Chapter Outline

1. Chapter 10

2. Chapter Outline         Inspections and Disclosures    Home Warranty        Liens, Judgments and Child Support Disclosure         Amendments           Buyer’s Walk-through          Smoke Detectors, Environmental, Geologic/Seismic and Flood         Pest Control Inspection and Termite Report Clearance Agreements and reports that cause escrow problems    Repairs       Work Completed After Close of Escrow      Ordering Insurance by FAX      Irrevocable Demand      Electronic Document/Signature       Wiring Funds: Good Funds Law and Special Recording      Possession Agreements

3. Chapter 10 At the conclusion of this chapter, you will be able to: 1)      Understand the various types of disclosures required for a typical escrow. 2)      Give a definition for the good funds law. 3)      Outline the wire transfer and electronic signature elements of an escrow 4)      Differentiate between escrow disclosures and sales disclosures 5)      Explain inspections and disclosures

4. Inspections and Disclosures Inspection: A visual investigation of a physical components of real property Individuals or companies DRE licensee is required to make a diligent visual inspection Buyer’s agent Seller’s agent A contractor An appraiser

5. Transfer Disclosure Statement (TDS) California State Law Civil Code 1105 Effective on January 1, 1987 Seller must give to the buyer With or without an agent (FSBO) The buyer can cancel the transaction if not given the TDS Buyer has the right To pay for outside inspector 3 days from receipt of TDS to cancel

6. RETROFIT Compliance with any minimum mandatory government standards If local ordinance requires that the property be brought in compliance with minimum energy Conservation Standards as a condition of transfer, Buyer shall comply with and pay for these requirements.

7. Personal Property Bill of Sale Income property: appliances Trade fixtures Escrow holder obtains a release from the state sales tax collection agency Some items are handled outside of escrow, between the parties, for which escrow is not responsible Release of liability for escrow holder

8. TDS Form: Civil Code Section 1102.3 Section 1: A check box list of features for the property Section 2: Asks if any significant defects or malfunctions are known Section 3: Asks the seller if he or she is aware of a list of specific items

9. Disclosures: An escrow memorandum The TDS The walk thru Home inspector report Appraisal

10. Checklist Required to Close Escrow Home Protection Policy Property Disclosure Termite Report Home Inspection Report Notary Messenger/Overnight mail Demand – lst T.D. Demand – 2nd T.D.

11. Internal Escrow Checklist Instructions: Seller Buyer Borrower S I Seller Buyer/Borrower Lender Info Sheet Prop. Info Sheet Bene Demand 1st T.D. 2nd T.D.

12. Internal Escrow Checklist Seller signed Buyer signed Copy to lender Vesting Trust Certificate Deed Estimated Stmt Recording HUD-1 to borrower

13. Agency Relationships January 1, 1988 Disclosure regarding agency If no agent involved, no agency exists Handled outside of escrow

14. California Civil Code §1102 Requires a disclosure report to be given to a buyer regarding the property address based upon a review of maps and data cited from public information A site investigation made by a Registered Geologist licensed Professional Engineer Geotechnical and other reports are available with a city or country or state or federal agency

15. Residential Disclosure Report Special Flood Hazard Area (Zone A or Zone V) designed by the Federal Emergency Management Agency (FEMA); Dam or Reservoir Inundation Area mapped by the State Department of Water Resources; State of California Very High Fire Hazard Severity Zone State of California Fire Responsibility Area for which t he owner of the property is subject to the maintenance requirements of Section 4291 of the Public Resources Code; State of California Alquist-Priolo Earthquake Fault Zone;

16. Residential Disclosure Report State of California Division of Mines and Geology Seismic Hazard Mapping Act program; Earthquake-induced Landslide Hazard Zone on official maps of the Seismic Hazard Mapping Act; in a Liquefaction Hazard Zone on official maps of the Seismic Hazard Mapping Act; Liquefaction Hazard Zone on official maps of the Seismic Hazard Mapping Act; Tsunami Inundation Area mapped in the County General Plan Safety Element; County where sites on slopes or in hillside areas may be subject to Slope Instability.

17. Mello-Roos Community From the county auditor-controller records Seller must provide to the buyer NOTICE OF SPECIAL TAX NOTICE OF SPECIAL ASSESSMENT A summary and details for all Bonds Assessment districts

18. Home Warranty A guarantee as to the physical premises Seller warrants that the premises are covered by government permits Home Warranty Policy No violations of City, County, State, Federal, Building, Zoning, Fire, Health Codes or ordinances, or other governmental regulation Seller discloses to buyer any items that are without a permit

19. Law Clauses LIQUIDATED DAMAGES ARBITRATION CLAUSE Liens, Judgments and Child Support disclosure paid from the escrow proceeds to obtain clear title

