In these tough economic times, many homes have been languishing on the market, making it difficult for Sellers to move on to other homes and locations. In order to make a sale, a Seller can offer to do a “carryback”. A carryback loan, also known as a “seller carryback” or “seller’s second”, is a loan which is financed by the Seller of a property to help a Buyer purchase the house. Normally, this aids in the completion of the sale of the property. It could also refer to the part of the purchase price the Seller is able and willing to finance for the buyer.
For instance, the typical seller carry back situation is 10% down, 10% seller carry back and 80% first mortgage. This is a percentage of the purchase price. An example is a $1,000,000 house would have a $100,000 down payment, a $100,000 seller carry back and a $800,000 conventional first mortgage deed. Another scenario for a seller carry back is if the seller owns the property free and clear and the seller carries a first mortgage or trust deed. Sometimes there is a first trust deed which the buyer can take over and the seller carries a second mortgage.
Utilizing a seller carryback works well when the Buyer cannot come up with a big down payment or they may not fit into the “conventional” loan process because of their career or past credit history. Understanding the potential pitfalls of doing a seller carryback, but also knowing the rewards, is crucial to this type of sale. In a seller carryback scenario, both parties need to exucute an All Inclusive Trust Deed.
An “All Inclusive Trust Deed” or AITD is a “Seller Carry” that “wraps” or includes an underlying loan or loans of record. It is usually recorded at the close of escrow with a Grant Deed conveying full to title to Buyer and Title Insurance is issued. The AITD’s face amount includes the unpaid balance(s) on underlying encumbrances, plus the remaining unpaid balance of the Sellers equity.
Sellers remain responsible for the payment on the underlying loan(s) or until they are paid in full. The Sellers equity position in the note is always the difference between what is owed to the Seller and what the Seller owes the underlying lender.
The AITD becomes a junior trust deed, subordinate to the underlying trust deed(s). The inputed interest rate (9% or applicable Federal securities rate, which ever is lower) is the minimum interest rate allowed for Seller financed transactions. The Documentary Transfer Tax on the grant deed is based on the purchase price LESS the liens of record.
Advantages:
The Buyer does not need to qualify for a loan with a lender and closing costs are minimal. The Seller has advantage of installment sales income tax recording method, so long as payments are received in more than one tax year. The Seller, by agreement in writing with buyer, may prohibit prepayment of up to a 12 month period following the sale.
Because the underlying loan(s) may have a lower interest rate, or may have been paid down considerably, the Seller’s effective interest rate yield may be higher than the actual note rate. The Seller benefits from the “Interest Override” which is the difference between the interest rate on the existing loans of record and the rate negotiated on the AITD.
Disadvantages:
Recording may alert an underlying lender to enforce the “Acceleration Clause” or “Due on Sale Clause” and require the underlying loan to paid in full. At this time, the underlying loan would be considered in default and said lender could start foreclosure proceedings.
Paying off an AITD:
There are two types of AITD payoffs: Equity Payoff and Full Payoff.
The AITD should not be reconveyed until such time as any equity of the seller and the existing deed(s) of trust have been paid in full. At all times the seller is responsible for the underlying loan(s) of record, since there has been no release of liability given by the existing lien holder(s). Any late payments and/or default, will reflect on the Seller’s credit accordingly.
Being able to sell a house quickly by not having to wait for a mortgage company to approve a buyer or having to rely upon an appraiser to come in with the “right” price can sometimes make this type of an arrangement attractive. However, be sure to consult a real estate attorney and professional tax advisor on the implications (or benefits) before entering into a transaction.
Every Tuesday, here at the American Trust Escrow blog, we post Technology Tips designed to help you, the REALTOR®, grow your business, keep up to date on the latest technologies, and move you forward into the new era of real estate.
Last week’s Tech Tuesday post featured a video from Albert Tran of the California Association of Realtors discussing the latest version of zipForm’s, which allows Realtors to type their contracts online. One of the great features for California Realtors in zipForms is that it is DocuSign compatible, meaning that Realtors can have their contracts electronically signed, securely and legally, by all parties in the transaction. While at the CAR Expo in San Jose this year, I stopped by the DocuSign booth and spoke with DocuSigns, An Bui. Here is a video of our conversation with her explaining a little bit more about the DocuSign product.
