BUYERS HANDBOOK REAL ESTATE COUNSELING CONDUCTED WITH COMMUNICATION, COMPASSION & A CONCIERGE APPROACH

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1 BUYERS HANDBOOK REAL ESTATE COUNSELING CONDUCTED WITH COMMUNICATION, COMPASSION & A CONCIERGE APPROACH LINDA TRAURIG License # Cell/Direct: Office/Direct: Fax: ltraurig@apr.com ALAIN PINEL REALTORS 900 Main Street, #101 Pleasanton, California 94566

2 My focus is to make the process of buying your home as easy, efficient, and seamless as possible. It is very important to me that I assist you in finding the right home for you and your family, with the best terms and that I continue to assist you through and after the close of escrow. I have prepared this package for you to help explain the process of buying a home. I truly hope that this information will help in familiarizing you with the activities, documents, and procedures that you will be experiencing while purchasing your home. Alain Pinel Realtors and I have the resources, experience, and market knowledge to support you in achieving your dreams of home ownership. I look forward to working with you.

3 Our Professional Relationship My Commitment to You I am a full time professional Realtor educated in all aspects of real estate practice and licensed by the State of California. I adhere to a strict Code of Ethics and am committed to providing you with the highest level of service. Being a Realtor with Alain Pinel Realtors and being a Certified Residential Specialist (CRS), I am part of one of the strongest networks of professional Realtors in Northern California, as well as nationwide. I am honored to be one of the top Realtors in our local area and I take pride in myself, my career, and earn my living by servicing the needs of homebuyers and sellers. What s Involved A large part of my work is performed, behind the scenes, including previewing homes, researching comparable sales, continuing to gain market knowledge, evaluating changing legislation, participating in continuing education, and maintaining my professional credentials. For every hour I spend showing you homes, I will spend numerous hours in preparation. I am constantly acquiring the latest information, technology and continuing my education to help me better serve you. My Compensation As mentioned earlier, I am a full time Realtor and real estate is my passion and my career. I work entirely on commission, which I receive only if I initiate and complete a transaction. I receive my compensation only when all of your needs have been satisfied, escrow closes and you take ownership of your new home. Linda Traurig ltraurig@apr.com License # Alain Pinel Realtors 900 Main Street, #101, Pleasanton, California 94566

4 Services for Buyers In addition to providing you with this buyer s handbook, I will: Educate you about current market conditions Obtain a buyer s relocation package for you if needed Conduct a daily search for appropriate properties Contact you immediately as new properties fitting your needs become available Preview properties as necessary Schedule immediate showings of appropriate properties Provide experienced counsel when writing an offer Provide you with a list of reputable lenders Provide you with a list of qualified and licensed inspection companies Take care of coordinating and meeting inspectors, contractors, etc. Be your real estate Concierge Help you visualize completed cosmetic updating Provide utilities phone list and change of address forms prior to close of escrow Furnish a DMV Driver s Handbook and Voter Registration Card if necessary Be present at escrow signing Provide a complete file at the close of escrow Offer continued service beyond the close of escrow And, most importantly keep in constant communication with you!

5 What to Expect Evaluating Your Needs We will meet to discuss your specific needs in a home and together we will determine the top priorities and key features that are most important to you. Throughout the process we may review your needs in a home as they may change. Loan Consultation If needed, I can provide you with guidance in finding a financial institution or mortgage broker, and support you in obtaining information on available financing options. A licensed loan consultant or mortgage broker will help you determine a realistic range of affordability and provide you with a letter of prequalification and obtain a pre-approval. Market Education, Property Viewing and Selecting the Right Property I will research available properties and show you homes based on the criteria that you establish. As we look at different homes, we will reassess your criteria. The more precise and direct you are with me, the more successful our search will be. Structuring an Effective Offer Once we have found the home that you wish to purchase, I will do all the necessary research to help you structure an effective and, hopefully, accepted offer. We will write the purchase agreement and I will help you understand everything in the contract from financing to contingencies to legal issues, etc. Initial Deposit Check At the time of writing an offer, it is required that the buyer s write an initial deposit check in an amount equaling approximately 3% of the purchase price. This check is written to a title (escrow) company, and is not cashed and kept in a locked cabinet until the purchase contract has been ratified by all parties and escrow is opened. A copy of the check is attached to and submitted with the purchase contract. Presenting Your Offer I will present your offer to the seller and/or the seller s agent. In most cases the listing agent prefers to present the offer(s) to the sellers and then get back to us. The seller has three options, they can accept it, reject it, or respond with a counter offer. My personal knowledge of your needs and qualifications will enable me to present your offer in the best light. Responding to the Seller I will review the seller s response with you. If the seller has countered your offer, you will have the option to accept, reject or counter back. My negotiation skills will benefit you in reaching a satisfactory agreement.

