Why do You Need Title Insurance?

7 Common Ways To Hold Title

Ways Of Taking Title – Vesting

Save Money: Defer Taxes With A 1031 Exchange

Property Taxes

What Is Escrow?

Proposition 60 And Proposition 90

Get A Clue About Homeowners Insurance

Seller Disclosure

Seller Mistakes In A Sellers’ Market

Personal vs. Real Property: Can I Take The Ceiling Fan?

What Is A Supplemental Tax Assesment?

The Truth About Mello-Roos

Change of OwnerShip Tax Assessment Reappraisal

What Is A Sub-Escrow Fee?

Rapid Re-Scoring Could Boost FICO…

Dealing With Clouds On Your Title

Resolving Boundary Disputes

Are You Confused About APR? You’re Not Alone

Escrow Impound Accounts: Do You Have a Choice?

To protect possibly the most important investment you’ll ever make – the investment in your home.

With a title insurance policy, you as owner, have an indemnity contract that will reimburse you for loss in the event someone asserts a claim against your property that is covered by the policy.

How can there be a title defect if the title has been searched?

Title insurance is issued after a careful examination of copies of the public records. But even the most thorough search cannot absolutely assure that no title hazards are present, despite the knowledge and experience of professional title examiners. In addition to matters shown by public records, other title problems may exist that cannot be disclosed in a search.

What title insurance protects against

• Here are just a few of the most common hidden risks that can cause a loss of title or create an encumbrance on title
• False impersonation of the true owner of the property
• Forged deed, releases or wills, Instruments executed under invalid or expired power of attorney;
• Undisclosed or missing heirs; Mistakes in recording legal documents
• Misinterpretations of wills Deeds by persons of unsound mind
• Deeds by minors
• Deeds by persons supposedly single, but in fact married
• Fraud
• Liens for unpaid estate, inheritance, income or gift taxes

What protection does title insurance provide against defects and hidden risks?

Title insurance will pay for defending against any lawsuit attacking your title as insured, and will either clear up title problems or pay the insured’s losses. For a one-time premium, an owner’s title insurance policy remains in effect as long as you, or your heirs, retain an interest in the property.

What this means to you

The peace of mind in knowing that the investment you’ve made in your home is a safe one.

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Note:This information is provided to you as a courtesy, for informational purposes only, and may differ from state to state. For advice regarding tax and other consequences of vesting, contact your attorney or tax provider.

HOW YOU TAKE TITLE – ADVANTAGES AND LIMITATIONS: Title to real property may be held by individuals, either in Sole Ownership or in Co-Ownership. Co-Ownership of real property occurs when title is held by two or more persons. There are several variations as to how title may be held in each type of ownership. The following brief summaries reference seven of the more common examples of Sole Ownership and Co-Ownership.

SOLE OWNERSHIP

• 1. A man or woman who is not married.

  Example: John Doe, a single man.

  2. An Unmarried Man/Woman:

  A man or woman, who having been married, is legally divorced.

  Example: John Doe, an unmarried man.

  3. A Married Man/Woman, as His/Her Sole and Separate Property:

  When a married man or woman wishes to acquire title as their sole and separate property, the spouse must consent and relinquish all right, title and interest in the property by deed or other written agreement.

  Example: John Doe, a married man, as his sole and separate property.

CO-OWNERSHIP

Community Property:

• 1. Property acquired by husband and wife, or either during marriage, other than by gift, bequest, devise, descent or as the separate property of either is presumed community property.

  Example: John Doe and Mary Doe, husband and wife, as community property.

  Example: John Doe and Mary Doe, husband and wife.

  Example: John Doe, a married man

  2. Joint Tenancy:

  Joint and equal interests in land owned by two or more individuals created under a single instrument with right of survivorship.

  Example: John Doe and Mary Doe, husband and wife, as joint tenants.

  3. Tenancy in Common:

  Under tenancy in common, the co-owners own undivided interests; but unlike joint tenancy, these interests need not be equal in quantity and may arise at different times. There is no right of survivorship; each tenant owns an interest, which on his or her death vests in his or her heirs or devisee.

  Example: John Doe, a single man, as to an undivided ¾ ths interest, and George Smith, a single man as to an undivided 1/4th interest, as tenants in common.

  4. Trust:

  Title to real property may be held in trust. The trustee of the trust holds title pursuant to the terms of the trust for the benefit of the trustor/beneficiary.

The preceding summaries are a few of the more common ways to take title to real property and are provided for informational purposes only and may or may not apply in some states.

There are significant tax and legal consequences on how you hold title. We strongly suggest contacting an attorney and/or CPA for specific advice on how you should actually vest your title.

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When you purchase a home, the county tax assessor reassesses the property and sets a new property tax amount based on your purchase price. Your property taxes will be approximately 1% of your purchase price, plus any voter approved bonded indebtedness of the community.  Mello Roos is among these common assessments.  This is an additional amount per year added to your tax bill. Another common item is pest abatement this amount could add about $4-10 per year; Or a bond for a sewer district which can be approx. $200 per year.

