Closing the deal

What Is Escrow?

Escrow is the process that buyers and sellers of homes use to complete the monetary and legal details of a sale. A neutral third party manages the escrow, called an “Escrow Officer,” who generally works for a title company. “Title” is the proof of ownership of a property. The title company ensures that all terms of the contract are adhered to before the sale is complete and money changes hands.

In order to successfully bring an escrow to close, the title company will:

1. Obtain a title report to ensure that the seller has the right to transfer ownership (title) to the buyer
2. Ensure that any previous loans on the property have been paid off
3. Acquire necessary loan and insurance documents
4. Confirm that necessary inspection reports are on file
5. Arrange for the buyer to sign all necessary paperwork to complete the close of escrow

When these details are complete, the Escrow Officer requests the funds to be released and instructs the title department to record the transaction at the County Recorder's Office, thereby closing escrow.

Managing The Details

Once you have negotiated a contract and agreed on a sales price, the next phase of our job begins. Below is a list of some of the details I will be managing through this process.

I will constantly check with the title company to assess when they need additional information and whether there will be any problems that could affect obtaining title.

I ensure that both you and your Buyer receive copies of all documents pertaining to the transaction. I will have the Buyer sign to acknowledge that he/she has received his/her copies.

I will make sure that the Buyer meets and removes all contingencies within the time limit provided or get an extension, if needed, signed by both you and the Buyer.

I will keep you abreast of the Buyer's application for a loan and the progress of the appraisal on your home.

I will work with the appraiser to arrange for entry to the property and to answer any questions he/she may have about the home or neighborhood. I will also provide the appraiser with the most recent comparable sales in the area.

I will make sure that the Buyer increases their deposit in a timely manner.

I will coordinate and attend as many inspections as possible and keep you informed of all findings.

Once the inspections are complete, I will negotiate for you if any problems arise.

I will cooperate with the Buyer and others involved ensuring that corrective work is completed according to the terms of the contract.

I will ensure that all documents are ordered and drawn, including your loan pay-off and insurance for the Buyer.

I will do my best to have your closing papers drawn one week before Close of Escrow (COE) so that if any problems arise, I can solve them while remaining within the time frame you expect.

If you prefer, I will deliver your escrow check to you personally. I am also happy to coordinate move-in dates.

Seller Disclosures 101

During the escrow process, you must inform the buyer of specialized conditions that affect your home. These may include the following conditions:

• Lead Paint
• Sellers of properties built prior to 1978 have the following obligations:
• Provide buyers with a HUD pamphlet entitled "Protect Your Family From Lead in Your Home"
• Disclose all known lead-based paint and related hazards and provide any available reports
• Include a standardized warning as an attachment to the contract
• Complete and sign statements verifying that requirements have been met
• Retain the signed acknowledgement for 3 years
• In addition, you must provide the buyers with a 10-day opportunity to test for lead

Natural Hazards

California law requires sellers to disclose, via a "Natural Hazard Disclosure Statement" or NHD, if properties are located in one of six predetermined "natural hazard" zones. (If the property is not within one of these zones, you, of course, have no such obligation.)

The six zones are:

• A flood hazard zone as designated by the Federal Emergency Management Agency (FEMA)
• An area of potential flooding after a dam failure (also known as an inundation area)
• A very high fire hazard zone
• A wildland fire area, also known as a state fire responsibility area
• An earthquake fault zone
• A seismic hazard zone

If an NHD is delivered to the buyer after both parties have signed the Purchase Agreement, the buyer will have three days to rescind the agreement. However, if the buyer received the NHD before they signed the Purchase Agreement, then they cannot use the NHD to rescind.

Mello-Roos Districts

Especially (but not exclusively) if you are selling a home in a newer area, you may be within a Mello-Roos tax district, and you must provide to the buyer a "Notice of Special Tax." If this notice is delivered to the buyer in person, they have three days to rescind their offer. If it’s delivered via U.S. mail, they have five days to decide.

Basically, a "Mello-Roos Community Facilities District" is formed by a local government, district, or agency to finance public services and facilities including police and fire departments, ambulance and paramedic services, parks, schools, libraries, museums and cultural facilities.

Condominiums ...

If you’re selling a condominium, townhouse or other planned development (for purposes of this discussion, we will call them all "condominiums"), there are the buyer needs to know about common areas (such as greenbelts and recreational rooms) and the homeowner’s association.

The buyer will be required to make monthly payments, known as regular assessments, to maintain common areas, as well as special assessments to replace a roof or repair the plumbing, as determined by the homeowner’s association (HOA.)

Condominiums also may have regulations regarding architectural requirements, limitations on pets, and age restrictions (i.e., senior housing). These must be formally disclosed to the buyer during escrow. You may provide this information via the following documents, to the extent that they exist and are available:

Declaration of Restrictions: Commonly known as "CC&Rs", or Conditions, Covenants and Restrictions

Articles of Incorporation or Articles of Association Bylaws

All current financial information and related statements, including operating budget, estimated revenue and expenses, HOA reserves, estimated remaining life of major components (including roofs, plumbing etc.), and regular and special assessments

A statement describing the HOA’s policies and practices in enforcing lien rights or other legal remedies for default in payment of its assessments

A summary of the HOA’s property, general liability, and earthquake and flood insurance policies

On existing HOA’s, a statement describing any restrictions on the basis of age, such as authorized senior citizen housing

Many smaller HOAs will not have all of these documents, but must provide what they do have.

Who Pays For What?

A major question in every escrow is: "Who pays for what?" The answers vary by county ordinances and standard practices. What is listed below are “customary” practices.  All fees charged are governed by terms of the sales contract and other written escrow instructions. Note: on some FHA, VA or other government-backed loans, the buyer will pay some fees that governmental regulations will not allow you to pay.

Seller's Generally Pay:

• Real estate commission
• Document transfer tax ($1.10 per $1,000 of sales price)
• Notary fees
• Property tax proration (to date of acquisition)
• Special delivery/courier fees, if required
• Document preparation fees
• Document recording charges
• Homeowner’s association statement fee and prorata dues
• Home warranty (according to contract)
• Work/repairs required (according to contract)
• Matters of record against the property or seller (loans, tax liens, judgments, etc.) and fees required to clear them (statement fees, reconveyance/trustee fees and prepayment penalties)
• Bonds and assessments (according to contract)
• Buyer's Generally Pay:
• Title insurance policy premiums (lender’s and buyer's)
• Escrow fees
• Notary fees
• Property tax proration (from acquisition date)
• Special delivery/courier fees, if required
• Document preparation fees
• Document recording charges
• Homeowner’s association transfer fee and prorata dues
• City costs
• Home warranty (according to contract)
• Inspection fees (according to contract)
• Matters of record against the buyer including tax liens, judgments and fees required to clear them
• Fire insurance premium for the first year
• Assumption/change of records fees if the buyer is taking over an existing loan
• Lender’s new loan charges
• Interest on new loan from date of funding to 30 days prior to the first payment
• Other prorations (rents, insurance etc.) if applicable