BUYER DISCLOSURES 101

During the escrow process, you will be informed of specialized conditions that affect the home you wish to purchase. They may include the following:

Lead Paint

Sellers of properties built prior to 1978 have the following obligations to you:

» Give you a HUD pamphlet entitled "Protect Your Family From Lead in Your Home"

» Disclose all known lead-based paint and related hazards and provide you with 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, sellers must give you a 10-day opportunity to test for lead

Natural Hazards

California law requires sellers to disclose to you, 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, sellers, 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 you after you signed the Purchase Agreement, you will have three days to rescind the agreement. However, if you receive the NHD before you signed the Purchase Agreement then you cannot use the NHD to rescind.

Mello-Roos Districts

Especially (but not exclusively) if you are buying a home in a newer area, you may be locating into a Mello-Roos tax district, and the seller must provide to you a "Notice of Special Tax" to let you know. If this notice is delivered to you in person, you have three days to rescind your offer. If it’s delivered via U.S. mail, you 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 etc.

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

You 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 you during escrow. You may receive 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. We recommend that you review these documents thoroughly, because they will affect you firsthand.

Megan’s Law.

If a registered sex offender lives in the neighborhood in which you want to locate, you have the right to investigate – this is made possible due to a 1996 statute known as "Megan’s Law." (Note that the seller does not have an obligation to provide this information to you.)

To investigate, you may: 

» Log on to: http://caag.state.ca.us/megan/index.htm

» Call (900) 448-3000 to access the California Sex Offender Information Database. (There may be a charge to check names by telephone.)

· Call your local police department to locate a CD-ROM records viewing station.

Below are some of the costs you may incur. Some are one-time fees, while others recur over the life of the loan. When you first apply for your loan, you will receive a Good Faith Estimate of Settlement Charges and a booklet explaining these costs, to minimize surprises. Generally, you can expect closing costs to equal from 3 to 6 percent of your mortgage loan amount. 

Appraisal FeeThis is a one-time fee for an "appraisal," a statement of property value required on most loans. An independent fee appraiser makes the appraisal. Unique and more expensive homes usually have a higher appraisal fee. 

Credit Report Fee:This one-time fee covers the cost of your credit report, which is processed by an independent credit-reporting agency. 

Document Preparation Fee:There may be a separate, one-time fee that covers the preparation of the final loan papers, including the note and the deed of trust. 

Loan Origination Fee: Often referred to as "points," one point is equal to one percent of the mortgage loan. As a rule, if you are willing to pay more in points, you will get a lower interest rate. Anything in addition to one point is referred to as "discount points." 

Miscellaneous Title Charges:The Title Company will charge fees for a policy of title insurance and escrow services, which may include charges for document preparation, notary fees, recording fees and a settlement of closing fee. These are all one-time charges. Local custom by the county will dictate whether the buyer or seller pays all or a portion of these fees. 

Private Mortgage Insurance (PMI) Premium:Depending on the amount of your down payment (generally less than 20%), you may be required to pay a fee for private mortgage insurance, which protects the lender against loss due to foreclosure. You may also be required to place funds into a special reserve account (called an impound account) for PMI, which will be held by the lender. 

Prepaid Interest:Depending on the day of the month your loan closes, this charge may vary from a full month of interest to just a few days of interest. If your loan closes near the end of the month, you will have to pay only a few days of interest. 

Taxes and Hazard Insurance:Based on the month you close, property taxes will be prorated between you and the seller. You may also be required to pay a full year’s hazard insurance (or homeowner’s insurance) premium in advance. In addition, you may also be required to place funds into a special reserve account (impound account) for taxes and insurance, which is held by the lender. You absolutely must have this to obtain a mortgage. 

The "dwelling coverage" portion of your hazard insurance covers costs to completely rebuild your home, while the "liability coverage" protects you against accidents that occur on your property. "Personal Property Coverage" pays to replace your possessions and generally totals 50 to 75 percent of the dwelling coverage amount. Flood and earthquake insurance policies also are available and are recommended if you are in high-risk areas.

Title Insurance Fees:There are two title polices - a buyer’s policy, which protects the new homeowner, and a lender’s title policy that protects the lender against loss due to a defect in the title. These are both one-time fees. 

