October, 2011 - MyTicor

What Happens Between Signing and Closing of Escrow…

On October 25, 2011 / Blog, Escrow

Note: This Article was originally published October 25, 2011. An updated version with current information is available here: What’s the Difference Between Signing and Closing Escrow

What’s the difference between “Signing” and “Closing Escrow?”

When people talk about a real estate purchase, they sometimes use the terms “signing” and “closing” interchangeably in reference to the event when the buyers sign documents with Escrow. However, there are several events that take place between the buyer’s signing appointment and the actual closing of the real estate transaction. Let’s take a moment and review that process.

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Download a printable article here: What Happens Between Signing and Closing of Escrow

Signing of Documents:

Escrow receives the loan documents (if applicable) from the Lender and prepares them for the buyer to sign along with final statements and any other required documents. Upon receipt of the loan documents from the lender, the escrow closer prepares the HUD 1 settlement statement and all other legal documents required for the transfer of title into the buyers name.

Lender Reviews Documents & Funds the Loan:

Once the loan documents have been signed, the escrow officer delivers them back to the lender for review. When the lender is satisfied that all required documents have been signed and all outstanding loan conditions have been met, the lender will notify escrow that they are ready to disburse the loan funds to escrow. Upon receipt of the wire from the lender, the escrow officer is authorized to send the transfer documents to the county for recording. The time frame for review is normally 24 to 48 hours.

Excise Tax:

Real estate transactions in Washington State that involve conveyance of property require consideration of Excise Tax. All appropriate tax amounts must be paid before the county will allow the Deed conveying title to be recorded.

Deed of Trust:

A legal document that evidences an agreement of a borrower to transfer legal title to real property to an impartial third party, a trustee, for the benefit of a lender, as security for the borrowers debt.

Warranty Deed:

The legal document used in most states by which title to real estate is conveyed from one party to another.

Recording is Authorized:

Once recording is authorized by the lender, documents are hand carried (in most cases) to the county recorder’s office by the title insurance company. The Warranty Deed is recorded first, showing the transfer of the property to the buyer, with the Deed of Trust recorded next. Recording the Deed of Trust just after the Deed insures the lender’s first lien position on the property.

Recording Numbers Received:

Recording numbers are the unique numbers given by the county recorder’s office to a properly executed legal document thereby making it part of the public record. In other words, when we have recording numbers, the buyer is “on record” as holding title to the property.

Now We Have Closed Escrow

Once the deeds have been recorded, and funds are available to the seller, we can say that we have “closed” and the new owner may take possession of the property as set forth in the Purchase and Sale Agreement.

Do you have questions or thoughts about the escrow process? Please share by leaving a comment below!

What Makes a Real Estate Description “Legal”?

On October 18, 2011 / Blog, Title Insurance

The real estate closing is imminent but the title company calls and says there is a question about the legal description. How could that happen?

The legal description of the land is obviously one of the most important elements of the transaction – it describes what the buyer actually gets at the closing. But errors can be easily overlooked, and the resulting problems can be quite serious.

Legal description details to watch for:

Which Lot is being transferred?
The sellers might own two adjacent lots acquired in the same deed, but perhaps they built a new house on one and only want to sell the other one now. If it’s obvious that they own multiple parcels, it is imperative to confirm that the deal is to include all of them, and if not, make sure that the parties agree in advance as to which lots are intended to be included.

Does the description match what the seller intends to sell?
The sellers could have acquired the adjoining lot after they bought the home, or just a sliver of land because of a “lot line adjustment” with a neighbor dealing with an encroachment. Maybe a portion of the adjoining street or alley was vacated. But if the purchase and sale agreement only includes what was on the deed when the seller bought the house and that oversight isn’t caught, the buyer won’t get everything the seller intended to sell. Best to catch it now and not have to track down the seller later.

Lot line adjustments can be a problem.
It is important to make sure that the boundary is actually where the parties think it is, but also to make sure it’s reflected in amended tax parcels, subdivision maps and mortgages on both parcels. Most important, any boundary line agreement needs to include a mutual conveyance from each of the neighbors. It’s one thing to agree where the property line is, but another to make sure each has good title to the land on either side of that line – and then make sure the purchase agreement and deed agree.

Vacated Roads

Road vacation is the legal process of undoing a road creation. The vacated road ceases to be a
public road where the public has the right to travel. The vacated property usually reverts to the abutting owners up to the center of the road.

How are vacated roads handled in WA?
Vacated roads are especially important, because that land does not automatically pass with the sale of the adjoining main parcel if not described in the deed. In Washington vacated road must be expressly described in the deed.

Sale after foreclosure
Along these lines, if the house is being sold after a foreclosure it’s important to make sure the deed of trust and trustee’s deed included all the land the borrower acquired after taking out the loan.

We all know that the address is not itself a “legal description” and would not be sufficient in a deed. Nor should the address (and/or tax parcel) only be used in a purchase and sale agreement. In both cases a complete legal description is necessary. Otherwise it’s easy to overlook things such as the fact that the address might only apply to one of the lots owned by the seller.

Is a tax parcel sufficient as a legal description?
Tax parcels can be a trap. For example, where a lot line adjustment occurred the additional land might not have been included in the main tax parcel, or may have been assigned a new tax parcel number.

“It’s a good idea to visually check the property, and walk the property lines with the seller with a legal description in hand.”