Thereafter In future years, the tax assessor is allowed to increase the accessed value by 2% appreciation per year.

Homeowner’s Exemption

This is a deduction of $7,000 from the “accessed value” and applies only to owner-occupied properties. Once you’ve purchased a home you will receive a card to fill out to apply for the exemption. The card must be completed and returned between March 1st and April 15th. Applications submitted after April 15th, but before the end of the year will qualify for only 80% of the exemption.

Supplemental Tax Bill

Boy does this one cause problems. Yes, the tax assessor reassesses the property when it is sold, but they don’t always get the new tax bill amount “into the system” as it were and the first tax bill that many buyers receive is one that reflects the rate for the previous owner. So you get this bill, think “wow” the taxes aren’t as high as I thought; you pay the bill; send it off and think you are done!  Nope. Expect that you will get another tax bill, this one called the Supplemental Tax Bill. It will cover the difference between the old rate (which you already paid) and the new rate (which you really owe).

EXAMPLE: $250,000 purchase price

YEAR 1

$250,000 less $7,000 Exemption = $243,000

$243,000 x 1% = $2,430 tax bill (plus any special bond assessments)

YEAR 2

$250,000 plus 2% appreciation = $255,000

$255,000 less $7,000 Exemption = $248,000

$248,000 x 1% = $2,480 tax bill (plus any special bond assessments)

YEAR 3

assume you add on a new bathroom valued at $15,000

$255,000 plus 2% appreciation = $260,100

$260,100 plus $15,000 addition = $275,100

$275,100 less $7,000 homeowners exemption = $268,100

$268,100 x 1% = $2,681 tax bill (plus any special bond assessments)

YEAR 4

$275,100 plus 2% appreciation = $280,602

$280,602 less $7,000 homeowners exemption = $273,602

$273,602 x 1% = $2,736 tax bill (plus any special bond assessments)

If you now sold your house for $300,000, the property tax bill for the new owner would be based on the $300,000 purchase price.

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An escrow is an arrangement in which a disinterested third party holds legal documents and funds on behalf of a buyer and seller, and distributes them according to the buyer’s and seller’s instructions.

People buying and selling real estate often open an escrow for their protection and convenience. The buyer can instruct the escrow holder to disburse the purchase price only upon the satisfaction of certain prerequisites and conditions. The seller can instruct the escrow holder to retain possession of the deed to the buyer until the seller’s requirements, including receipt of the purchase price, are met. Both rely on the escrow holder to carry out faithfully their mutually consistent instructions relating to the transaction and to advise them if any of their instructions are not mutually consistent or cannot be carried out.

An escrow is convenient for the buyer and seller because both can move forward separately but simultaneously in providing inspections, reports, loan commitments and funds, deeds and many other items, using the escrow holder as the central depositing point. If the instructions from all parties to an escrow are clearly drafted, fully detailed and mutually consistent, the escrow holder can take many actions on their behalf without further consultation. This saves time and facilitates the closing of the transaction.

The escrow process was developed to help facilitate the sale or purchase of your home. The escrow holder accomplishes this by:

§ Acting as the impartial “stake-holder,” or depository of documents and funds

§ Processing and coordinating the flow of documents and funds

§ Keeping all parties informed of progress on the escrow

§ Responding to the lender’s requirements

§ Securing a title insurance policy

§ Obtaining approvals of reports and documents from the parties as required

§ Prorating and adjusting insurance, taxes, rents, etc.

§ Recording the deed and loan documents

§ Maintaining security and accountability of monies owed and owing.

Find out more about the Life Of An Escrow by viewing this chart.

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OVER 55?  CALIFORNIA PROPERTY TAX RELIEF

Since its passage, Proposition 13 prohibits property tax increases until property ownership is changed.

If either spouse is over age 55, PROP 60 allows replacement of a primary residence with a new home of equal or lesser value (but see below) within the same county and transfer of the Prop 13 assessed valuation from the old home to the new property.

PROP 90 allows counties to elect to accept transfers of Prop 13 values for moves from other counties when a primary residence is replaced with a less expensive (but see below) home. If you are over 55 and move into a county that accepts Prop 90, you may take your old, lower Prop 13 value, regardless of from which county you move.

Using Prop 90, you can sell your $400,000 San Francisco home [assessed value $80,000] and move to a new $300,000 home in San Mateo; the new San Mateo assessed value will be $60,000!

COUNTIES WHICH ACCEPT PROP 90

Alameda, Los Angeles, Kern, Modoc, Monterey, Orange, San Diego, San Mateo, Santa Clara, and Ventura. [Contra Costa, Inyo, Riverside, and Marin have dropped out of the Prop 90 program.]

Props 60 and 90 apply if you “trade down” (i.e. the new home costs less than the sales price of the old home). In some cases you may buy for 10% more than the sales price of the old home.

