Property Taxes: Understanding Escrow

Perhaps one of the most confusing aspects of dealing with real estate is the taxes. Taxes can be addressed in several ways in your escrow. If you are obtaining a new loan, the lender may require tax impounds and tax service. If you are involved in a purchase, the seller may require a tax proration. There may be taxes to be paid based on delinquent or current tax bills. Your escrow instructions may contain a disclosure and release regarding future supplemental taxes. Below is a review of each of these aspects of taxes

Taxes to Be Paid

The fiscal tax year commences on July 1st of each year, BUT liens for that tax year begin on the preceding March 1st. This means that every property in the state subject to taxes automatically has a tax lien on it commencing March 1st of each year for the coming fiscal year. The end of each fiscal year is the following  June 30th. Taxes are payable in two installments (although you have the option to pay them in full when you pay the first installment,) with the first installment due on November 1stand delinquent after December 10th; the second installment is due and payable on February 1st of each year and delinquent after April10th of each year. NOTE: If the tenth falls on a Saturday or Sunday, the delinquent date is extended until 5:00 p.m. of the next business day.

Tax Impounds

The lender may collect taxes monthly with the loan payment. The amount is equivalent to 1/12th of the projected tax payment due annually. At closing, the lender calculates the number of payments that they need to be in receipt of at the time the next tax installment is due. Then, at closing, they collect the necessary monthly taxes to ensure that when the taxes become due they are in receipt of a minimum of six months of tax payments.  Each lender differs slightly on their calculation; therefore, it is important to check with your lender regarding the formula they use.

Tax Service Fee

Since in the majority of cases the tax bill is mailed to the taxpayer and not the lender, the lender will secure the help of a tax service company. The tax service company notifies the lender if borrowers do not keep their property taxes current. This helps lenders protect their access to collateral if a borrower defaults.

Tax Prorations

At closing, if required, the escrow agent will determine what portion of the next tax installment is the seller’s responsibility; they will then charge the seller and credit the buyer with said amount. When the next installment is due, the buyer will pay the total amount since the buyer was reimbursed the seller’s portion at closing. Likewise, if the seller has prepaid his taxes, then the portion that he has prepaid will be charged to the buyer and credited to the seller.

Supplemental Taxes

Due to “Proposition 13” after a property has been assessed(as of March 1st of each year) and a property transfers, the law provides for an increase of the tax basis of the property based upon the sales price. The difference between that year’s tax base and the increase caused by the sale, if any, is charged to the buyer. For instance, if a property is valued at $275,000 on March 1st of the taxable year and is sold during the year for $327,000, the increase in the tax bill as a result of the sale and subsequent reevaluation will be separately billed to the new buyer for that portion of the fiscal tax year that they owned the property. If the property transfers more than once during the tax year there may be multiple supplemental tax bills to each new owner if the sales represent increases in value.

If taxes are impounded, the buyer is advised to notify his loan servicer of the supplemental tax bill. The servicer will then advise the borrower whether he is responsible for the payment of that bill or alternatively if the servicer will pay that bill.

The Difference Between Grant Deeds and Quitclaim Deeds

Deeds are documents that pass real estate from a current owner to a new owner. A deed is not a contract of sale where money changes hands when ownership changes. A deed is a document that conveys ownership without disclosing anything except the property description, location, name of previous owner and name of new owner.

General Facts

All-Inclusive Document

In acknowledgment of the transfer of a piece of property, a deed tells the new owner the location of the property:

  • True address
  • Coordinates of property
  • Shape and size of the property
  • Names of previous and new owners

Some deeds use metes and bounds to describe the boundaries and identify locations of in-ground monuments, property lines, and closest landmarks- if they exist. The document identifies who is surrendering the property (grantor) and who is accepting it (grantee). Most counties in the continental United States also require the addresses of all parties participating in the property exchange.

Status of Deed Information

Every piece of information on a deed must be accurate. This includes the legal description and coordinates of the property. An incorrect statement here could lead the new owner to place a shed or a fence on neighboring property.