Practical tips to use when purchasing a parcel

Click the image above to download a printable version of this article.

It’s a good idea to visually check the property, and walk the property lines with the seller with a legal description in hand. Is there a vacant lot or a “greenbelt” next door? Does the yard look extra-large compared to other lots in the neighborhood? Is the driveway shared with a neighbor, or does it seem to go over the adjoining land? Does the garage or a shed in the back yard sit right on the line – or over it? Do all utilities come directly into the property from the street, or might some cross the neighbor’s land?

If property line issues arise they may cause a delay in closing, but if discovered early in the process by paying attention to the description and looking at the property they can usually be resolved quickly to everyone’s satisfaction.

For information on the types of legal descriptions, click the link below:

Real estate legal descriptions in WA

Questions or comments? Please share below!

Flopping – The Latest Short Sale Scam

On October 4, 2011 / Blog, Escrow

Short Sale Loss Mitigation

It is estimated lenders lose hundreds of millions annually in undervalued short sale transactions. Loss mitigators working on behalf of the lenders have anywhere from 450 to 600 active files on their desks at one time. Working the best deal for the lender is an all-consuming task for the loss mitigators and each short sale has its own complexities.

When a seller applies for short sale approval, the seller submits hardship affidavits and signs forms such as a Purchaser Eligibility Certification which includes statements such as:

In making this request for consideration of a short sale I certify under penalty of perjury:

All of the information in this document is truthful.
I/We agree that the financial information provided is an accurate statement of my/our financial status. I/We understand and acknowledge that any action taken by the lender of my/our mortgage loan on my/our behalf will be made in strict reliance on the financial information provided.
I understand that if I have intentionally defaulted on my existing mortgage, engaged in fraud or misrepresented any fact(s) in connection with this document, the lender may cancel any modification of foreclosure prevention agreement and may pursue foreclosure on my home. I understand the lender will use the information in this document to evaluate my eligibility for a short sale.

Even with statements such as these, the loss mitigator still goes through a process to confirm the information provided by the seller is true, but some fraudsters have found ways around this.

A Short Sale Flopping Example

In August 2010 one of our our South Pasadena, Fla. offices closed a short sale transaction. The seller (we will call him Jim Kling) had two loans on the property and the lender on both loans was Bank of America. The sales price was $425,000. Bank of America agreed to the sale and issued short pay approval letters for both loans.

The buyer was a LLC and the managing member of the LLC was Bill Hamley. The buyer purchased the property with cash and did not get a purchase money loan. At closing, the buyer and seller both signed an arm’s length affidavit which contained these statements:

“There are no hidden terms or hidden agreements or special understandings between the Seller(s) and the Buyer(s) or among their respective agents which are not reflected in the Agreement or the escrow instructions associated with this transaction.

There is no agreement, whether oral, written, or implied, between the Seller(s) and the Buyers and/or their respective agents which allows the Seller(s) to remain in the property as tenants or to regain ownership of the Property at any time after the consummation of this sale transaction.”

Cindy Archer at our escrow office was the settlement agent. She closed the sale in accordance with the terms of the short sale approval letters. Upon receipt of the payoffs, Bank of America promptly prepared and recorded a satisfaction of mortgage for each loan.

In April 2011, the buyer decided to sell the property. The seller entered into a purchase and sale agreement, and opened escrow with Cindy Archer. The title report was ordered, and upon receipt of the title report Cindy reviewed the requirements. She ordered the HOA demand, checked the property taxes and looked up the LLC with the state. The LLC was in good standing but the managing member had changed. According to the state the managing member was now Jim Kling. Remember that name? Jim Kling was the borrower who signed an arm’s length affidavit when he sold his home via short sale stating he had no side deals with the buyer. This same Jim Kling was now re-selling his home for almost one hundred thousand more than what he sold it for just eight months earlier. Not in our office he’s not!

Flopping is where the buyer of a short sale purchases the property for less than the true fair market value by influencing the appraiser or real estate agent to provide a Broker Price Opinion (BPO) which undervalues the property.”

How could Jim re-sell the same property less than a year later for $100K more when the real estate market is still depressed? This is the latest trend in mortgage fraud and it is called flopping. Flopping is the opposite of flipping. Flopping is where the buyer of a short sale purchases the property for less than the true fair market value by influencing the appraiser or real estate agent to provide a Broker Price Opinion (BPO) which undervalues the property. This information is provided to the loss mitigator who approves the sale based on the fraudulent information. The buyer then turns around and sells the property at fair market value, realizing a profit the lender should have received. In this instance, both the buyer and seller participated in defrauding the lender.

Flopping is a serious concern.

According to Fannie Mae a flopping scheme requires the perpetrator to conceal or provide falsified information to the loan servicer. This is information the servicer needs to make an informed short sale decision. These concealments may include hiding:

The true parties to transaction
Any contingent transactions
The true value of property
The transaction described above was not an arms-length short sale. Clearly the principals worked together to facilitate a reduction to the existing loan, resulting in the original borrower making a profit from the sale of his home. This is mortgage fraud on the part of the seller.

Our Company will not knowingly participate in defrauding or misrepresenting to a lender any facets of a transaction. Cindy had no knowledge of the fraud during the prior transaction. But, in the subsequent transaction, she could see what transpired and was not about to facilitate the completion of this crime. Cindy resigned from the transaction.

Monthly archive for October 2011