaction, it is very important to be sensitive to all time frames in order to alleviate unnecessary charges.

If you have further questions about the Per Diem Penalty, do not hesitate to contact your escrow officer for further clarification or leave us a note in the comments.

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Life of an Escrow – Buyer's Perspective

When purchasing a home the escrow process can appear to be complex, especially for a first time home buyer. Following is an overview of the escrow process from the buyers perspective:

Escrow is officially “open” once the Escrow Holder receives a purchase contract signed by both the Buyer and Seller. Escrow holder then assigns an escrow number, opens a title order and follows up on the Buyer’s initial deposit. The initial deposit must be received by the Escrow Holder within 3 business days after acceptance. Now that escrow is open – what happens next?

Like anything else – things usually have a beginning, a middle and an ending. Escrow is no different and we will attempt to demystify the Buyer’s escrow process by breaking it down into three distinct parts:

1) Opening
2) Processing
3) Closing

Opening: The opening phase is the information gathering segment of the escrow. It allows the Escrow Holder to gather the necessary information from the Buyer and to communicate with all applicable parties. In order for the Escrow Holder to do this effectively, it is very important for the Buyer to complete and expediently return all documents in the initial escrow package.

Opening escrow packages for the Buyer will typically contain the following:

1) Escrow Instructions
2) Statement of Identity
3) Vesting Form
4) New Lender Info
5) Fire Insurance Info
6) PCOR
7) Buyer’s Affidavit

This may appear to be a mountain of paperwork, but it’s purpose is designed to let the Escrow Holder know who their Buyers are, which lender is in need of an escrow lender package, how the Buyer(s) are taking title and who will be insuring the subject property.

Processing: The second phase of escrow is commonly referred to as the processing phase. In this segment, the Escrow Holder gathers and distributes reports and disclosures to applicable parties. Depending on the specific terms of the purchase contract, reports and disclosures may include all or some of the following:

1) Preliminary Title Report / CC&Rs / Plotted Easements
2) Natural Hazard Disclosures
3) Termite Report – Inspection/Completion
4) Homeowner’s Association Documents
5) City Report
6) Rent Statement

These reports provide information regarding various aspects of the subject property such as title, taxes, liens, hazardous zone determinations, pest infestation assessment and rental amounts to name a few. These disclosures may be information overload but are necessary and mandatory to provide full disclosure to Buyers. Buyers are asked to review all reports/disclosures provided and acknowledge receipt of same via signature within the time frames specified in the purchase contract.

Closing: In the final phase of the escrow process, the Escrow Holder gathers information in the opening and processing segments and incorporates same with terms of either lender financing or an all cash closing.

In the case of lender financing, Escrow Holder will contact Buyers as soon as loan documents have been received and schedule a time for signing with a notary public. Signing of loan documents will take approximately 30-45 minutes and ideally should occur several business days prior to the scheduled close of escrow to allow ample time for the following:

1) Signing of Loan Documents
2) Lender Review of Loan Documents
3) Lender Release of Loan Funds

Upon signing of loan documents, Buyers will review an estimated closing statement prepared by the Escrow Holder. The estimated closing statement provides an accounting of all applicable fees, closing costs, credits and prorations pertinent and particular to the transaction such as lender fees, title and escrow fees, property taxes, HOA dues, and Seller credits etc. The estimated closing statement also provides Buyers with the dollar amount required to close the transaction. Note: all closing funds must be certified and received by Escrow Holder via wire transfer or cashier’s check 2 business days prior to close of escrow.

In an all cash closing, the estimated closing statement and final escrow amendments are also be presented to Buyers for review and signatures. Funds will then be requested from Buyers and the escrow will be considered “funded” upon Escrow Holder’s receipt of Buyer’s certified closing funds.

Upon Escrow Holder’s confirmation that loan funds have been released, Buyer’s certified closing funds received, receipt of signed documents from both Buyer and Seller, and all terms of the purchase contract fulfilled – the transaction is now ready to close/record. Recording typically takes place 1 business day after all of the above has occurred. The term “close” refers to the day on which the transfer deed (grant deed) is stamped and recorded by the County Recorder’s Office. This is the official date on which transfer of ownership occurs and the Buyer becomes the new owner of the subject property.

Upon Escrow Holder’s notification from the title company that the recording has been confirmed – escrow has officially “closed”. The Escrow Holder will then prepare the final accounting of the file and disburse funds and documents accordingly, normally by the next business day.

Escrow is closed – congratulations!

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What is the Foreclosure Process? Escrow Explains.