People’s names are the common mistakes, especially in the case of a single woman owner who marries and decides to sell the property. Her name must identify her by the name in use when she was single as well as the name she took when she wed. Failure to do this leaves a “cloud” on the deed and the title of the property.

Grant Deed v. Quitclaim Deed

There are two types of deeds: a quitclaim deed and a grant deed. Both are used to transfer property title to a new owner and neither of them carries any information as to the sales price, mortgage loans, taxes or any other financial information. While they have similar functions, they offer different levels of protection to the recipient. A signed and witnessed version of either the grant deed or quitclaim deed is required to complete a real estate transaction.

Grant Deed

House DeedCreated and signed by the seller at the closing of a real estate transaction Includes a full legal description of the subject property Verifies that the seller owns clear title to the subject property Guarantees that the property is clear of liens and encumbrances The seller signs the deed and is considered the grantor or transferor The individual receiving the deed is the grantee or transferee. Grant deeds can be backed by title insurance that would protect the new property owner against future claims on the property.

Quitclaim Deed

quitclaim deedThe quitclaim deed is created when the subject property is not a part of a traditional sales transaction but to transfer any interest in the property to a recipient/grantee. A quitclaim deed may be used to convey property as a gift, through a will or by a third party that is legally responsible for the property.

Quitclaim deeds may also be used by grantors to convey the property to a spouse, for example, in a divorce.

A quitclaim deed does not contain a title covenant and therefore offers no warranty regarding the current status of the legal title. Quitclaim deeds are not backed by a title insurance policy and therefore offer a lower level of protection for the grantee.

What is the Difference…Between “Signing” and “Closing?”

When it comes to real estate transactions and escrow, the terms “signing” and “closing” are often used interchangeably and with some degree of confusion. There are however a few key steps in between these two important moments in a transaction. Check out the following information to fully understand the important differences in preparation for the official closing.

PREPARING FOR SIGNING

CD2 Before the signing appointment, your escrow team will receive instructions to prepare an official “Closing Disclosure” in order to review and approve all terms of the transaction. The buyer/borrower will then review and sign for acceptance which initiates the required waiting period.

During the waiting period, your escrow team will prepare the necessary escrow and title transfer documents. After the required waiting period, the lender will send to escrow all documents required for the “signing”.

YOUR SIGNING APPOINTMENT

doc signing At your signing appointment, you will be presented with all final documents requiring signatures. You will need to have with you any required funds to close as well as an acceptable form of identification for notarization. Check with your Escrow Officer for complete details and always be sure to confirm wire instructions directly with your Escrow Officer before completing any transfer.

AFTER SIGNING: FUNDING

 Once the loan documents have been signed, the escrow officer will deliver them to the lender for review. Upon completion of all requirements and receipt of signatures, the lender will notify the escrow officer that: it is time to “release funds” to escrow – “funding”. The review is typically completed within 24 to 48 hours.

Upon receipt of the funds from the lender, the escrow officer sends the transfer documents to the county for “recording”.

PREPARATION FOR CLOSING: RECORDING

property-document-recordingOnce the lender confirms authorization for recording and all funds are received, the documents are either electronically recorded or hand-carried to the county recorder’s office by the title insurance company.

Recording numbers are unique and specific numbers given by the county recorder’s office to a properly executed legal document thereby making it part of the public record. Once a recording number is issued, the buyer is considered “on record” as the new party holding title to the property.

YOUR OFFICIAL CLOSING

When the transaction is “on record” with the county, the ownership of the property has been officially transferred to the buyer and funds are disbursed to the seller. Depending on the specified possession date agreed to within the purchase agreement, the new owner may then receive the keys to their new property and take possession.

Handing Over the House Keys in Front of a Beautiful New Home.

QUESTIONS?

 Let us know. We are always here to help and to ensure that our clients feel confident and comfortable every step of the way.