Docusign also has a great blog that answers many of the common questions about their product, such as the legality of electronic signatures, illustrates why DocuSign Electronic Signature might be a Realtor’s best friend, and discusses new features of the DocuSign product, such as their new iPhone application.
DocuSign and zipForms are two technologies that are a huge step in the right direction for Realtors who are interested in making the real estate transaction as seamless and efficient as possible. I suggest you check them out.
Interested in what you are reading? To automatically receive these Tuesday Technology Tips in your email box, subscribe to these articles at the top right corner of this site (www.ATEBlog.com) in the box titled “Subscribe via Email”.
This is the second article (see the first one here) in our series on the specific terms and phrases you can encounter during a real estate transaction. The language of escrow and the real estate transaction doesn’t need to be a stumbling block; once you know the terms, these words become what they are meant to be – valuable tools to help smooth the road to a successful transaction.
Contingency
This is a clause in the sales contract that says something must happen before the sale goes through. The sale is contingent on this event, in other words. Common contingencies are the arrangement of financing, a successful home inspection or wood pest inspection, or a roofing or sewer report. Negotiate contingencies carefully, as they can cause the failure of a deal.
FIRPTA
The Foreign Investment in Real Property Tax Act of 1980 is important if you are buying a property from a person or corporation that is not US-resident. It is up to you to find out if the seller is a foreigner. FIRPTA rules state that the buyer must withhold 10% of the realized sale price for tax purposes. A common exception is if you are buying a personal residence for under $300,000. Talk to your broker or escrow officer, who will know all the details.
Cal-FIRPTA
The California version of FIRPTA, this legislation requires the withholding of a percentage of the sales price for most California real estate transactions. Talk to your realtor or escrow officer to get a full explanation of how this law affects your transaction.
Easement
An easement is an allowance, written into the property’s title, for another person or company to have access to a portion of the land for some purpose. Often an easement allows access to power lines or utilities running through the property. A registered easement gives the other party legal access, and restricts what the owner can do on that piece of the property.
Encroachment
An encroachment is any structure or physical thing that intrudes on somebody else’s space. This could be a neighbour’s building or fence encroaching on your land, your building or other structure encroaching on your neighbour, or your structure encroaching on city or state property. Encroachments must be agreed upon before building, resolved if discovered, or removed if objected to.
Watch for more terminology posts in the months ahead.
Interested in what you are reading? To automatically receive these Escrow Tips in your email box, subscribe to these articles at the top right corner of this site (www.ateblog.com) in the box titled “Subscribe via Email”.
Every Tuesday, here at the American Trust Escrow blog, we post Technology Tips designed to help you, the REALTOR®, grow your business, keep up to date on the latest technologies, and move you forward into the new era of real estate.
In early October, while at the California Association of REALTORS Expo in San Jose, I had the opportunity to chat with Albert Tran, the Director of Training and Technology Services for C.A.R. who talked to me about the new release of Zipform 6 (the re-branded, and improved Winforms) on November 16th. If you are part of the 30% of the C.A.R. membership who is still hand writing your contracts, the new release of Zipform 6 is the perfect opportunity to take your contract generation digital. Take a look at this video interview with Albert to learn more.
Albert’s key points include:
- November 16th is the release date and CAR members can choose to optionally update at this time. The update will become mandatory early next year (February or March 2010)
- Winforms is being rebranded to “zipForm 6″ – all the functionality you are used to with Winforms, but a new name along with some added features.
- zipForm 6 is both PC & Macintosh compatible
- zipForm 6 will have the same user interface for both the desktop and web versions of the software
- zipForm 6 is compatible with DocuSign electronic signatures
- More information can be found here: http://www.car.org/winforms/
If you are new to zipForms and WinForms software, there are several upcoming zipForm 6 webinars that are free for C.A.R. members. The webinar training schedule and registration links can be found here on the C.A.R. website.
Interested in what you are reading? To automatically receive these Tuesday Technology Tips in your email box, subscribe to these articles at the top right corner of this site (www.ATEBlog.com) in the box titled “Subscribe via Email”.
Real estate transactions, and the escrow processes that make them happen, sometimes have a level of industry jargon that can be confusing or intimidating to buyers and sellers who aren’t familiar with the meaning behind the words.
This is the first in a series of definitional posts designed to better inform buyers and sellers about the escrow process and the terminology used during the course of a transaction.
