All About Escrow

How Escrow Helps Home Buyers—And When It Hurts

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Through an escrow arrangement, a neutral go-between holds onto documents or collateral while a transaction is underway. Escrow providers usually charge the parties a fee to accept and hold the assets, redistribute the funds pursuant to the parties’ agreement, and ultimately close the escrow account.

When you’re buying a home, there are two main types of escrow accounts to expect:

  • An escrow account for the home purchase. The escrow arrangement sees to it that everyone performs as promised in the purchase agreement, and that each side’s value is protected until the parties come through on their commitments to each other.
  • An escrow account for your mortgage company. This is the common way of distributing a home buyer’s payments for homeowner’s insurance and taxes. The lender can be sure, this way, that timely payments keep your house insured, and the title clear of tax debt.

Here, we look at both kinds of escrow — the account used until you close on your home, and the account used after closing, complementing your monthly mortgage payments with insurance and tax payments.

We’ll also review the case against the second kind of escrow.

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What’s the Latest on Covid Mortgage Relief?

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The American Rescue Plan, accompanied by $1.9 trillion in stimulus funding, includes $10 billion in mortgage payment relief for homeowners affected by the massive workforce disruptions of 2020. Still more funding is marked to help homeowners get back on track with their insurance, utility bills and property taxes, and to assist USDA mortgage holders in need.

With more than two million homeowners “seriously delinquent” on their mortgage payments, according to Black Knight, more than 600,000 forbearance plans are at the verge of expiring. Loan servicers, directed to offer 180 days of forbearance by the CARES Act of 2020, have extended forbearance in 90-day chunks. Households may now either receive forbearance extensions until June, or begin paying back the accumulated debt. Mortgage servicers are deciding whether to allow extensions based on new federal permissions for up to 18 months of forbearance for early adopters of the option.

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Using a Quitclaim Deed: Top 5 Reasons

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Are you considering using a quitclaim deed? It’s a fast, simple, and reasonable way to transfer home ownership. It’s a good choice in certain situations. What are those certain situations?

In contrast to warranty deeds, which are most often used in regular home sales, a quitclaim would more likely be used:

  1. Among family members. In this case, when the parties know the history of the property and no title insurance policy is issued, quitclaiming can be done either with or without expert help. 
  • In a divorce. A decree stating that one ex-spouse will keep the home doesn’t actually transfer a home. Yet transferring ownership to an ex is easily done by quitclaim.
  • To clear up confusion about ownership, including name changes. Quitclaiming to clarify ownership can be achieved without expert help, but it’s often requested by a title insurer.
  • In a sale of a bank-owned house. If it will be the buyer’s responsibility to make the title good, a quitclaim can be used in an REO auction.  
  • To place a home into an LLC. Some investor owners decide to transfer properties into an LLC. A quitclaim deed is one way to do this.

Quitclaiming is a simple, because it can transfer ownership of real estate without the need to examine current ownership or the chain of title. Historically, the quitclaim has long been the go-to method of transferring property while avoiding bureaucracy.

In that spirit, without further ado, here’s more on five top reasons homeowners decide to use quitclaim deeds.

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Race Restrictions Still Appear on Deeds. There’s a Movement Afoot to Delete Them.

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Imagine the shock of reading your deed carefully and finding this rule: “This property shall not be resold, leased, rented or occupied except to or by persons of the Aryan race.” The Seattle-based Windermere Real Estate company doesn’t want to put up with such findings any more. This year, it’s working with its clients to use Washington state law to delete offensive deed language.

Under Washington law, an owner or resident of a property with an invidious deed restriction may have it stricken from the public records. This recent addition to the law makes it easier for Washingtonians who hit walls trying to remove discriminatory language from the title of their property.

In related news, Notarize, an online notary startup, now offers free notarizations to remove offensive covenants. Notarize calls it a matter of digital inclusion. The company’s website supplies assistance for Washingtonians, and will be expanding the service to Arizona, California, Colorado, Nevada, Idaho, and Oregon. In many other states, though, there is neither a process for removal not any pending legislation to deal with the matter.