 

Proposition 5 – Property Tax Transfer Initiative

This Initiative would allow California’s senior citizens to sell their home and buy another, retaining some or all of their Proposition 13 property tax savings.

Why is This Needed?

Under Proposition 13, homeowners are protected from rapidly increasing property taxes. However, seniors, who are a big property tax increase if they sell their existing home and buy another one, discouraging them from ever moving. As a result of this “moving penalty,” almost three-quarters of homeowners 55 and older haven’t moved since 2000. This initiative will allow them to sell their home while keeping some property tax protections, and therefore create homeownership opportunities for young families.

How Do Property Tax Assessments Work Now?

real-estate-taxesThe amount any homeowner pays in property taxes is based on the assessed value of their home at the time of purchase. Generally, Proposition 13 limits property taxes to 1% of the assessed value at the time of purchase even if the value of the property subsequently increases.

Unfortunately, homeowners lose their Proposition 13 property tax savings when they move to another home. Under another law, Proposition 60, senior homeowners – defined as 55 years of age or older – are allowed to transfer their property tax bases to another home in the same county so long as the purchase price of the replacement home is equal to, or less than, the sale price of the original residence.

Under Proposition 60, a senior homeowner is limited to making only one such transfer over the course of his or her lifetime. And, if the spouse of a senior homeowner has already transferred a property tax base, that senior homeowner is disqualified from making another transfer of the tax base.

Proposition 90 is an extension of the original Proposition 60 program. Proposition 90 allows senior homeowners to transfer their property tax base to a home in a different county so long as that county accepts such transfers (at last count, only 11 counties in California are accepting transfers from other counties).

Propositions 60 and 90 are relatively limited. That’s where Proposition 5 comes in.

How Will the Initiative Work?

1985238-senior-woman-celebrating-in-chair-at-homeProp 5 would allow homeowners 55 years of age or older to transfer some of their Proposition 13 property tax bases to a home of any price, located anywhere in the state, any number of times.

What’s Next?

Prop 5 will now appear on the November 2018 ballot to decide it’s fate.

Where Can I Find More Information?

California Association of Realtors

916.492.5200

portability@car.org

https://ballotpedia.org/California_Proposition_5,_Property_Tax_Transfer_Initiative_(2018)

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Computer Security 101

With recent reports of fraud targeting real estate transaction on the rise, it is now more important than ever to help protect and educate our clients. Through education and awareness, together we can help to ensure that you have the knowledge to protect yourself from the anguish and consequences of cybercrime and fraud. While there is never a fool-proof formula, there are a few simple tactics to help avoid the potential devastation of getting hacked:

Passwords

PasswordChange your username or, at least, your password(s) on a regular basis. Ensure that you select a strong password using more sophisticated tactics perhaps even deploying the use of a “password manager” to generate them for you. As our passwords have evolved, so have the systems engineered to crack the code. Today, systems built to hack passwords can attempt as many as 350 BILLION guesses per second. Choosing a password you can remember tat is still considered secure has become an art form. At the very least, be sure to utilize a combination of letters, cases, numbers and symbols and be prepared to update it regularly.

WIFI

Coffee Shop securityBe aware of unsecured public WiFi While there is no denying the convenience of public WiFi, special precautions are required to ensure that you are not susceptible to crafty hackers. Protect yourself by keeping your WiFi off when you don’t need it. Further protect yourself by turning off sharing in your system preferences or Control Panel. Enable the “https” option on websites that you visit to add an extra layer of encryption to your online activity.

PROTECT YOURSELF

relevantantivirus-keyBe sure that you have updated your system’s antivirus software or malware detection. Because cyber-threats change so quickly, it is especially important to ensure you have the latest version installed to be prepared for new attacks.

 

 

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Common Types of LIENS and JUDGMENTS

There are a number of types of judgments and liens that can attach to your client and/or their property that affect title when they sell or refinance. Many of these will remain on title for anywhere from 7-20 years or more and must be satisfied accordingly. They may be required by their lender to pay off the lien or judgment in order to close their refinance, or if they’re selling their property, a portion of the proceeds may be used in order to satisfy the lien so they can pass on a clean title to the buyer.