With the increased amount of foreclosures on the market today, escrow officers are often asked about the foreclosure process. The first thing to know is the foreclosure terminology, which we discussed in a prior post. What is important for homebuyers and sellers to understand is that foreclosures happen to loans not properties therefore it is a process that is handled between the lender and the lender’s trustee company. In an effort to answer the many foreclosure questions that we get following is a simplified breakdown of the steps that lead to and complete the foreclosure process.

• The borrower fails to make more than one monthly mortgage payment
• The lender would have their trustee company prepare, record and send the borrower a Notice of Default (NOD)
• The borrower now has 90 days to bring the loan current (reinstatement period)
• If the borrower is still unable to bring the loan current the trustee company will set a sale date approx. 4 weeks out
• The trustee will prepare, record and send to the lender and borrower a Notice of Trustee Sale (NTS)
• The NTS will also be posted at the property in a conspicuous place and published in a local newspaper (publication period)
• This Notice will contain the date, time and place where the Trustee Sale will take place
• During the publication period the borrower can still bring the loan current up to 5 days prior to the sale date
• The sale is held at the courthouse in the county where the property is located
• The lender sets an opening bid that would cover the loan balance, interest, attorney fees and any other accrued fees and costs
• The property is then sold to the person with the highest bid over the opening bid set by the lender
• If no one bids over the opening bid then the lender retains the property as a banked owned property (REO)- Real Estate Owned

During the foreclosure process there are several stages in which the homeowner has the opportunity to bring the loan current and avoid foreclosure.  Foreclosures contain many nuances and affect each party involved differently. Don’t hesitate to ask your agent for information about foreclosures and your situation or for further information see the links below.

• http://www.biggerpockets.com/foreclosure-process.html
• http://www.realtytrac.com/foreclosure-laws/california-foreclosure-laws.asp

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Answering the Realtor Question: What is a Widget Anyways?

Tuesdays, here at the Glen Oaks Escrow website, we post Technology Tips designed to help you, the REALTOR®, grow your business, keep up to date on the latest technologies, and move you forward into the new era of real estate.

As I speak with Realtors I am reminded that technology is bringing to agents a whole new vocabulary. In my constant endeavor to discuss the opportunities that technology provides the modern Realtor, I have written on many basic technology terminology which Realtors need to understand in order to put together a strategy for success in today’s market. Terms such as: Web 2.0, Social Media, Social Networking, and Blog. Today I’m adding another terminology to the list – Widgets. Many have heard the term, but most don’t have an understanding of what a widget is or how a widget can help them. This post is designed to clarify a thing or two.

A widget is a piece of code that can be embedded within a web page. Basically, it is a mini-application provided by a 3^rd party that you choose to install on your website or blog. Why would a Realtor do this? Well, because there is lots of information out there that consumers want and this is a good way to give it to them. Many 3^rd party vendors are offering a no-maintenance way for you, the Realtor, to provide valuable information on your site. If you are interested in providing the consumer what they want on your website (and why wouldn’t you…this is how you get traffic and have people come back to your site), you should look into the myriad of real estate widgets that are available out there. Many of them are even free.

This great article lists a few widgets for the Real Estate world, it was authored by Nicole Nicolay of MyTechOpinion.com. In it, she points out that there are great real estate widgets out there that provide helpful information for visitors in a variety of categories such as Property Search, Home Valuation, Industry News, Information and Statistics, and Calculators. The article was written a couple years ago so things have evolved (for example, check out some of the neat free real estate widgets that Trulia now offers Realtors here), but her article still gives a great list of useful real estate widgets by functional category.

Think widgets might be for your website or blog? Great. Widget-away. BUT, a word of caution – plan your widgets carefully. There is a thing as too many widgets on a site! It is very easy to add too many widgets to your website and the result can not only be disruptive to the visual integrity of your site, but also cause your site to load slowly. I’d say a good rule of thumb is to add 1-3 widgets to your site.

Lets look at a great application of widgets by a Realtor:

Heather Elias of Century 21 in Ashburn Virginia incorporates widgets into her her blog at www.locomusings.com:

Heather has included a widget on the right hand side that provides consumers with a slideshow of featured listings. This is a widget or what the company calls a module on their website but it’s effectively the same thing (a piece of code added to your website). The featured listings module that Heather uses is available through Diverse Solutions as an MLS IDX search option for agents. Diverse Solutions has three available website modules for featured listings, the Slideshow, Map and Map Search modules. When a visitor clicks on the featured listing they are taken to a page hosted by diverse solutions that provides a very detailed property listing and a way to contact the agent.

Heather also incorporates a Facebook widget lower down the right hand column. This widget displays her current Facebook activity and allows the visitor to become a fan with one instant click.

She has a Chat widget that invites the visitor to “Chat with Heather Elias”. At the moment of this screen capture, Heather was busy, but when she is online and available, visitors have the ability to simply type her a question and have her respond in real time. Talk about rapid feedback and being available to the consumer! There are several chat widgets that are out there such as the one provided by Meebo.