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Buyer and Seller Info

Get a CLUE About Homeowners Insurance

When looking for that perfect home, Buyers must do their homework by getting loan pre-approval, scouting out neighborhoods, and getting a realistic idea of how much house they can afford. Now there’s another item to put on the to-do list – make sure you can get Homeowners Insurance.

Homeowners’ insurance premiums and the lack of available coverage have become significant barriers to homeownership. Most affected are those who have no credit history and existing homeowners who have water-related claims.

The Comprehensive Loss Underwriting Exchange database holds claim histories of individuals and properties for five years. Insurance companies share this database in determining whether to insure you and your property. So even if you’ve owned a home and have been a loyal insurance customer for a number of years, if you buy a house that comes up with a number of claims against it, you may not be able to get insurance on that property with certain companies.

Also, companies are tightening underwriting criteria for potential policy owners and properties themselves. Some insurers are not renewing coverage for existing homeowners with poor credit or who file too many claims. And underwriting requirements on properties have been tightened to ban properties with prior water damage.

The Insurance Information Institute says the average cost of homeowners insurance increased by 9 percent last year and is expected to rise another 10 percent this year. But many homeowners have seen increases ranging from 30 to 70%.

The insurance industry says the increases stem from a variety of factors, including catastrophes like Hurricanes and Earthquakes that have occurred in recent years. Insurers have paid out billions in catastrophe-related losses – much more than in previous decades.

Another contributor is mold. Multi-million dollar jury awards, sensationalized reporting in the media and profiteering by some individuals have led to an explosion in mold claims and costs, the Insurance Information Institute says.

In Texas, for example, mold claims in 2001 cost insurers more than $850 million compared to virtually nothing just a few years earlier. Water claims accounted for 32% of all claims in 2001, up from 24% in 1997.

Just because you and your spouse have an unblemished insurance record, that doesn’t mean the house you’re eyeing does. When an insurance company considers whether to offer you insurance, they’re not just looking at your history, but the history of the property in question.  Potential homebuyers should make Homeowners Insurance a priority when house hunting and should not take their insurability for granted.

One way to examine the house’s claims history is through its CLUE REPORT. About 600 insurers, making up about 90 percent of the market, feed into the CLUE database. The report will show you every claim filed over the past five years.

The database covers 27 types of losses, including dog bites, flood, earthquake, theft, vandalism, wind, and medical payments. Prospective buyers can’t request a report directly, but they can ask the homeowner to provide a copy as a condition of the sale.

You would then be armed with the information you need to shop around for insurance and determine whether your would-be house is insurable. If it’s not, you can back out of the deal — if you make it a condition of the sale.

There is also an upside to having the report. It could also indicate factors that can be attractive to you as the buyer. If you’re buying an older home and the roof was replaced because of storm damage, you may be very happy knowing you are getting a newer roof.

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As silly as it sounds, if your home has a reputation for ghostly activity, you should disclose it.

Disclosing things that go bump in the night, as well as more tangible stigmas could certainly cause your home’s value to drop, but failing to disclose them could cost you a much more scary liability suit.

Most state disclosure laws don’t deal with ghosts and afterlife, but they do address death as a stigma.  In California, for example, the law says you don’t have to disclose a death that occurred more than three years before the sale.

Real estate attorneys interpret that to mean agents should disclose any deaths that occur within three years of the sale, and the California Association of Realtors advises agents to do so. The association also advises agents to disclose any death, no matter how long ago it occurred, if the seller asks.

The one exception is death caused by AIDS.

Federal law defines AIDS as a disability and such a disclosure could be deemed discriminatory.

Public disclosure has a cathartic effect that helps remove any shroud of secrecy, says Bell, who was called in for consultations after the 1997 Heaven’s Gate murders in San Diego — the largest mass suicide on U.S. soil.

Rancho Santa Fe Groves Inc., led by developer William L. Strong Jr., purchased the property two years after the event for $668,000, less than half the $1.6 million list price before the cultists’ deaths. At the time of the purchase, the 9,000 square foot home on 3.1 acres was slated for demolition, but the assessor valued the land at $1.5 million.

Bell says he would open any such heavily stigmatized home to the media to keep a forbidden property from becoming “haunted”.

There is case law that sets legal precedent, but it doesn’t totally support Bell’s assertions.

In 1989, naive out-of-towners Jeffrey and Patrice Stambovsky purchased an 18-room rambling riverfront Victorian mansion on the Hudson River in scenic Nyack, N.Y.

Unbeknown to them at the time, the $650,000 home was haunted.

Owner Helen Ackley, however, had actively promoted her home as a haunt for apparitions in the attic, poltergeists in the pantry and ghosts in the garage.

Both the local and national media reported the story. The most notable version was a 1997 Reader’s Digest story, “Our Haunted House on the Hudson.”

According to Ackley’s Digest account, there were at least three ghosts thought to date back to the Revolutionary War, a red-cloaked woman often seen demurely descending the staircase, a wandering sailor with a powdered wig and an elderly gentleman sitting in the living room suspended four feet above the floor.