>CLOSING COSTS: THE GOOD FAITH ESTIMATE<
The Good Faith Estimate:The Good Faith Estimate of loan closing costs is made pursuant to the requirements of the Real Estate Settlement Procedures Act (RESPA). These are estimated settlement costs that the buyer will be responsible for in conjunction with the settlement of the mortgage loan. There are two general categories of closing costs, non-recurring and recurring. Non-recurring closing costs are items that are paid once, while recurring costs are items paid repeatedly over the life of the loan. 
This is a detailed summary of costs you may have to pay when you buy or refinance your home. They are listed in the order in which they should appear on a Good Faith Estimate you obtain from your mortgage lender. Elements of the Good Faith Estimate are: (Costs will apply differently to each homebuyer and are not particular in total to all homebuyers)

After all of the contingencies have been removed or satisfied, your loan has been finally approved and documents have been drawn, you are now ready to close the escrow. Here are some of the things that you should think about in advance of closing. 

When do I sign escrow instructions and where do I do this? Your escrow officer or myself will contact you to make an appointment for you to sign your escrow instructions and final loan papers. At this time, the escrow officer will also tell you the amount of money you will need (in addition to your loan funds). Your loan funds will be sent directly to the escrow by the lender. You may sign your escrow instructions and loan documents at a title company office, your real estate agent’s office or some other location agreed upon by all parties. 

What should I look out for during the final walk-through? Prior to your closing-day escrow appointment, if provided in your Purchase Agreement, you will have the chance to perform, with your agent, a walk-through. This will likely be the first opportunity to examine the house without furniture, giving you a clear view of everything. Check the walls and ceilings carefully, as well as the results of any work the seller has agreed to do in response to the inspection’s findings. Any problems discovered previously that you find uncorrected which the seller agreed to correct, should be brought up prior to closing. 

Good Funds

In order for escrow to close, you must provide what is known as "Good Funds." This means that escrow can close: 

• On the same day as your deposit if the final down payment and closing funds are deposited by cash or electronic transfer ("wired funds"). 

• On the next business day after the business day of the deposit, if the funds were deposited by cashier’s check, teller’s check or certified check. 

• If the payment is made by personal or business check, when the deposit is made available for withdrawal by depositors. Depositing banks may hold these types of funds for up to three business days for most "local" items and up to seven business days for "non-local" items. 

The Escrow Appointment 

Once your loan is approved, you will be asked to go to the Title Company to sign the loan documents and escrow instructions that specify disposition of your loan funds. You will sign these documents in the presence of a notary public. When you’ve signed everything, your lender will make one final review of the documents and conditions for closing. Once completed, the lender will send the loan funds to escrow. Often, lenders require three business days before the loan is funded. Below is a list of items you will need in preparation for the appointment to sign escrow papers: 

• Identification — One of the following forms of identification must be presented at the signing of escrow in order for the signature to be notarized: a current driver’s license, passport, State of California Department of Motor Vehicles ID card. 

• Cashier’s Check — You need a cashier’s check or a certified check issued by a California (or your state) or your financial institution made payable to the title company. If using a personal check, the title company may delay the closing until the check has cleared. 

• Fire and Hazard Insurance — You must have fire and hazard insurance in place before the lender will send the money to fund the loan. Whenever you buy a home, you must have insurance. Provide your escrow officer with the insurance agent’s name and contact information so they can make sure that the policy complies with your lender’s requirements. 

What’s the next step after I’ve completed my sign-off? After you have signed all the necessary instructions and documents, the escrow officer will return them to the lender for a final review. Upon completion, the lender advises your escrow officer that the loan is ready to be funded.

What is an "escrow closing?" Once all the conditions of the escrow have been satisfied, the escrow officer advises you of the date the escrow will close and takes cares of the technical and financial details. The culmination of the transaction, an escrow closing signifies legal transfer of title from the seller to you. Usually the Grant Deed and Deed of Trust are recorded within one working day of the escrow officer’s receipt of loan funds. This completes the transaction and signifies the "close of escrow." 

What do I get at closing?

Escrow will record the deed of trust, disburse the funds, provide both parties with a final financial accounting in the form of a settlement statement, and close the escrow. 

