CALIFORNIA
Real Estate Agent Guide
Doma is architecting the future of real estate transactions. Backed by machine intelligence and proprietary technology, we are creating a vastly more simple, efficient, and affordable real estate closing experience.
To help you close more smoothly, this guide
will provide important information you need
to know and offer some handy tricks to
keep in mind along the way.
Table of Contents
What is Title and Title Insurance? ...1
What is Escrow? ... 3
Responsibilities of an Escrow Holder ...4
Red Flags During a Transaction ... 5
California Title and Escrow Process ...6
Information Needed When Opening an Escrow...7
Reading the Preliminary Title Insurance Report ... 8
What’s Covered by the Title Policy ... 9
Comparison of Owners Title Policy Coverage ...10
Who Pays What? Closing Costs in California ... 11
Quick Guide to California Property Taxes ...13
California Common Forms of Vesting Titles ...14
About Doma ...15
Title is evidence of lawful property ownership. By holding title, the buyer or those who share title with the buyer have legal ownership rights and bear responsibility over that home. Title insurance is a form of insurance that protects lenders and homebuyers from financial loss sustained from defects in a title to a property. Title insurance is a one-time purchase, made in the closing stages of buying a home, that offers the buyer security against any unforeseen circumstances that could impinge upon, or even revoke, the buyer’s (future homeowner’s) ownership rights. The causes of these title defects are numerous and wide-ranging: in the below sections we will provide several illustrative examples.
The most common type of title insurance is lender’s title insurance, which the borrower (usually a homebuyer) purchases to protect the mortgage lender. This form of title insurance is often a requirement from the lender to procure the loan. The other type is owner’s title insurance, which may be paid for by the buyer or the home seller to protect the homebuyer’s equity in the property. This most commonly means homebuyers are buying insurance to make sure past events do not become problems in the future.
What is the difference between a title and a deed?
They are different; however, they deal with the same concept of home ownership. The biggest difference between a deed and a title is physical: a deed is an official written document declaring a person’s legal ownership of a property, while a title refers to the concept of ownership rights.
A property deed, which is just one type of deed, is a legal document that transfers property ownership from a seller/
grantor to a buyer/grantee. In it is a description of the property (including any property liens), the name of the seller/grantor, the name of the buyer/grantee, and their signatures to make the document official.
A title is a legal right to ownership of a property (which could include a house, boat, car, etc.) including the right to sell. In the legal sale / purchase of a home, the title transfers to the buyer along with the deed.
How is title determined?
A title search is an examination of public records to determine and confirm a property’s legal ownership: it also identifies if there are any claims on the property that must be settled prior to, or potentially prohibiting, transfer to a new owner. A claim in this sense can be thought of as a statement from an entity or person that is not the current title owner declaring some type of right to the property.
Claims that might come up in a title search include:
Liens: A legal right or claim against a property by a creditor.
Example: A construction team forgot to tell the county clerk the owner paid off their bathroom renovation.
Ownership Rights: The ability to enforce legal rights concerning the property, including the right to possess it, use it, exclude others from it, and transfer it to someone else. In the case of married couples, most states use the
“common law” where the name on the deed, registration
What is Title and Title Insurance?
According to the American Land Title Association, more than one- third of all title searches reveal a problem that title professionals fix before closing.
Scan to learn more about why title insurance is so important document, or other title paper, indicates the owner(s). In
community property states, money earned by either spouse during marriage and all property bought with those earnings are considered community property that is owned equally by husband and wife.
Example: The owner was married in a different country and didn’t realize it counts in America too, which means their spouse potentially has rights to and ownership of the property as well.
Encroachments: A neighbor builds something that’s either partially or wholly on neighboring property without an agreement.
Example: The owner went on vacation and while they were gone, their neighbor built a pizza oven that crosses the property line.
Forgery: Making, altering, use or possession of false writing to deceive another.
Example: Someone pretends to be the owner and takes a mortgage out on their property.