“Our ghosts have continued to delight us,” Ackley told Reader’s Digest.  The spooks were always “gracious, thoughtful — only occasionally frightening — and thoroughly entertaining,” she said.  At their worst, the spirits almost knocked her daughter out of bed and shook her four-poster bed in the mornings just before the alarm clock went off.

Jeffrey Stambovsky insisted he didn’t believe in ghosts, but the possibility of living with them spooked his wife.  The Stambovskys demanded that Ackley return their $32,500 binder and ax the deal. Ackley refused to return the money, claiming that the Stambovskys had agreed to purchase the home “as is.”

Instead of taking metaphysical law into their own hands, the Stambovskys took it to court.  “We were the victims of ectoplasmic fraud,” Stambovsky moaned.

A lower court ruled in favor of Ackley, but later Justice Israel Rubin of the Appellate Division of the New York State Supreme Court reversed the decision with a devilish tongue-in-cheek ruling.

“A very practical problem arises with respect to the discovery of a paranormal phenomenon: ‘Who you gonna call?’ as a title song to the movie Ghostbusters asks. Applying the strict rule of caveat emptor to a contract involving a house possessed by poltergeists conjures up visions of a psychic or medium routinely accompanying the structural engineers and the Terminex man on an inspection of every home subject to a contract of sale,” Rubin said.

“Whether the source of the spectral apparitions seen by defendant seller are parapsychic or psychogenic, having reported their presence in both a national publication and the local press, defendant is estopped to deny their existence, and, as a matter of law, the house is haunted,” he finished with a flourish.

• Make sure you take advantage of every discount you are eligible for. Insurance companies offer many discounts, including discounts to those who insure their home and vehicles with the same company.
• You can save money if your residence is equipped with smoke detectors and by installing certain home security devices.
• Raise your deductible. Higher debuctibles could provide savings of up to 30% or more.
• Maintaining good credit will also help you save on home insurance.  Since insurance companies use your credit history in determining whether to insure you and at what rate, you should get a copy of your credit report to make sure it’s accurate.

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“Procrastinating home sellers who don’t list their home soon after getting wind of record-level sales, multiple offers, and high bids that define a hot seller’s market, could be left twisting in that very same wind,” says Broderick Perkins, a noted Real Estate Columnist.

Waiting too long is a one big mistake that sellers make.  The caveat is not to take too long to prepare or you might miss the market.

In a seller’s market, sellers often get greedy and attempt to push the market with an overpriced home.  If they get greedy and price their home too high it may take longer to sell or not sell at all.

My personal opinion is that sellers should price toward the high end of the price range, but not above the range. A home priced above the range gets fewer showings therefore less bidding, which is where prices get driven up.

Some agents lean the other way and price their homes toward the low end to generate bids that will drive the property’s price up.

Agents generally agree that adding curb appeal and sprucing up a home by cleaning, removing clutter, painting, landscaping and updating fixtures, windows, doors and performing other cosmetic touches, puts your home in the best light at a nominal cost for a big pay off.

Generic improvements that enhance your home’s functionality, efficiency and aesthetics — all to give it a more contemporary feel — also means completing deferred maintenance and making sure all the components are in good working condition.

Even with competitive bidding, the house that shows the best will get the highest price.

Agents in sellers’ markets also advise:

• Use the Multiple Listing Service (MLS) for maximum exposure. The biggest mistake is to not properly expose the property to the market.
• Keep buyers’ agents competitive. Don’t reduce their commission to increasem your take home.
  

  If a buyer goes out and finds three properties that they are interested in and these properties offer a $500 commission, a 2.5 percent commission and a 3.0 percent commission, what property would any human being push and which property would they avoid? The lower the compensation the less motivated the buyer’s agent is. If a seller wants to reduce their cost, the seller should make the reduction on the agent representing the seller and not touch the buyer’s agent’s compensation,” said Calhoun.

• Instead of accepting back-up offers, be prepared to return to market for a higher price.
  

  In a backup situation, the buyer can continue to search for another property without obligation. If that buyer is still available when the first sale fails you can still bring them back into the picture.

• Manage multiple offers fairly, don’t jump at the first over-list bid and keep your options open.
  

  Don’t accept the first offer on the first day, but don’t wait too long either. This is the same regardless of a hot or cold market. If homes have increased 10% and the seller prices based on comparables and takes the first offer, the seller misses 10%. However, if the property is exposed to the market, the buyers will bid up to that 10% increase.

• Look for mortgage-approved buyers who have the cash to prove they are ready to buy.
  

  If a seller gets multiple offers, the highest price is not necessarily the most important item. Down payment, appraisal contingency, the buyers’ motivation to buy, are all-important. Also, sellers that want no inspection contingencies are exposing themselves to unnecessary legal exposure.