Below are some of the most common types you may encounter on a preliminary title report that will notify you up front if there are any that will need to be addressed throughout the transaction process.

BLANKET LIENS

Federal Tax Liens   State Tax Liens   EDD Liens   County Tax Liens

  • All above-mentioned liens have a duration of 10 years from the date recorded unless they are released.
  • The lien can be continued for successive periods and its original priority is maintained by recording and re-filing notice before the original lien expires.
  • Like judgments, these liens are blanket liens and attach themselves to ALL property belonging to the delinquent taxpayer.
  • Escrow will order the demand and the title company will manage the payment in order for the lien holder to record the release.
  • Escrow must have an IRS Power of Attorney form to obtain a demand.
  • Title will not close without a demand on federal and state tax liens.

 

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LIENS THAT ATTACH TO A SPECIFIC PROPERTY

Mechanic’s Liens   Notice of Action  (Lis Pendens, Homeowner Association Liens, & Substandard/ Abatement Liens)

Mechanic’s liens are created when a contractor/subcontractor who has done work on a specific property was not paid when the work was completed. The duration of a mechanic’s lien is 90 days from the date recorded.

The contractor can foreclose on the property on which they recorded the mechanic’s lien but must commence the action within 90 days.

A lis pendens is a notice that a court action affecting the property has been filed. This document is also used to foreclose on a property under a mechanic’s lien. This item has an unlimited duration and must be released or withdrawn. · ·

Homeowner’s liens are recorded when a person is delinquent on their association dues. There is no fixed duration associated with this lien. Escrow must get demand.

Substandard liens are recorded by the city or county. They can be for weed abatement, hazardous substances, or substandard dwellings. This lien does not have a fixed duration. Escrow must order demand in order to find out if money is owed.

judgments

JUDGMENTS

Money Judgments  Spousal and/or Child Support Judgments

  • A money judgment has a duration of 10 years from the date the judgment is filed.
  • A spousal/child support judgment duration will extend over 10 years. Spousal support judgments will be considered until released; child support liens will be considered up to 5 years after the child reaches the age of majority.
  • A money judgment can be extended for an additional10 years when a renewal of judgment is recorded within 10 years of the original date of entry of the judgment.
  • The only judgment that has a duration of 20 years is one in favor of the United States of America, a Federal Corporation.
  • Escrow orders the demand and full or partial satisfaction from the judgment creditor. The title company pays demands at the close of escrow.

 

 

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California Property Tax Savings Programs

Over the years, California voters and legislators have enacted a number of programs that can save you and your clients substantial amounts on their property taxes. Following is a brief summary of the most important programs and links to more information already published on this site.

FOR HOMEOWNERS AGE 55 PLUS

Proposition 60 – This measure offers anyone over the age of 55 relief from Proposition 13 by allowing them to move within the same county without undergoing a change in their basic property taxes.

Proposition 90 – The same provisions and qualifications as Proposition 60. The difference is that it allows base year transfers from one county to another county in California. The only counties that have adopted an ordinance to allow values from other counties are Alameda, El Dorado, Los Angeles, Orange, Riverside, San Bernardino, San Diego, San Mateo, Santa Clara, Tuolumne, and Ventura.

HOMEOWNERS’ EXEMPTIONS

If you owned and occupied your principal place of residence on January 1, you may qualify for a Homeowners’ Exemption that would exempt $7,000 of your property’s value from taxation.

PARENT-CHILD TRANSFERS

Proposition 58 – A Constitutional amendment approved by the voters of California in 1986 to exclude from reassessment transfers of real property between parents and children.

GRANDPARENT-GRANDCHILD TRANSFERS

PC Transfers PictureProposition 193 – A constitutional amendment approved by the voters of California in 1996 to exclude from reassessment transfers of real property from grandparents and grandchildren, providing that all the parents of the grandchildren who qualify as children of the grandparents are deceased as of the date of transfer.