While the title company makes every attempt to find and remedy any potential claims, title examination is not a perfect science: it can be saddled with human error and changing legal interpretations which make 100 percent risk elimination impossible. This is why title insurance is so important. If claims arise, the owner’s title insurance provider will step in and help handle them according to the terms of the policy.
In simplest terms, escrow is an independent third party holding money and documents from the seller, homebuyer and lender, which will be disbursed and distributed based on mutual instructions from the buyers and or sellers (also known as principals) provided to escrow. Depending on where the transaction is taking place, escrow may be more commonly referred to by a different name. For example, in Florida and Illinois it’s known as “the closing process,”
on the east coast its often called “settlement,” and in California it’s “escrow.”
Escrow Officers (also known as Closing or Settlement Agents) have one of the most crucial roles in the home buying process. They gather all funds and closing instructions to execute the wishes of all the transaction parties and ensure that the funds are properly paid out to all service providers, in addition to the seller.
Most commonly, the Escrow Officer is part of the title insurance agency handling the real estate title work for the transaction. When entering escrow (or “closing” or
“settlement” depending on where you live), the buyer and seller establish conditions for the transfer of ownership.
These terms and conditions (often referred to as closing instructions) are given to the Escrow Officer and they have the responsibility of seeing that the parties’ written instructions are followed prior to closing.
When all the requirements of the contract have been fulfilled, closing can take place. At this time, all documents and outstanding funds are collected and fees — e.g., title insurance premiums, real estate commissions, and inspection charges — are paid. Title to the property is then transferred under the terms of the contract, recorded with the appropriate official, and title insurance policies are issued.
What is the purpose of escrow?
The common use of escrow is a neutral third party for the multiple parties involved in a real estate transaction. The escrow officer acts as:
• Custodian for funds and documents
• A clearing house for payment of all demands
• An agency to perform the clerical details for the settlement of the accounts between the parties
What is Escrow?
The most basic meaning of the word escrow is money and/or documents held in trust by an independent third party during the course of a transaction.
Scan to learn more about what an escrow holder does, and does not do
Responsibilities of an Escrow Holder
An escrow holder can...
• Serve as the neutral party and the communications link to all those involved in the transaction
• Act on written instructions from the buyers and or sellers (also known as principals) and the new lender to the transaction
• Request a preliminary title insurance report or commitment to verify ownership in addition to listing liens and encumbrances to be cleared before close of escrow per the agreement between the parties
• Request payoff statements for existing liens and encumbrances
• Comply with lender requirements, reviews, and processes loan documents
• Receive funds from the buyer and their lender
• Prepare the deed and other documents as required to close the escrow
• Prepare a settlement statement which includes all charges for the transaction
• Upon receipt of all closing documents and funds, records deeds and any other documents with the appropriate official
• Request issuance of the title insurance policies
• Disburse funds as authorized by written instructions and the approved settlement statement
• Prepare final statements and sends out final documents to the parties
An escrow holder cannot...
• Provide legal or tax advice
• Negotiate the transaction
• Offer investment advice
Red Flags During a Transaction
Home Considerations:
• Is there a Homeowner’s Association?
• Are there any delinquencies?
• Are there solar liens or solar panels?
• Are there HERO programs or special assessments in the tax bill?
Multiple Owner or Trust Considerations:
• Will there be a new entity formed, i.e., partnership, corporation?
• Will any of the principals be using a Power of Attorney?
• Have any of the principals recently filed for bankruptcy?
• Is the property currently vested in a trust, or will the new buyer/borrower vest in a trust?
• Are any of the trustees of the trust deceased or incapacitated?
• Will all of the principals be available to sign, or will we be sending documents to another state/country? If so, where?
• Do all of the principals who will be signing have a current photo ID or driver’s license?
In order to prevent delays in the close of escrow, we’ve compiled the following questions that will help you close seamlessly. If you think you have additional information that could be helpful, please share it with your escrow officer.
The sooner your officer is aware of the situation, the faster they can find solutions.
Owner Considerations:
• Are any of the vested owners deceased or in any way incapacitated?
• Has there been a change in marital status of any of the vested owners, or the addition of anyone to title, i.e., cosigners, additional insured, etc.?