• Settlement Statement

 • HUD-1 Form (itemizes services provided and the fees charged; it is filled out by the closing agent and must be given to you at or before closing) 

• Truth-in-Lending Statement 

• Mortgage Note 

• Mortgage or Deed of Trust 

• Keys to your new home 

What can I expect to happen on closing day? You'll be asked to present your paid homeowner's insurance policy or a binder and receipt showing that the premium has been paid. The closing agent will then list the money you owe the seller (remainder of down payment, prepaid taxes, etc.) and then the money the seller owes you (unpaid taxes and prepaid rent, if applicable). The seller will provide proofs of any inspection, warranties, etc. Once you're sure you understand all the documentation, you'll sign the mortgage note, promising to repay the loan. The seller will give you the title to the house in the form of a signed deed. 

You'll pay the lender's agent all closing costs and, in turn, the lender will provide you with a settlement statement of all the items for which you have paid. The deed and mortgage will then be recorded in the County Recorder’s office. At that point, you officially will be a homeowner. 

Disbursement of Funds Held in Escrow In some cases, the escrow agent will be instructed to hold funds in escrow to pay off obligations, which may not be completed until after the close. For example, funds may be set aside to correct a structural problem, remodeling or termite repair work. Upon completion of the project, the escrow agent, having received proper documentation and releases will disburse the reserved funds. 

When will I receive the deed? The original deed to your home will be mailed directly to you at your new home by the County Recorder’s office. This usually takes several weeks and may take longer depending on regional activity. 

After the close… If the funds from the new loan are being used to pay off an existing loan (generally, if you are selling one property and buying another), the old lender is required by law to issue a full reconveyance (release) of its loan. As soon as the deed of reconveyance removing the previous deed of trust is received, it must be recorded and the original will be returned to you. This may take several weeks. However, this delay is normal, and is nothing to be concerned about. Your lender may retain this loan in its own portfolio or may sell the loan to either a private or public agency, such as the Federal National Mortgage Association (Fannie Mae). In either case, you will receive specific instructions as to how to make your loan payments.

Step 1. The Application: The key to the loan process going smoothly is the initial application interview. At this time the loan officer obtains all pertinent information and documentation so unnecessary problems and delays may be avoided. This is the best time to discuss loan programs best suited to meet the homebuyer’s needs. 

Step 2. Automated Underwriting: After the application is completed, the loan officer inputs the application into the automatic underwriting system. This is an automated financial evaluation program that analyzes the data from the loan application of the borrower, such as income, credit history, debts, property details, debt-to-income rations, etc. This process evaluates the borrower’s financial picture and makes a credit decision. In conjunction with this review, the loan officer requests a credit report run on the borrower(s). 

Step 3. Requesting Documentation: The next step after receiving the initial lending decision is that the loan officer will request certain documents such as bank statements, W2's (2 years), verification of funds, landlord details and any other supporting documentation that has been requested. 

Step 4. The Homebuyer Goes into Contract on a Property 

Step 5. Loan Submission: Once all of the necessary documentation has been acquired, the loan officer puts the loan package together and submits it to the underwriter for final approval. The final loan package includes the contract on the property, the property appraisal, preliminary title reports and any conditions that were identified in the automated underwriting process. The loan officer submits the final loan package to the underwriter for formal loan approval. 

Step 6. Loan Approval: The underwriter reviews the contract, property appraisal and preliminary title reports and validates the conditions from the automated underwriting process. File disposition is achieved. Assuming all criteria are met, the loan is approved and/or other conditions may be requested as terms of funding. 

Step 7. Rate Lock: The loan officer will discuss the loan programs available to the homebuyer(s) in conjunction with discussing the final loan approval and conditions. Based on the outcome of the property purchase and final loan approval process, the buyer may wish to or need to review other loan programs. A final loan program decision is reached and the request for rate lock is made. 

Step 8. Documents Are Drawn: After the loan approval, the loan documents (including the note and deed of trust) are completed and sent to the title company. The escrow officer calls the borrowers to come in when the papers are ready for final signature. At this time, the borrowers are told how much money they will need to bring in to close the loan. 

Step 9. Funding: Once all the parties have signed the loan documents, they are returned to the lender, who reviews the package. If all of the forms have been properly executed, the funds are then transferred. At closing, the borrower must present a cashier’s check or arrange for a wire transfer of funds directly to the title company for the required closing costs and payments. No personal checks are accepted. Also, funding conditions must be submitted and satisfactorily met at this time. 

Step 10. Recordation: When the title company receives the funding check from the lender, the title company makes the lender’s security for the loan a matter of public record. This is done by recording both the note and deed of trust at the County Recorder’s office. Escrow is now officially closed.