6 While In Escrow In addition, I can provide you with other information, including a list of resources and referrals to local contractors, businesses and anything else you may need. I am also knowledgeable in the interior design arena and am happy to assist you with decorating, design and remodeling ideas if necessary. Removal of Contingencies Prior to Closing, all of the contingencies of the Purchase Agreement must be met/removed. I will coordinate the removal of these contingencies and review all documents with you. Contingencies Typically Include: Approval of the seller s transfer disclosure statements, as well as other related disclosures Inspection Contingencies Approval of the preliminary title report Loan approval Appraisal of the property Closing Escrow When all of the conditions of the purchase agreement have been met, and approximately 3-7 days prior to the official closing date, you will sign your loan documents and closing papers which is usually done at the title company. At this time, you will be asked to deposit the balance (other than the amount to be borrowed) of your down payment and closing costs to escrow, typically in the form of a cashier s check or a transfer from your bank to an escrow bank account. The deadline for getting the funds to the title company is typically 2-3 days prior to the scheduled closing date. Your lender will deposit the balance of the purchase price a day or two prior to the scheduled closing date. I will contact you as soon as I have confirmation the purchase has gone on public record. In the State of California, you do not need to be available on the date of closing, other than to get the keys to your new home!

7 A Closer Look At Foreclosures, REO s & Short Sales What is a Foreclosure? At the time of purchasing a property, buyers sign paperwork agreeing that the mortgage company has a right to take ownership of the property through a process called foreclosure if they stop paying their monthly mortgage payments. When people miss their mortgage payments, in some cases for as short a period as 45 days, they are considered in default on their mortgage. Lenders can move your loan into collections, which can be the start of the foreclosure process. If someone is having trouble keeping up with their mortgage payments, or if they have received a notice from their lender asking that they be contacted, this request should not be ignored. They should contact their lender immediately to try to work out their options. Foreclosure Law General information about the foreclosure process in California can be found at: Foreclosure Timeline Pre-foreclosure Period (30 Days) The borrower misses first payment. The lender serves written notice of late payment(s) and adds a late fee. (60 Days) Lender initiates phone call(s) to the borrower to identify the reason for the missed payment(s) and discusses options to bring the payments current. Notice of Default (NOD) (90 Days) The lender issues formal notice of default with the county recorder. The notice is mailed to the borrower and other affected parties. This mandates that if something is not worked out within a specified timeframe, the delinquency will be turned over to the appropriate party. This action usually initiates foreclosure proceedings. NOTE: the pre-foreclosure phase can last for several weeks as long as something positive is happening. This is the window for executing various techniques to prevent foreclosure including short sales. Notice of Sale/Auction The transaction is turned over to a Trustee/Attorney to begin the process of foreclosure on the property. At this point many banks or financial institutions are no longer willing to work directly with the borrower but refer them to a Trustee/Attorney. At least 20 days before the trustee s sale, the notice of sale must be posted on the property and in one local public location. The notice is also published once a week for three weeks in a local newspaper, starting at least 20 days before the sale date. The notice is mailed to the borrower at least 20 days before the sale and to anyone who requests the notice. The notice must contain the date, time, and location of the sale, the property address, and the trustee s contact information. In addition, the notice of sale must be recorded with the county recorder at least 14 days before the sale. The trustee s sale is a public auction and the property is sold to the winning bidder. The trustee may require bidders to pay the full bid amount in cash or cashier s check. Anyone may bid at the sale, including the lender and any junior lien holders. A trustee s sale may be postponed by announcement at the sale. If a sale is postponed more than three times, a new notice of sale must be issued. After the sale is complete, the trustee transfers ownership to the winning bidder. The borrower does not have the right to redeem the property after the sale.