• Does the seller or buyer have any state or federal tax liens?
• Is the seller or buyer subject to spousal or child support payments?
Other Considerations:
• Will this transaction involve a short sale?
• Will the seller or buyer be involved in a 1031 exchange?
California Title and Escrow Process
Customer opens the order at Doma
Order preliminary report or commitment from the title department
Request statement of information from owner when applicable to clear liens Receive information from owner needed to order demands and authorizations Receive demands and / or beneficiary statement, request clarification of liens
Bill from pest company, homeowners’ insurance and home warranty company etc. received from agent
Loan documents received from lender
Prepare escrow instructions and pertinent documents
Review file to determine all conditions have been met and all documents are correct and available for signature
Obtain signatures
Configure file, request signatures on all remaining docs Obtain closing funds from buyer
Request loan funds from lender Forward documents to recording desk Loan funds received and deposited Release file to record
Upon confirmation of recording, funds are disbursed and keys are delivered to homeowner Complete closing, forward final document to all parties
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7 8
10 11 12 13 14 15 16 17 18 6
9
Information Needed When Opening an Escrow
Buyers’ and Sellers’ Contact Information:
• Full legal name(s)
• Home address
• Primary contact’s email address & preferred phone number
Sale Details:
• Property address
• Sales price
• Deposit towards sales price held in escrow
• If personal property is part of the sale, the portion of the sales price that has been allocated to the personal property
• Estimated close of escrow
Seller Credits:
• Seller credit amounts
• Specific closing costs, if any, to which seller credits will be assigned
Listing and Selling Agents’
Contact Information:
• Broker’s legal name, address & state license number
• Real estate agent
• State license number
• Primary contact’s email address & preferred phone number
Lender’s Contact Information:
• Lender name
• Lender’s company
• Office address
• Primary contact’s email address & preferred phone number
In addition, your lender or title agent would appreciate any pertinent information unique to a sale that will ensure all necessary documentation is available at
the final closing.
At the start of the escrow transaction, it is important for real estate agents to provide key information to assist lenders and title agents in populating two crucial forms - the Loan Estimate and Closing Disclosure. The following information is needed for each transaction:
Reading the Preliminary Title Insurance Report
A preliminary title insurance report is provided prior to the creation of a new title insurance policy to determine the status of title to the property, any liens recorded against the property as well as any items that need to be cleared in order to proceed with the sale. A preliminary title insurance report will show what title considerations the buyer will take with them when they buy the property (for example, an electric pole is on their property).
A preliminary title insurance report can also be referred to as:
• Preliminary report
• Prelim report
• Prelim
• PR
• Commitment
As you review this report with your buyer, look for the following and ensure they are correct:
• The type of title insurance offered (lenders vs. owners)
• Exclusions and exceptions from coverage
• The property address(es) and legal description
• Current title type held on the property
• Matters of record specifically affecting the subject property or its owners
• Informational notes
Scan to learn tips for reading a preliminary title insurance report
What’s Covered by the Title Policy
Not all risks can be eliminated by a title search, since certain “hidden defects” like forgeries, identity of persons, incapacity, incompetence, as well as failure to comply with the law cannot be disclosed by an examination of the public records. Where the preliminary report is an offer to insure under certain circumstances, the title policy is a contract, providing coverage against such hidden defects.
California Land Title Association (CLTA) Owner’s Policies cover the following:
• Title to the estate or interest described in Schedule A being vested other than as stated there in
• Any defect in or lien or encumbrance on the title
• Unmarketability of the title
• Lack of right of access to and from the land
ALTA Owner’s Policies with Western Regional Exceptions (Standard Coverage) are available for the same price as CLTA Policies, and provide broader coverage. Ten covered risks are insured compared to four on CLTA Owner’s Policies. Because the covered risks are lengthy, we have not quoted them here. A copy of the complete policy jacket may be requested from your Doma representative.
In addition to indemnifying the insured against losses that result from a covered claim, the policy also provides for legal fees and defense costs against lawsuits that allege covered claims against the property, in accordance with the policy terms.