20. Amendments All other terms and conditions remain the same except only the specific item being changed Frequently used in Southern California Rarely used in Northern California Alters the original escrow instructions

21. Buyer’s Walk Through Designed to let the seller show the buyer unique nuances about the property. Seller warrants that appliances are operable. Seller is to maintain premises in the same condition as on the date of acceptance of the offer. The walk through is usually made within 5 days of close of escrow

22. Required prior to closing Smoke Detectors Environmental Geologic/Seismic Flood Disclosures Pest Control Inspection and Termite Report Clearance (www.pestboard.ca.gov)

23. Repairs Appraisal requirements Lender requirements Pest Control requirements Home Inspection discovery Insurance policy requirements

24. Ordering by FAX Items are transmitted electronically certified copy of escrow instructions beneficiary demand insurance policies

25. Irrevocable Demand Subject to the good funds law Wire transfer The demand states that all funds due to the seller are to be transferred in total to the second escrow.

26. Electronic Document Common documents that escrow will receive via fax: statement of information the beneficiary demand statement escrow amendments Common documents received via email: escrow instructions scanned copy an escrow documents lender instructions

27. electronic signature Electronic business (E-business) or electronic commerce (E-commerce) means buying, selling, producing, or working in an electronic medium relating to the conduct of business, consumer, or commercial affairs between two or more persons. Electronic Signatures in Global and National Commerce Act E-SIGN Became effective October 1, 2000 May be substituted for a handwritten signature E-commerce used for potential cost savings

28. E-SIGN does NOT allow electronic communications for A notice of default Acceleration Repossession Foreclosure Eviction The right to cure when an individual's primary residence secures the loan Writing or signature requirements under the Uniform Commercial Code

29. E-SIGN Two types of transactions consumer transactions business transactions Requires the disclosure of information to a consumer in writing, such as the Equal Credit Opportunity Act E-SIGN preempts most State and Federal statutes or regulations Institution must verify the legitimacy of an E-commerce communication, transaction, or access request

30. E-SIGN does not permit electronic notification for: Notices of default Acceleration Repossession Foreclosure Eviction The right to cure under a credit agreement secured by a person's primary residence A rental agreement

31. Wiring Funds: Good Funds Law and Special Recording January 1, 1990 Section 12413.1 of the California Insurance Code The law imposed mandatory holding periods upon escrow deposits ALL funds must be deposited and collected by the title insurance company’s escrow and/or sub-escrow account prior to disbursement of any funds

32. Escrow Funds- Received Ø      FUNDING: o  Electronic Wire Transfer (same day disbursement) o  Cashier’s Check (one business day prior to distribution of funds) o  Personal check, local (three business days from escrow bank deposit date) o  Personal check, non-local (five business days from escrow bank deposit date)

33. Escrow Funds-Disbursed Ø      DISBURSEMENT PROCESS: O Funds received by Title company Payoff Section of Accounting Department with instructions from the lender O Cleared funds before Title Officer sets up recording. No disbursements prior to recording. O After recording: Payoff Section disburses funds as follows: §   Title charges §         Reconveyance §   Recording fees §         Balance goes to §    Demands escrow account for §     Taxes escrow disbursements

34. Recording Special Recording is any document recorded at the county recorder’s office by a title company at any time other than at 8:00 A.M. County Recorder’s offices in California have instituted more stringent regulations about when a recording may be handled and how t the document must appear

35. Possession Agreement the buyer is the existing tenant a lease with option to purchase the buyer may take occupancy prior to the close of escrow either with or without rent

36. OCCUPANCY POSSESSION AND KEYS: Possession and occupancy to be delivered to Buyer on date of recordation at 5:00 pm. When possession is available to Buyer, Seller shall provide keys, and/or means to operate all property locks, mailbox, security systems or alarms, and association facilities, as applicable.

37. Think About It! Disclosure: Real Estate Agent vs. Escrow Officer Local headlines earlier show that virtually everyone in the area knew that a mother and her four children had been murdered 10 years earlier in a home now for sale. The seller, the real estate agents, the local escrow officer, and the neighbors knew the gory details. The out of area buyer did not know anything about the episode until after the close of escrow when the neighbor told the buyer that the seller had asked the neighbors not to mention anything about the incident to anyone. Can the buyer sue for non-disclosure of a material fact under Easton v. Strassburger, 152 Cal. App. 3d 90, 199 Cal. Rptr. 383 (1984)?

38. Think About It! Answer The buyer may sue and claim that the price offered would have been lower if the buyer had been told the truth about the property. However, the court will require the buyer to show the actual loss in market value to the property. If a value is established, the recovery would be against the real estate agent and not against the escrow officer. The real estate licensee only has to disclose a death on the premises up to 3 years after the fact. The escrow officer is not a real estate licensee and has no duty to disclose any known fact to the buyer. (Reed v King, 193 Cal. Rptr. 383)