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Whether a seller is allowed to remove the ceiling fan when he sells his house or whether it must stay with the property, can present problems at the time of closing. When you purchase a home you will be buying what is considered real property. Real property means anything that is part of the land or which is attached to the land. Real property may also be anything which is incidental or appurtenant to land or which is considered immovable by law. In contrast to real property, personal property pertains to those items that are movable and can be removed from the property. This may seem fairly clear cut and indisputable, but problems do arise when one party considers an item, such as a ceiling fan, personal property and the other party considers it a part of the home and real property.

The law specifies several criteria for determining whether an item is considered real or personal property. The law looks at the intention in the manner in which the article, fixture or piece of equipment is attached to the property in order to determine if the item is to be considered real or personal property. The intention of the owner at the time of installation may be hard to determine, so it is important that at the time of the sale that the personal property items are listed in the purchase agreement between the buyer and seller. Any items of questionable intention should be listed on a Bill of Sale, which will transfer ownership of the personal property items.

Ceiling fans may be considered real property in some areas, yet may be considered personal property in other areas. It is advisable to list any light fixtures that may be in question in a list of personal property items that will either stay with the property or be removed by the seller. Above ground spas, appliances, built-in bookshelves, should also be listed in the Bill of Sale.

Personal property items, such as furniture, do not generally present a problem, as these items are not typically fitted or attached to the property. Items that are attached to the property that cannot be removed without doing damage to the real estate are generally considered to be part of the real property. Such items as drapes, blinds, and other window coverings may present a problem when the intention of the parties is not made clear.

The best way to avoid any confusion at closing is to make a list of the personal property items that will be included in the sale and give this list to the listing agent. The Bill of Sale will then be signed at close of escrow by the seller, making it very clear which items stay with the property and which items are to be removed.

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State law requires the Assessor’s Office to reappraise property immediately upon change of ownership or completion of new construction. The Assessor’s Office must issue a supplemental assessment which reflects the difference between the prior assessed value and the new assessment. This value is then prorated based on the number of months remaining in the fiscal year, ending June 30^th.

For example, if property is purchased on September 15^th with a market value of $150,000, and it has a prior assessed value of $50,000, this will result in a supplemental assessment for the difference ($100,000) prorated for the remaining months in the fiscal year (9 months from October through the following June):

This supplemental tax bill is in addition to the regular tax bill which is based on the assessed value as of March 1^st of each year. If a second sale or transfer of the property occurs during the same fiscal year, but before the mailing of the first Supplemental Tax Bill, the taxes will be prorated between the owners by the Assessor’s Office. If the date of the sale or transfer occurs between March 1^st and May 31^st, a second Supplemental Taxes, call the San Diego County Assessor at (619) 535-5761.

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The Real Benefits Of Mello-Roos

As always, today’s families recognize the importance of living in a community that’s as desirable as their home itself. Mello-Roos enables critical community facilities to be provided whenever they’re needed at a lower cost ultimately to homeowners. By doing so, Mello-Roos ensures a higher quality of life for every family in that community. Perhaps most importantly of all, Mello-Roos helps preserve the value of your new home investment.

Where Did Mello-Roos Come From?

When Proposition 13 passed in 1978, it severely limited the ability of local governments to use property taxes to construct public facilities and services. As a result, Californians were forced to find new ways to fund public improvements in their respective locales. The Mello-Roos Community Facilities Act 1982 was co-authored by Senator Henry Mello of the Monterey area and Los Angeles Assemblyman Mike Roos. Enacted by the California legislature, the Act enabled “Community Facilities Districts” (CFD’s) to be established by local government agencies as a means of obtaining this crucial community funding. Today the Colloquial name for the Facilities Act of 1982 is simply “Mello-Roos”.

What Public Facilities Are Funded By Mello-Roos?

School districts are the most common beneficiaries. Because state funds are not available to provide the quality of facilities necessary in every community in California, Mello-Roos makes the acquisition of timely financing possible. In addition, Mello-Roos can provide financing for other vital community needs. These needs include the construction and maintenance of public roads and traffic light systems. Storm sewers and water mains. Police and Fire Stations. Ambulance service. Public libraries and recreational parks. And even museums and cultural facilities.

How exactly is Community Funding Provided?

Let’s say for example, that plans for a new school are approved in your Community Facilities District. To finance the school, tax-exempt municipal bonds re issued. These public bonds are repaid (or secured) over an extended time through the levy of a special tax (Mello-Roos) on properties that benefit from the facility. This tax usually added to the annual property tax bills (over a 20-25 year period) of residences within the CFD. Commercial and industrial property owners are also subject to Mello-Roos. All proceeds raised from Mello-Roos assessment must be used exclusively to finance the specific public facilities and/or services that were authorized in your CFD.

How Much Will I Be Assessed?

This will vary from one CFD to another. Typically, an adopted formula that relates to the size of the home (square footage or lot size) is used to determine the amount of an individual assessment. In general, the special taxes and assessments do not exceed 1% to 1.5% of the market value of new homes. Moreover, the total amount of all annual taxes (including property tax) usually does not exceed 2% to 2.5% of the home’s market value.