Extended Owner’s and Lender’s policies provide broader coverage and are available through the American Land Title Association (ALTA). Coverage is extended to certain matters that are off-record but are generally discoverable by an inspection of the property or by questioning the parties in possession:
• Unrecorded liens and encumbrances
• Unrecorded easements
• Unrecorded rights of parties in possession
• Encroachments, discrepancies or conflicts in the boundary lines
ALTA Policies are available for lenders or owners, and an ALTA Homeowners Policy is also available for residential property of one-to-four units owned by a natural person as defined by the policy terms.
Real estate agents, buyers and sellers should not assume that all title policies and title companies are the same. It is important to ask the title company questions to ensure your home buyer gets the coverage best suited for them.
Comparison of Owners Title Policy Coverage
CLTA
Owner’s Policy ALTA/America First Homeowner’s Policy
Coverage Available
To any insuredFor any type of property
One-to-four unit family residences, including
condominiums
Amount of insurance coverage increases automatically by 10%
in each of first five years after policy is issued without any additional premium
No Yes
Someone forges the owner’s name to a deed or mortgage
after the policy is issued No Yes
Your neighbor builds any structures after the Policy Date – other
than boundary walls or fences – that encroach onto the covered land No Yes
The improvement on the property encroaches into an
easement and it must be removed No Yes
The improvement on the property encroaches over
the property line and it must be removed No Yes
The improvement on the land was constructed without
a valid building permit and it must be removed or corrected No Yes
The improvement on the land was constructed with a valid building permit, but does not comply with zoning laws and it must be removed or corrected
No Yes
The coverage continues to the benefit of the spouse who
receives title upon a divorce Yes Yes
Title is transferred to the trustee of the owner’s trust after
the policy is issued Yes Yes
Someone else claims to own the property Yes Yes
Someone else claims to have a recorded lien against the property Yes Yes
Who Pays What? Closing Costs in California
• Real estate commission
• Title insurance policy*
• Escrow fee*
• Seller’s portion of sub-escrow fees (if applicable)
• Document preparation fee for deed(s)
• Notary fees
• Document transfer tax
• County transfer tax
• Liens and encumbrances (if applicable)
• Any judgments, tax liens, etc. (if applicable)
The SELLER can generally be expected to pay for:
• Recording charges to clear all documents of record (if applicable)
• Delinquent property taxes (if applicable)
• Tax prorations (for any taxes unpaid at the time of transfer of title)
• Unpaid Homeowners Association dues
*These items depend on individual contract negotiations
The BUYER can generally be expected to pay for:
• Title insurance premiums
• Escrow fee*
• Document preparation (if applicable)
• All new loan charges (except those the Lender requires the seller to pay)
• Notary fees
• Recording charges for all documents in buyers’ names
• Interest on new loan from date of funding to 30 days prior to first payment date
These items are most often negotiated with each purchase contract:
• Any city transfer or conveyance tax
• Home warranty
• Any bonds or assessments
• Assumption/change of records fees for takeover of existing loan (if applicable)
• Beneficiary statement fee for assumption of existing loan (if applicable)
• Tax prorations (from date of acquisition)
• Homeowners Association transfer fees*
• Inspection fees* (roof, geological, pest, property inspection, etc.)
• Fire insurance premium for first year
*These items depend on individual contract negotiations
Next Fiscal Year Lien Date January 1
Current Fiscal Year 2nd Installment Due February 1
Current Fiscal Year
2nd Installment Delinquent April 10
Next Fiscal Year
Last day to file for Homeowners’
Exemption - 100%
April 15
Current Fiscal Year
Beginning of Fiscal Tax Year July 1
Current Fiscal Year Tax Bills Mailed last week of October
Current Fiscal Year 1st Installment Due November 1 Current Fiscal Year 1st Installment Delinquent December 10
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Property Tax Timeline
Note: Owner must own and occupy property on the first of March to be eligible for applicable exemptions. Penalties for delinquency are 10% on the date of delinquency plus $10 costs for delinquent second installments. Property may be sold at public auction after five years of delinquency. The above excludes payment requirements for supplement taxes.