8 SOLD or Listed If there are no bidders or if the bids are not sufficient, the financial institution takes possession of the property. The property is said to be Real Estate Owned (REO), and becomes a part of the liabilities of the financial institution. The bank s asset management department will take over the management of the home and is responsible for listing the property with an agent and taking the necessary steps to get it sold. Options to Foreclosure: The following website may be helpful: Call Your Lender!! Do not be afraid to contact your lender to discuss your options. To get to the right person, you may need to ask for the department that handles loss mitigation, asset recovery, or home preservation be persistent. 1. If Your Problem is Temporary, discuss: Reinstatement: The lender agrees to accept the total amount owed to them in a lump sum by a specific date. Forbearance: The lender allows you to reduce or suspend payments for a short period of time after which another option must be agreed upon to bring your loan current. A forbearance option is often combined with a reinstatement, for example, when you know you will have enough money to bring the account current at a specific time in the future due to a hiring bonus, investment, insurance settlement, or a tax refund. Repayment Plan: You may be able to get an agreement to resume making your regular monthly payments, in addition to a portion of the past due payments each month until you are caught up. 2. If it appears that your situation is long-term or will permanently affect your ability to bring your account current, discuss: Mortgage Modification: If you can make the payments on your loan, but you do not have enough money to bring your account current or you cannot afford the total amount of your current payment, your lender may be able to change one or more terms of your original loan to make the payments more affordable. Your loan could be permanently changed in one or more of the following ways: Adding the missed payments to the existing loan balance, Changing the interest rate, including making an adjustable rate into a fixed rate, Extending the number of years to have to repay the loan. Claim Advance: If your mortgage is insured, you may qualify for an interest-free loan from your mortgage guarantor to bring your account current. The repayment of this loan may be delayed for several years. 3. If Keeping Your home is NOT an option, discuss: Sale: If you can no longer afford your home, the lender will usually agree to give you a specific amount of time to find a purchaser and pay off the total amount owed. You will be expected to obtain the services of a realtor who can aggressively market the property. Pre-Foreclosure Sale or Short Sale : If the property s sales value is not enough to pay the loan in full, the lenders must approve that they will accept less than the full amount owed. This option can also include a period of time to allow your realtor to market the property and find a qualified buyer. (Ask if there is monetary help available to pay other lien holders and/or help toward paying some of your moving costs.) Assumption: A qualified buyer may be allowed to assume your mortgage, even if your original loan documents state that it is nonassumable. Deed-in-lieu: The lender agrees to allow you to voluntarily give back, your property and forgive the debt. Although this option sounds like the easiest way out for you, generally, you must attempt to sell the home for its fair market value for at least 90 days before the lender will consider this option. Also, this option may not be available if you have other liens such as judgments of other creditors, second mortgages, and IRS or State Tax liens.

9 More About Short Sales: A short sale is an, arrangement, between the current owner of a home and the current mortgage lender holding the mortgage to accept an offer for less than the total amount owed to pay off the home loan (including other transaction related expenses such as closing costs, property taxes, transfer taxes, and/or commission fees). The lender determines if the seller is eligible to sell the home at less than the outstanding debt due to a hardship and then the lender accepts that shortfall as their loss. Simply owing more than the home is worth is not considered a hardship. Hardships include divorce, unexpected hospitalization and medical expenses, job loss, death of a family member or similar catastrophic situations. Additionally, a budget must show that the seller s expenses exceed their income/assets, they are behind on their payments and that there is no way to repay the lender. The buyer of a property in a short sale should be aware of several key issues. The contract is usually contingent upon the agreement of the seller s mortgage lender to accept the net proceeds of the sale as full payment for the underlying debt. This is often a long process, which can delay an anticipated settlement date, and buyers and agents should be prepared for this possibility. Ideally the lender has pre-approved the short sale prior to advertising on a Multiple Listing Service (MLS), but the fact that the property is a short sale should be disclosed in the comments section of the listing. The sales contract should also include a third party addendum, outlining that the contract is contingent upon the agreement of the seller s mortgagee to accept the net proceeds of the sale as full payment of the underlying outstanding debt. Other Helpful Resources The U.S. Department of Housing and Urban Development (HUD) has created, Tips for Avoiding Foreclosure, which provides an index of broad information on foreclosure assistance at and a more detailed guide, Help for Homeowners Facing Loss of Their Home at, Keep Your Home, Know Your Loan: is HUD s campaign to support approved home mortgage counseling for families at risk of losing their homes. The hotline is 877-HUD-1515 or use HUD Housing Counseling Program s toll free number, , or go to Fannie Mae ALSO HAS INFORMATION ON THE NEW Streamlined Modification program and useful tips for working with your lender. Go to: Freddie Mac has created a useful guide, How to Avoid Foreclosure. Go to:

10 The Loan Process As your Realtor, I will help you select a mortgage broker if needed. Once you have decided on a Mortgage Company or Lender, the following are the steps of the loan process: The Application You will need to gather all pertinent documentation such as pay stubs, tax documents, asset statements, etc., so that unnecessary delays may be avoided. Please see the, Checklist for the Loan Application, and talk to your loan consultant about what else may be needed. Various fees and down payment scenarios are discussed at this time and you will receive a Good Faith Estimate (GFE) and a Truth-in-Lending Statement within three days of the date the application is taken this itemizes the rates and associated costs for obtaining the loan. Ordering Documentation The mortgage broker/lender will order a credit report, verification of employment and will need to verify funds to close, mortgage or landlord rates and preliminary title report as well as any other necessary supporting documentation. Awaiting Documentation Within one to two weeks, the lender will begin to receive the supporting documentation from your employer, the title company and banks. As it comes in, it is all checked for any irregularities, and any additional items needed are requested. Loan Submission Once all the necessary documentation is in, the loan processor puts the loan package together and your completed file is submitted to a lender for formal loan approval. Loan Approval (Underwriting) Loan approval or underwriting generally takes anywhere from 24 to 72 hours, and it make take slightly longer if mortgage insurance is required or if we are in a hot loan market. Mortgage insurance underwriting, occurs when the borrower has less than 20 percent of the loan amount to put towards a down payment. All parties are notified of the approval and any loan conditions must be received before the loan can be finalized and escrow closed. At this time we will remove the financing contingency. Documents are Drawn Within one to three days after loan approval, the lender prepares your loan documents (including the promissory note and the deed of trust), which are then sent to the title company. The escrow officer at the title company will call you to set up an appointment when the paperwork is ready for all your signatures. At this time, the escrow officer will tell you how much money you will need to bring in to finalize the loan and close the escrow. As mentioned earlier, this money is typically required in the form of a cashier s check and will need to be delivered to the title company anywhere from 2-3 days prior to the actual close of escrow date. Closing Once all parties have signed the loan documents they are returned to the lender, and the package is reviewed one final time. If all the forms have been properly signed and everything is complete, the lender sends the loan funds by wire transfer to the title company. This is the point at which you finish the loan process and actually buy the house (well, you and, the bank, buy the house!). The actual close of escrow date is typically the day after funding. ** Please note that depending on market conditions sometimes formal loan approval takes place prior to purchasing a home. Obtaining loan approval prior to writing a purchase contract will strengthen the offer and can put you in a better position of having your offer accepted.

11 Checklist for the Loan Application Property Information Property address and description (if you have already selected a house) Purchase contract and property information Contact information for access to the property (needed for the appraiser) The items above are taken care of by me, your Realtor. Personal Information Name(s) Social security number(s) Marital status Number and age(s) of dependent(s) Current address and telephone number(s) Current address(es) Addresses for the past seven years (if more than one) Current housing expenses (rent, mortgage, insurances, taxes) Name and address of landlord/mortgage holder (past two years) Assets Information about all bank, money market, 401(k) and other retirement accounts Two months of bank statements Current values of stocks, bonds, mutual funds and other investments Vested interest in retirement funds Value and type of life insurance Information about any cars you own, as well as any recreational vehicles, boats, etc. Information about any real estate you own Value of any other property you own Liabilities and Debts Itemized list of all current debts: loan(s), credit card(s) and other bills Written explanation of any past credit issues Full details of bankruptcy during the last seven years Employment History and Income Two years of employment history, including job titles, dates, etc. Recent pay stubs and two years of W-2 forms Tax returns and financial statements if selfemployed Records of dividends and interest received Proof of other income NOTE: It is recommended to avoid making any large purchases for furniture, cars, etc. until you have closed escrow.