Will My Mello-Roos Tax Increase?

It can. However, this special tax can increase only at a maximum rate o 2% per year over a 25 year period. On the other hand, it’s possible that this tax will decrease, should State or other funds become available that could be used to reduce existing bond indebtedness, or be used to construct new facilities in lieu of additional bond sales.

Can I Choose How To Pay For Mello-Roos?

Yes. As already mentioned, the special assessment can be added to your property tax bills until your portion of the tax is paid off. A schedule of maximum special tax payments over a period of 25 years is available to homeowners prior to the close of escrow. Those who purchase a new home also have the option to pay for their Mello-Roos tax in its entirety at the time they buy. However, because statistics indicate that the average homeowner in California moves every 7 years, it’s often prudent to spread the payments over time.

Why Can’t Builders Bear The Cost Of These Facilities?

They can. But ultimately, the builder must recover these considerable costs in the form of higher home prices. Commercial construction loans acquired b y builders typically incur higher rates of interest than CFD financing, which accrues at significantly lower rates.

Mello-Roos Makes Sense

Buying a home is the most important decision most of us will ever make. Mello-Roos offers the security of knowing that your community will continue to prosper and grow in ways that are most beneficial to it’s residents.

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Change of Ownership Tax Assessment Reappraisal

A Fee Charged By A Title Company For The Following Services:
	Coordinating with escrow/lender for recording
	Verify & update pay-off demand figures with lender
	Verify payment of property taxes
	Calculate the pay-offs on the day of closing
	Disburse all pay-offs & net proceeds per instructions
	Upon confirmation of recording, notify escrow company
	Process refunds

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Credit bureaus say it’s one of the most useful trends to hit the mortgage market in years. Yet most home loan applicants–and some mortgage brokers and realty agents–still don’t know about it.

It’s called “rapid re-scoring.” It’s potentially a mortgage saver–even a home saver–for anybody whose credit scores have been depressed by erroneous information on their credit files or by ill-advised use of their existing credit lines.

Say you’re applying for a loan on a new home you want to buy. To your surprise, the loan officer tells you that your “FICO” score is too low to qualify for the loan program you need to swing the purchase.

(“FICO” stands for Fair, Isaac & Co., Inc., the San Rafael, California Company that developed the nations most widely used credit-risk scoring program. FICO scores are generated by running your credit file information through the proprietary FICO scoring software at each of the three national credit repositories–Equifax, Experian and Trans-Union.) High FICO scores–700 and above–indicate that you are a solid credit risk and deserve the best interest rates and terms available. Scores less than the low 600s indicate that you have credit problems and might default on a new loan. Some consumers’ FICO scores come in artificially low because their credit files contain outdated and erroneous information. To correct such mistakes, loan applicants typically have to endure weeks or months of hassles contacting creditors, pleading with them to amend the information they erroneously sent to the repositories. That process, in turn, usually takes far longer than a loan officer can afford to wait to move ahead with your application. You have to come back and file a new loan application, pull new FICO scores and hope for the best. Sometimes the delay costs you a shot at the favorable interest rates that prevailed at the time of your first application–and just may knock you out of contention for the home and the loan package you wanted.

But now savvy loan applicants have a new option, working through their mortgage broker or loan officer: They can get their files corrected and re-scored within 48 to 72 hours. Though participating local credit reporting agencies cannot advertise their re-scoring services to the general public, they often let their mortgage lending clients know about them.

The re-scoring agencies negotiate special contracts with the three repositories, allowing them to obtain “universal data correction” forms from creditors–often within a day or two–and then sending them directly to repositories for immediate correction of the consumer’s file. The staff-intensive service costs money. Some lenders are charged $30 per tradeline, per bureau, per borrower. A lender or broker trying to save a marginal application from a borrower with a few credit errors on file might be charged $120 or $150 to get a rapid re-score within 72 hours.

A more extensive re-scoring could cost two or three times that amount. But it can be worth it for the borrower and the lender. Many rapid re-scores raise FICOs by 30, 50 or more points, depending upon the nature of the errors in the file. That jump in score, however, frequently pulls a borrower out of the “sub-prime” category, and can save thousands of dollars in interest in fees over the term of the mortgage.

One of the country’s top experts in the field, Ruth Koontz of Baltimore-based Lenders Credit Services, Inc., says re-scoring is most dramatic when a loan applicant’s credit files contain major factual errors (identity-theft situations, bogus delinquencies on credit cards or mortgage payments), and when the files show balances that don’t belong to the borrower. Re-scoring can also be a plus when consumers have made poor use of their credit choices, such as by maxing-out credit cards, home equity lines and personal credit lines. Re-scorers like Koontz know how and where to redistribute that debt to raise FICO scores immediately.

Don’t confuse rapid re-scoring with “credit repair.” Re-scoring is a legitimate service expressly sanctioned by the credit repositories through special contracts with select credit reporting agencies. “Credit repair”, by contrast, often involves illegal attempts to dupe the repositories and lenders alike.