FOR SEVERELY & PERMANENTLY DISABLED HOMEOWNERS

Proposition 110 – A constitutional amendment approved by the voters of California in 1990 that allows homeowners who are severely and permanently disabled to transfer an existing Prop. 13 factored base year value to a replacement residence if certain qualifying conditions are met. Some counties have not adopted local ordinances to implement Prop. 110. Before attempting to transfer your base year value to another county under the provisions of Prop. 110 you should contact the local County Assessor to discuss eligibility.

FOR BLIND, DISABLED OR SENIOR CITIZENS

Property Tax Postponement – If you are blind, disabled, or at least 62 years of age and meet certain income restrictions, you may defer the payment of property taxes on your house, condominium or mobile home. Under this program, taxes would be paid by the State and the deferred payment would create a lien on the property.

PROPERTY SUBSTANTIALLY DAMAGED BY DISASTER OR PROPERTY TAKEN BY GOVERNMENT ACTION

Proposition 3 – A constitutional amendment approved by the voters of California in 1982 that allows property owners to transfer the Prop. 13 factored base year value of the real property taken by government action to a comparable replacement property located anywhere in California if certain qualifying conditions are met.

Proposition 50 – Taxpayers whose property has been destroyed or damaged in a Governor-declared disaster area can transfer the Prop. 13 base year value to a comparable property.

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Solar Lease Agreements

What you need to know for a successful escrow

While residential solar panel installations have increased more than 50% each year since 2012 nationwide, disputes over solar panel leases have simultaneously increased during the transfer of properties. Ensure your successful closing by considering these helpful tips and considerations for transactions involving solar panel lease agreements:

  • Be proactive: Pre-open your escrow with Fidelity National Title and use the time early in the listing or pre-listing period to be sure you completely understand the terms of the agreement as it applies to the transfer of the lease. It is better to be prepared and informed ahead of time before going into contract with a potential buyer.
  • Know your options: Address possible scenarios for handling the lease transfer well before the close of escrow (or before the official listing) to further help ensure a smooth sale process.
  • Keep your solar panel leaseholder involved: Many companies have designated specialists available and assigned to assisting buyers and sellers through the lease transfer process.
  • Check the Records: Ensure that any solar easements have been officially recorded in public records so that it is available to be noted during the title search process. Such an omission can potentially create issues for future buyers.
  • Communication is key: Ensure that your escrow officer is informed. The more information you can offer, the better. Make sure you alert your escrow team to your current lease agreement, the status of the agreement and requirements from the leaseholder.

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How Long Should You Save Records?

Decluttering your home is great – but what about all those important papers you have stashed around the house? Which ones do you actually need to keep, when can you get rid of them, and where should you put them in the meantime?

This is actually more important than you may imagine as losing or even just misplacing them could cost you serious money.

Below is a list of suggested ways to store these documents and the recommended amount of time to keep them on hand.

Table

For a pdf version of this flyer, please email me at Emi4Title@gmail.com.

Tax Time

Upon the close of your real estate transaction, you should have received a form titled the “Closing Statement” or “Closing Disclosure” with your closing documentation. It includes an itemization of all credits and debits for your transaction.

closing-disclosure-H25B-1.aec3e9325e5b

This document is of particular importance during tax preparation as some of the expenses listed may be considered a tax deduction. These potential deductions apply if you have purchased or sold a property in the last year and also apply if you have refinanced a property that is your primary residence.

If you don’t have this document handy, please feel free to contact your real estate agent, your lender, or your escrow officer for a copy. Many of the expenses listed on your Closing Statement or Closing Disclosure are referred to as “Closing Costs.”

Items that are generally not considered tax deductible include expenses such as title and escrow fees, real estate commissions, appraisal fees, credit report fees, transfer taxes, etc. It is important to consult your tax attorney or accountant in order to be certain of your eligible deductions.

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In the meantime, please feel free to contact me for more information or to request your current documentation. And remember, your title & escrow company is always your choice.