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Creating a Power of Attorney

A Key Planning Tool for a Homeowner’s Future

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With a power of attorney (POA), you can appoint a trusted, competent person to act for you later, if you can’t carry out real estate transactions on your own behalf. In POA lingo, you are the principal, and your trusted person becomes the agent or attorney-in-fact (not to be confused with a real estate agent or an actual attorney!).

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Real Estate Legal Descriptions for Deeds

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What’s the real estate legal description that goes on a deed? A real estate legal description for a deed is not made up of the glowing words in a real estate marketer’s flyer — as grand as that would be! It is not simply a street address, or a tax description copied from the home county’s website. None of these make a deed legally able to transfer a piece of real estate from one person to another.

A legal description is a precise, legally meaningful and binding summary of a property survey. You can find it on the existing deed — that is, the last deed used to transfer the property. The legal description may have a border around it, or it might be indented to make it easy to spot. Sometimes it appears on an attached exhibit, incorporated by reference on the face of the deed. The description on a mortgage agreement or title insurance commitment should match the legal description on the deed.

Whenever an interest in property is transferred from one party to another, the real estate legal description is representing the property exactly. It is proof to lenders that the property is just as it’s shown on the deed, to be valued accordingly. And it allows a future surveyor to precisely trace a property’s angles, corners and borderlines.

It’s a hard rule that deeds have to include the property’s complete legal description. Each county has specific requirements for how that description is made, but the point is to submit the right description for the deed being prepared. That might be all you really want to know!

But if you are curious about the main types of legal descriptions, and the components that form them, read on. 

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Healthy, Wealthy and Wise: Age at Home, Your Way

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To age in place is an increasing popular goal. Homeowners across the country are renovating their homes to enhance accessibility and lengthen their independent, productive lives. Of course, there’s a lot more to their goal-setting than preparing to install ramps and handles. Owners are putting sound financial planning into the mix.

In this article, we lay out some thoughts on promoting well-being and home accessibility. We’ll add tips on preserving value along the way.

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How Much Will You Pay Your Real Estate Agent?

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Homes are among the priciest items most of us ever buy. A significant slice of the purchase goes into paying the real estate professionals. Clients should know what they’re paying.

Listing agents throughout the United States charge sellers 5-6% of the home’s sale price. In cold, hard, dollar terms: a commission of 5% on a $200,000 house is $10,000. Even after seller concessions, that original figure is in your agreement and it is binding.  

Buyers and sellers alike should know how the fees are structured, and that these fees are negotiable in the initial agreement stage. While many buyers assume the seller covers agents’ fees, at the end of the day, the buyer pays for the asset. In effect, the buyer pays all fees, as the seller prices these costs into the home sale.

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For Property Investors: Six Steps to a 1031 Exchange

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Owners of U.S. investment or business properties should know about a key tax-deferral provision allowed by the Internal Revenue Service: the 1031 exchange. Also called a like-kind exchange, it’s a way of swapping one investment property for another.

Upgrading to a more valuable investment property would usually involve a taxable sale. But by carrying out a like-kind exchange under Section 1031 of the Internal Revenue Code, the property owner defers capital gains taxes. This leaves more value for the investor to put into a replacement property.

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Fine-Tuning Your Mortgage: Can a Recast Loan Make Sense?

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A recast mortgage could be an option for homeowners who need to tweak their mortgage payments. Most big banks allow at least one recast for a client with a conventional (Fannie Mae or Freddie Mac) mortgage loan.

To recast the loan, the owner makes a lump-sum payment to the loan principal. The minimum amount that has to be made is the lender’s call. The lender then issues a new amortization schedule, now with lower payments. Reducing the debt left on the loan principal means there is now less interest to pay.

In short, the main idea with a loan recast is keeping the same loan terms — especially important to people whose loans already have low interest rates, and those who wish to avoid resetting the term of years — but lightening the monthly payment due from here on. A recast can be an appealing prospect for a homeowner who’d like to lower the principal in one fell swoop, leaving the length of the loan as it is, only with lower future payments.

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