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At closing, the seller will be asked to provide good and marketable title to the property, a title free of any liens or judgments, or clouds on the title. A lien is a claim to property for the payment of a debt, and the lien holder could foreclose on the property if the debt is not paid off. Liens can be generally be removed by the payment of the amount owed. This payment can occur before the closing takes plac or at the time of closing.

There are several types of liens, all of which could cloud the title and prevent the seller from conveying marketable title to the buyer. A mechanic’s lien, or a construction lien, is a claim made by contractors or subcontractors who have performed work on the house who have not been paid. A supplier of materials delivered to the job may also file a mechanic’s lien.

In some states, contractors and subcontractors must notify the homeowner when they intend to file the lien, but in other states they can file the lien without any prior notification to the owner. An owner could face a mechanic’s lien if his contractor fails to pay a subcontractor or a materials supplier. To insure that your property is free of any mechanic’s liens, an owner should obtain a release of lien form signed by all subcontractors and material suppliers before making the final payment to the contractor.

Another type of lien that may occur is one related to a divorce. Often in a divorce, one or the other spouse may be awarded the right to live in the house. When that spouse sells the property, for instance, the ex-spouse may be entitled to half of the equity. If things don’t go as they should, the ex-spouse could file a lien for his share of the sales proceeds.

There are liens that exist in connection with condominiums and a homeowner’s association dues. At closing, the title or escrow company will request a certificate of payment from the homeowner’s association to be sure that all due and assessments have been paid and are current.

Some states allow a lien to be placed on property of divorced parents for unpaid child support payments. This is a lien that would have to be paid off before the property could be sold. Court judgments for unpaid debts, such as credit card judgments or unpaid legal fees, is a type of lien that would have to be paid and removed before closing.

If you find a lien on your property, contact the lien holder and negotiate to pay off the debt, or if there is a question as to whether the debt is your responsibility, contact a lawyer to determine how to remove the lien from your property. If you are advised to pay off the lien to clear the title, be sure to have the lien holder sign a release of lien form and file this at the county recorder’s office to clear the title in the official records.

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Boundary lines between properties are described in the property description in your deed. Before you build a fence or any other structure on your land that is near or on the boundary separating your property from your neighbor’s property, you need to be certain of your property’s boundary lines. If you mistakenly build a fence on your neighbor’s property, you could be responsible for trespassing and a court could make you tear down the fence. If you are unsure as to where the boundary lies between your property and that of your neighbor’s property, there are several things you can do to resolve the problem.

If a survey were done when you purchased the property, this description of the property would show your actual boundary lines. Often, however, there are cases where the description of a property was originally recorded many years ago, even decades ago, and that description may not be entirely accurate. The property description on your deed is normally in metes and bounds, by a government survey system, or by a reference to a recorded map. It may not detail boundaries that a survey would reveal.

One solution is to order an up-dated survey that would reveal the actual boundary lines. Another alternative would be to file a quiet title lawsuit whereby you would ask a judge to determine the boundary lines of your property. This procedure is generally more expensive than a survey due to the legal filing fees. A less expensive alternative would be to meet with your neighbor and to agree on a physical object, such as a fence or a large tree that would serve as the boundary line between your two properties. You and your neighbor would then sign a quitclaim deed and grant to the other neighbor ownership to any land on the other side of the line you had agreed upon.

If you neighbor starts building on property that you feel is on your land, you would need to notify your neighbor immediately. If construction is allowed to continue, you could risk giving up your right to that part of your land. By a procedure called prescriptive easement, the court allows a party using your land, if uncontested for a specified number of years, the right to the use of that land indefinitely.

If you obtained a mortgage when you purchased your property, the lender generally requires that a survey be performed. It is always wise to walk the property, with survey in hand, prior to closing on the property. You may not anticipate adding a fence or other structure at the time of purchase, but you may want to in the future, and determining your exact boundary lines at the time of purchase will prevent any potential problems.

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Answer: No. Your instincts are good — $13,000 is a lot of dough to pay in nonrefundable fees. I can’t stand the APR and I take exception to the so-called “experts” who advise clients to go with the loan program that has the lowest APR (no offense to your Dad). Let me explain and crunch some numbers.

The biggest problem with the APR is that it assumes that the borrower will hold the loan until the end of the term — an unrealistic assumption. If you hold the loan for 30 years, you will save a total of $16,920 by taking the lower rate, high cost loan because the payment difference is $47 per month. What we have is a $313,000 loan at 5.25 percent or a $300,000 at 5.875 percent. Since both loans are paid off in 360 months, the 5.25 percent loan that starts at $313,000 would be a better choice if the loan is held for the entire term.

But let’s look a little closer . . .

The APR that is issued to you at the time of application is an estimate. Unless the lender is giving you a guaranteed closing cost package, such as a zero cost refinance, your true APR will be different from the initial disclosure because the closing costs are only an estimate.