*Lender may or may not require payment
Tax Impound Reserve Schedule
January February March April May June July August September October November December
March April May June July August September October November December January February
Yes*
Yes*
Yes Yes Yes Yes
Maybe*
Yes Yes Yes Yes
Closing Month First Payment Pay 1st in Escrow Pay 2nd in Escrow
Quick Guide to California Property Taxes
California Common Forms of Vesting Titles
This table summarizes the most common forms of vesting and what to keep top-of-mind for each. Because real property is among the most valuable of assets, the question of how you take ownership of your property is of great importance. The form of ownership taken – the vesting of title – provides guidelines for how a property should be passed, should one or all of the property owners become deceased.
To understand how a Last Will and Testament or Trust can also be used Parties Involved
Ownership can be divided into any number of interests,
equal or unequal Ownership interests are equal Ownership interests are equal Ownership interests are equal Each co-owner has a
separate legal title to his or her undivided interest
There is only one title to the whole property
Title in the “Community”
(similar to title being in a partnership)
Title in the “Community”
(similar to title being in a partnership)
Equal right of possession Equal right of possession Equal right of possession Equal right of possession
Each co-owner’s interest may be conveyed separately by its owner
Conveyance by one co-owner severs the joint tenancy
Both co-owners must join in conveyance of real property – separate interests cannot be conveyed
Both co-owners must join in conveyance of real property – separate interests cannot be conveyed
Purchaser of an undivided interest becomes a tenant in common with other co-owners Purchaser of an undivided
interest becomes a tenant in common with other co-owners
Purchaser can only acquire whole title of community – cannot acquire a part of it
Purchaser can only acquire whole title of community – cannot acquire a part of it Upon co-owner’s death, his
or her interest passes by will to devisees, or to heirs by intestate succession
Upon co-owner’s death, his or her interest passes automatically to the survivor(s)
Upon co-owner’s death, decedent’s half passes to surviving spouse unless willed to another party
Last survivor owns property individually
Portion passing by will results in tenancy in common between devisee and survivor
Last survivor owns property in severalty
Portion passing by will results in tenancy in common between devisee and survivor
Last survivor owns property individually
Co-owner’s interest may be sold on execution sale to satisfy the creditor – creditor becomes a tenant in common
Co-owner’s interest may be sold by execution sale to satisfy a judgment lien.
Joint tenancy is severed, and creditor becomes tenant in common with other co-owner
Co-owner’s interest cannot be seized and sold separately (whole property may be sold to satisfy debts of either spouse depending on the debt – consult attorney with specific questions)
Co-owner’s interest cannot be seized and sold separately (whole property may be sold to satisfy debts of either spouse depending on the debt – consult attorney with specific questions)
When vesting (form of ownership) is not specified, tenancy in common is presumed by law
Must be expressly stated and properly formed
Rebuttable presumption that any property acquired by spouses is community property (consult attorney with specific questions).
Must be specified on deed for title insurance purposes
Rebuttable presumption that any property acquired by spouses is community property (consult attorney with specific questions).
Must be specified on deed for title insurance purposes Tenancy In Common Joint Tenancy Community Property Community Property
w / Right of Survivorship
Conveyance
Presumption Division
Purchaser’s Status Title
Upon Death Possession
Creditor’s Rights Successor’s Status
Any number of persons
(can be spouses) Any number of persons
(can be spouses) Only spouses or domestic
partners Only spouses or
domestic partners
Scan to learn more about each vesting title type
Doma is architecting the future of real estate transactions by using machine intelligence and its proprietary technology solutions to transform residential real estate, creating a vastly more simple, efficient, and affordable real estate closing experience. Doma and its family of brands – States Title, North American Title Company (NATC) and North American
About Doma:
Architecting the future of real estate transactions
Title Insurance Company (NATIC) – offer solutions for current and prospective homeowners, lenders, title agents, and real estate professionals. Doma’s clients include some of the largest bank and non-bank lenders in the United States.
To learn more, visit doma.com.
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