Escrow
The escrow procedure, at its core, is where a neutral, trusted third party holds onto an item for sale until something happens, usually until the buyer pays the seller. As real estate transactions have grown in complexity, so has the business of escrow. Now an escrow agent watches over all the details of the sales agreement, facilitates the transaction paperwork, and coordinates the interests of many different parties with an interest in the sale. They also make sure that the seller gets their proceeds, and the buyer gets their title, when all is said and done. For a detailed explanation of escrow, see this earlier post.
Deed of Trust
In many states, including California, this document takes the place of a mortgage. The Deed of Trust places a property’s title in the hands of a Trustee, usually a title company, along with the specifics of the buyer’s loan and repayment provisions. If the owner defaults on the loan, the Trustee has the legal right to foreclose, and give the lender the proceeds. When the loan is paid off, the Trustee reconveys the title to the owner.
Lien
This is a legal claim on a property by someone the owner owes money to. In real estate transactions, the lender will attach a lien to the property title, saying any money from sale of the property will first be used to pay off the loan.
Prorations
In a real estate deal, the escrow agent will need to figure out the buyer’s and seller’s portions of expenses that get paid according to a certain date – eg taxes, interest or utility bills. The agent will pro-rate the expense, doing the arithmetic based on the transaction’s closing date.
Grant Deed
This is the actual document of the real estate sale. It states that the seller, or Grantor, is selling the property to the buyer, or Grantee. It states the specifics of the property, and that the seller has revealed any liens or encumbrances. The Grant Deed is usually notarized and recorded.
HUD-1 Statement
This is the Department of Housing and Urban Development’s official settlement form, used in most real estate transactions to detail exactly what settlement costs occur in the sale, and whether the buyer or the seller is paying them. You get this form at or shortly before the closing. It represents a complete accounting of every cost of the transaction.
Title Insurance
This is an insurance policy for buyers that protects them against unanticipated defects in the property title. These could be anything from hidden liens, ex-spouses, unrevealed heirs, or recording errors, to forgery. Title insurance policies carry different specifics and exceptions, so examine yours carefully.
Additional terminology will be defined in future posts. If you have a term you would like clarified or defined, leave us a note in the comments section of this post.
Interested in what you are reading? To automatically receive these Escrow Tips in your email box, subscribe to these articles at the top right corner of this site (www.ateblog.com) in the box titled “Subscribe via Email”.
Every Tuesday, here at the American Trust Escrow blog, we post Technology Tips designed to help you, the REALTOR®, grow your business, keep up to date on the latest technologies, and move you forward into the new era of real estate.
The picture below is a screen shot of multiple comments that were left on a blog post that was promoting a happy hour gathering at a social media conference that happened earlier this year.
Quick, take a look at the image and tell me at first glance which of the people commenting:
- Did you look at first?
- Do you think is the most professional?
- Do you think is the most technically proficient?
- Seems the most like a real person?
- Are you most drawn to?
I’m willing to bet that the people who have images next to their comment (me, CWaterhouse, and Colleen Truax) were the answers you gave. If I ask you which people appear to be the least professional and least technically proficient, which would you answer? The one’s without a photo? Probably so. Which camp would you rather be in?
In an earlier post, I explained what an Avatar is (your visual image of yourself online – usually your photo), and how it is an essential consideration of the brand image for any modern Realtor. This post expands upon that and introduces you to Gravatar.com, a service that will make including your avatar in your blog comments, simple and easy. Here is a brief video which clearly explains the service:
As the video mentions, once you sign up for a gravatar account, you can associate ALL the email addresses that you have with your account (your brokerage email, your gmail account, your home account, your college alumni account, etc). And, then when you go to comment on a blog or forum, no matter what email address you use, your photo is automatically included when you make a comment (assuming the site supports gravatars…which many blogs and forums do).
A gravatar is a great way for a Realtor who participates in blog commenting to be positioned with a professional, consistent brand image across many sites. It also centralizes and automates the posting of your photo when you comment on the web. By using a gravatar, you are more effectively branding yourself with the image you choose and you are more likely to be perceived as more professional and technically proficient. So why not continue the brand image you have created off-line to on-line and sign up with Gravatar.com?
Interested in what you are reading? To automatically receive these Tuesday Technology Tips in your email box, subscribe to these articles at the top right corner of this site (www.ATEBlog.com) in the box titled “Subscribe via Email”.