Heather Elias is an outstanding example of an effective use of widgets. Her use of widgets is useful to consumers, not overwhelming, and maintains the attractiveness of her site and blog.

So, widget sparingly and appropriately, and you too can effectively extend the value of your website and/or blog.

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Escrow 101: Foreclosure and Short Sale Terminology Explained

Short sales and foreclosures are the current hot topic in real estate with many of these types of transactions coming across the Escrow Officers desk.  Foreclosures and short sales are often confused but they are two distinct processes supported by their own individual terminology.  Following is a summary of many of the most common terms that a buyer and seller will experience in purchasing/selling either a foreclosure or short sale property.

Foreclosures

• Pre-foreclosure: The period beginning with initial mortgage default up to when the distressed property is sold
• Notice of Default (NOD): official notice from the lender that the Borrower has defaulted.  The NOD formally starts the foreclosure process and it outlines the reinstatement period.
• Reinstatement Period: The time frame stipulated in the NOD that the borrower has to reinstate the loan by making payments and bringing account back to good standing.
• Trustee Sale: if after the reinstatement period has expired the loan is still in default the lender can then sell the property as soon as 21 days after the Notice of Trustee Sale is recorded.
• Publication Period: begins once the redemption period has expired and must be at least 21 Days prior to trustee Sale.  A notice is published once a week for three weeks in the local newspaper.
• Notice of Trustee Sale (NTS): Recorded document explaining when and where the foreclose sale will be held.
• Redemption Period: The time period that the distressed borrower has to redeem the loan after the NOD is recorded.   In California, that time period is 90 days.  (not to be confused with statutory right of redemption)
• Statutory Right of Redemption: One year after the Trustee Sale the borrower can make payment of loan in full plus costs to redeem.
• Real Estate Owned (REO): the status of the property when the ownership is transferred involuntarily from the homeowner to the bank.

Short Sales

• Short Sale: When a lender agrees to accept less then what is owed on the mortgage and release its lien on the property.
• The Property is “upside down”: This phrase is commonly used to describe a situation where the amount due on the existing loan is higher than what the property is appraised for or will sell for.
• Loss Mitigation Department: The department at the lender that is responsible for reviewing all short sale documentation, ordering a BPO, and approving or denying short sale.
• BPO: Brokers Price Opinion (BPO), typically ordered by lender, is a property valuation report to help determine what the property might sell for.

This list of terms serves as a foundation for future posts where we will further describe the process of a foreclosure and short sale as well as compare and contrast the differences between the two.  Stay tuned!

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An Explanation of Property Tax Prorations in Escrow

One of an escrow officer’s simpler jobs is calculating the amount of property tax that is payable by the buyer and the seller on any given real estate transaction. One of the agent’s tougher jobs can be explaining to the buyer why they may get an official property tax adjustment bill months after the sale is done. Let’s wade into the arithmetic and explain the situation.

Property Tax Defined

Every property gets assessed by the county assessment office every year, establishing the amount of tax due on that property. At the time of a sale, it’s a simple matter for the escrow agent to find out the property’s tax for the full year, and apportion the correct amount to the seller for the year to that date, and the right amount to the buyer for the remainder of the year.

Say, for example, the property tax of the year is $1200, and the transaction closes on May 1. The seller pays $400 for the first 4 months, and the buyer pays $800 for the last 8 months. These numbers show up on the closing statements.

Sale Triggers Assessment

The complication arises because a property sale triggers a new assessment. This assessment happens according to the schedule and timetable of the county assessment office; this means it could happen months after the transaction has closed, when the buyer has long since thought the sale over and done with.

When it eventually occurs, the property has a new assessed value – and a new tax burden – retroactive to the date of the sale. It might be more or less than what the buyer paid on the closing statement, but chances are good that it will be different. Therefore, the assessment office will issue an adjustment notice. If it’s a tax increase, the buyer needs to pay more. If it’s a decrease, each county handles the situation differently. Check with the links below for your own area’s procedures.

Escrow Works With The Numbers

The escrow officer’s job with prorating property tax is just to work with the existing numbers. They use the property tax amount provided to them by title at the time of the escrow (the current property tax amount). They take this current tax information and allocate the charges to the parties accordingly.

That’s why, in an appreciating market, a buyer can get an additional tax bill, months after the sale, when they thought it had already been covered. And that is why, in a depreciating market, the potentially reduced taxes on the home cannot be determined and applied at escrow. For specific tax questions related to a particular parcel, further information can be gained by contacting your county’s tax recorders office:

• Riverside County
• Orange County
• Los Angeles County
• San Diego County

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