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Title Insurance and Escrow

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NATURE OF TITLE INSURANCE Insures that title to real estate is free from

defects in title, undisclosed liens, and adverse claims.

The title company agrees to pay any covered loss up to the face amount of the policy

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Title insurance is Legally Optional.

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TITLE INSURANCE

Title companies are regulated by the insurance commissioner.

Title insurance involves only one premium, payable at close of escrow.

Title insurance has become essential and customary in most California real estate transactions.

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TYPES OF TITLE POLICIES

The homeowner’s policy (CLTA) The lender’s policy (ALTA)

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Other Types of Policies

Preliminary title report Foreclosure guarantee reports Litigation guarantee reports Name run reports ALTA-Residential policy

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Elements of a Policy

Title page Schedule A Schedule B Schedule C Conditions and Stipulations

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California Land Title Association Policy is designed to cover the risks commonly demanded by homeowners.

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ESCROW AND ESCROWCOMPANIES The seller entrusts the deed and other

documents to the escrow agent. The buyer deposits all funds and instruments

necessary for the purchase of the property. The escrow agent collects the data for

documents, prepares instruments for signature, makes prorations, and arranges for title insurance.

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Regulation of Escrow

Escrows must be licensed escrow corporations, having specified monetary reserves, and bound by strict regulations under the escrow law.

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ESCROW IS A DOUBLE AGENT Dual Agency Limited Agency

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Elements of an Escrow

Valid Contract Form of Contract Escrow Instructions Prevail over Earlier

Contract Delivery, Title, and Risk

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REAL ESTATE SETTLEMENTPROCEDURES ACT A broad act that among its provisions

(1) Simplifies the wording of settlement cost statements

(2) Requires borrowers to be given a good faith estimate of the costs

(3) Prohibits kickbacks on others disallowed fees

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Good Faith Estimate Form

Lenders must use the standardized Good Faith Estimate HUD form

See text page 527

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Limits On Good Faith Estimate Increase Three categories of good faith estimates First category represents settlement values that

cannot change from the GFE Second category limits any settlement values

from exceeding 10% more than the GFE unless there are “changed circumstances

Final category includes all other costs, and these can vary without limit

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Limits First category includes items totally under a

lender’s control such as lender’s origination fees, points, and transfer taxes

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Limits Second category includes all other lender-

required services, title insurance policy and government recording charges.

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Limits Final category examples include title

insurance policy costs not identified by name on the GFE, services chosen by the borrower such as homeowners insurance, and daily interest costs.

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When the limits are exceededand this error is brought to the lender’s attention, the lendermust reimburse all excess charges.

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