According to Merriam-Webster, escrow is defined as: a deed, a bond, money, or a piece of property held in trust by a third party to be turned over to the grantee only upon fulfillment of a condition.
Whether it is the buying and selling of a home, or the transfer of a business, the amount of legal documentation and financial liabilities can easily create confusion or differences of opinion amongst the buyer, seller and/or their representatives. This is why an impartial, third-party representative becomes essential to focusing on the facts and responsibilities that must be fulfilled.
With so many parties obligated to fulfill so many responsibilities in any given real estate transaction, it quickly becomes apparent why a neutral third party (escrow) is essential to a smooth process.
Escrow is the one who facilitates (just to name a few):
- drawing of escrow instructions which reflect the negotiated points of the contract and act as basis for execution of the property transfer.
- confirmation of clear title from the Title Company
- the recording the deed with the County Office
- filing paperwork with the proper municipalities
- the receiving of wires and funds to be disbursed
In addition to the above responsibilities, American Trust Escrow views our most valuable function as acting as a personal liaison and resource for Realtors, buyers and sellers as they tread through the complicated and often technical world of buying and selling real estate.
Interested in what you are reading? To automatically receive these Escrow Tips in your email box, subscribe to these articles at the top right corner of this site (www.ateblog.com) in the box titled “Subscribe via Email”.
Every Tuesday, here at the American Trust Escrow blog, we post Technology Tips designed to help you, the REALTOR®, grow your business, keep up to date on the latest technologies, and move you forward into the new era of real estate.
It is very common for Realtors to find the world of Web 2.0, social networking, and technology overwhelming. There is so much new terminology and new information. The technical landscape seems to move so fast. The news talks about the latest “thing” be it Blogging, Facebook, or Twitter. How does one keep up?
This post is to remind you that the most obvious forum for finding the answer to your questions is right under your nose and is often overlooked: Google. Google tends to have the answer to anything. Not sure what that text acronym TTYL is that your client (or niece) is using? Type “TTYL” into Google and you’ll have an instant answer. Wondering what this Twitter thing is and if it is something you should know about? Type in “Twitter for Realtors” into Google and you’ll get plenty of perspectives on how to decide if Twitter is for you.
Do you feel you get too many results or don’t seem to find what you are looking for when you search for a topic on the web? Common Craft did a great video explaining Web Search Strategies in Plain English. Invest 3 minutes of your time and watch the video to learn some basic tips that will help you find exactly the content you are looking for when you search the web. It will not only save you time, but it will also open the door to answering any question you might have regarding technology, your real estate business, and this world of Web 2.0.
You might also want to consider Google-ing the name of the clients you are working with. In a previous post, I discussed the merits of Google-ing yourself and how to set up a Google alert to track what is being said about you on the web. With the proliferation of social networks and the boom in participation in them, many of your clients are out there and searchable on the web. You may learn a thing or two about your clients that will help you to connect with them as you help them with their real estate needs. Give Google a try!
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Want to make your REO escrow go as smoothly as possible? Here are a few tips:
Fact:
The REO escrow must close on time.
Fact:
The escrow cannot be opened until the purchase agreement is uploaded to the sellers (banks) online REO system and made available to escrow to download. This can occur as late as 1-2 weeks after acceptance, which delays the escrow opening and in turn may delay the escrow closing.
Tip #1:
Upon acceptance, provide the escrow holder a copy of the signed contract. This way, escrow is able to order the reports prior to the opening of the escrow and while everyone is waiting for the signed contract to be uploaded into the seller’s system. This could be essential to the escrow closing on time.
Tip #2:
Although escrow is conducted in accordance with the terms of the contract and governed by state law, the seller controls the manner in which the escrow is processed. This is the reason that agents may not be able to choose their escrow companies when the property is bank owned. You will most likely be using an escrow company (like ours) who has been selected and approved by the seller/lender to handle REO’s. Bank approved escrow companies are required to undergo extensive training on the seller’s individualized REO system.
Tip #3:
Is anyone out there still not using email to conduct their transaction? If so, you must embrace email. Email is a basic survival skill for REO escrows. The escrow is conducted via email due to time limitations, and as stated above, the REO escrow must close on time. Therefore, time is of the essence! Email is an essential tool in support of a timely transaction.
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