The APR is also calculated incorrectly. It is supposed to give the borrower the true cost of the loan expressed as an interest rate when both the note rate and the transactional closing costs are taken into consideration. The problem is that the APR doesn’t take into consideration certain fees. It considers bank-related charges such as points, appraisal and credit report fees, but it doesn’t consider charges such as title agent or attorney settlement fees.

The APR also incorrectly includes interim interest in its calculation. Interim interest is just that — interest on the loan. It mistakenly considers interim interest a transactional cost. Depending upon the settlement date, this can greatly vary the APR.

Let’s get to the real numbers using your scenario. For the reasons listed above, we know that the APR on the 5.25 percent loan is inaccurate. The APR on the zero cost refinance is also inaccurate at 5.892 percent because the APR thinks interim interest is a transactional cost. The APR on a true zero cost loan will be the same as the note rate because there are no fees.

Here are the numbers:

The principal and interest (P&I) payment on a $313,000 loan at 5.25 percent is $1,728 per month for the next thirty years. The APR is 5.624 percent.

The P&I payment on a $300,000 loan at 5.875 percent is $1,775 per month for the next thirty years. The APR is 5.892 percent.

The loan program with the lower APR is $47 less per month, but $13,000 more expensive in nonrefundable fees.

Is your father giving you sound advice when he tells you to take the loan with the lowest APR? Let’s compare.

As I said, if you were to hold the loan for thirty years, he’d be right, but that’s not a reasonable assumption. I certainly don’t know anyone in the last thirty years who has not at some point sold their house or refinanced. For most folks, it’s unrealistic.

A more reasonable period might be seven years. At the end of seven years, the $313,000 balance would drop to $276,649 using a note rate of 5.25 percent. With a beginning balance of $300,000 and a rate of 5.875 percent, the balance at the end of seven years is $268,313, an additional $8,336 in equity.

But the $47 in monthly savings only totals $3,948 over seven years.

Let’s try a 10-year holding period. The ending balance is $256,498 at the 5.25 percent rate and $250,214 at the 5.875 percent rate — a difference of $6,284. $47 per month over 10 years adds up to $5,640 — $644 less than the equity built with the higher rate, zero cost option.

The numbers don’t lie. It takes more than ten years before you recoup the cost of taking a low interest rate, high cost loan. And I haven’t considered the fact that more interest is paid at the higher rate, giving the homeowner an additional tax break.

The bottom line is you must be 100% sure that you will hold a loan for well over 10 or 15 years for you to benefit by taking a lower rate, higher cost loan. If you think you may sell before then, or you think interest rates might drop in the next ten years providing a refinance opportunity, it’s best to take the higher rate and forego paying all those fees.

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Escrow impound accounts are those accounts which lenders set up to collect “up-front” money from you when you take out a mortgage to cover future expenses such as property taxes and insurance. Lenders like to set up these impound accounts, as they are then certain that the property taxes and insurance will be paid on time, as they will be holding the money and paying these expenses for you. You can typically waive escrows on a conventional loan if your loan-to-value ratio is 80% or less. The key point is to convey to your lender or mortgage broker from the start that you choose to waive the escrow account option.

The lender may charge you an additional ¼-point for this option to waive escrows. This is not an increase in the interest rate, but rather a one-time charge. If your loan is for $l00,000.00, for example, and you are paying no points, you would pay $250.00 for the privilege of waiving the escrow impound account. In the long run it may well be worth it. It is very difficult to get a lender to cancel the escrow impound account once it is in place, and difficult to get the lender to pay out any interest accrued on the money. Only about 14 states have passed legislation that requires the lender to pay interest on your escrow funds held in these accounts. In some states, lenders allow buyers to set up separate accounts into which they place a certain amount of money and then pay the insurance and property taxes themselves. These are called pledge accounts, and they must be set up before you close on the house.

If you change your mind before the close of escrow regarding your escrow account, you can ask the lender to redraw your loan documents, but they will charge you a fee for this and it would delay your closing. It is best to make a decision regarding the escrow account option before you start shopping for a loan.

If you do choose to allow the lender to collect for escrow accounts, keeping track of your escrow money may become difficult. Many loans are sold in the secondary money market and the original lender you contracted with may not be the lender you are dealing with today. You definitely loose control of that money once the lender has collected it from you.

In some cases you may find that the lender did not pay the hazard insurance or property taxes on time and you receive a cancellation notice or penalty assessments. In this case, you would need to contact your lender, sending along a copy of the bill. The lender should pay the penalty for not paying the taxes or insurance on time.

Escrow impound accounts do have their advantage to some borrowers, however, in the case where you do not want to be bothered to plan ahead and save to pay the property taxes and insurance. When the lender collects this money from you each month, you don’t have any worries when these expenses come due.

You may feel that your lender is requiring you to place more money than necessary into the escrow account. Typically, lenders collect a two-month cushion for taxes and insurance. There is a law that governs the lender’s ability to collect escrow money and if you have a specific complaint you can contact the Department of Housing and Urban Development or the State or Federal financial regulators.

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