12 Components of a Mortgage Payment Your monthly mortgage payment is made of up of several components. This housing expense is commonly referred to as PITI or Principal, Interest, Taxes and Insurance. PMI (see below) and HOA, Home Owner s Association dues may also make up a portion of your total payment. Principal The original amount of money borrowed, excluding interest. Principal can also be the remaining balance of a loan, excluding interest. The interest is calculated on the principal. Interest The charge for the use, (the loan) of the money. Taxes The county assessor charges property taxes based on the value of your home. Two tax installments are due each year: The first installment is due November 1st and is delinquent on December 11th. The second installment is due February 1st and is delinquent on April 11th. Taxes may be impounded, depending on the amount of your down payment. Anything less than a 20 percent down payment usually requires an impound account (please see, PMI ) and will most likely include taxes and insurance as well. An impound account is a trust account set up by the lender; a portion of your monthly payment is credited so that funds will be available for the payment of taxes and insurance. Hazard/Home Insurance These policies pay for loss on a home from certain hazards, including fire. The standard policy pays replacement costs, minus depreciation based on actual cash value. Prior to making definitive arrangements for insurance, you should plan on talking to your insurance agent about the different types of insurance available. As mentioned above, hazard insurance may be impounded. With mold and other types of claims on the rise, obtaining home insurance can sometimes present an obstacle. It is important to start looking for insurance immediately upon acceptance of your offer. Insurance must be in place prior to the close of escrow. PMI (Private Mortgage Insurance) A down payment of less than 20 percent usually requires PMI. Because loans with small down payments involve substantially more risk for the lender, lenders want protection in case the loan goes into foreclosure. Because this insurance is available, lenders can offer home loans with lower down payments. PMI may require an up-front fee which is payable as a part of your closing costs and it is also required to be paid monthly with your house payment. The FHA (Federal Housing Administration) also charges a fee for mortgage insurance called MIP or, Mortgage Insurance Premium. An upfront fee (which may be financed) and a monthly fee are assessed. The VA (Veteran s Administration) charges a funding fee, which may also be financed.

13 The Inspection Process While property inspections provide no guarantees, having one done will educate you on the condition of a property. Inspections are usually requested on the Purchase Contract, and if inspection results are unsatisfactory, negotiation for repairs is an option. If a mutual agreement is not possible, you may have the option to withdraw your offer/contract. In addition to the professional inspections listed below, and although I will be conducting a visual inspection of the property, you should take a close look at the property yourself. For example, inspect cupboards, doors, windows, flooring, counter tops, bath and kitchen fixtures, built-in appliances, stairways, banisters, bathrooms, showers, and any other large attached items. The following is a list of inspections that you may choose to have performed: Termite Inspection The termite inspection/pest report will indicate any type of wood destroying organisms that may be present. This includes not only termites, but fungus, dry rot, etc. The buyer usually pays for this inspection. The results of the inspection report are typically divided into two sections: Section 1 and Section 2 items: Section 1 Items are noted on the report as areas where there are termites, or where this is already damage such as fungus, dry rot, etc. It is customary in a normal real estate market for the seller to pay for these items to be repaired and/or replaced. Section 2 Items are noted on the report as areas where there could be future damage if not properly maintained. An example of a section 2 item would be caulking around the tub in a bathroom. Section 2 items are typically the responsibility of the buyer as the buyer will have possession of the property. Physical Home Inspection The home inspection is usually done by a General Home Inspector. Although I will be there as your Realtor, it is recommended that you as the buyer be present for the physical inspection of the home, which can take anywhere from 1.5 to 4 hours, depending on the size of the home. The inspection results are provided in a report with an overall assessment of the present condition of the property, and if conditions warrant, the Home Inspector may recommend additional inspections. Roof Inspection A roofing inspector can be hired to conduct an inspection of the roof. The results of this inspection are provided in a report including the condition of the roof, whether any repairs are recommended, the remaining life of the roof, etc. Chimney Inspection A chimney inspection is recommended sometimes and will let you know whether the chimney has any functional problems as well as whether it may be in need of any repairs, including cracks in the structure, etc. Other Inspections May Include: Geologic inspection Electrical inspection Pool inspection Spa inspection Mold inspection

14 The Escrow Process The escrow is a legal procedure for the handling of details of the transaction from the time the purchase agreement is ratified until the title is transferred and the sale is completed. The escrow is managed by an escrow/title company. The escrow officer, a neutral third party in the transaction must complete specific instructions received from the buyers and sellers via their Realtors, before title is transferred and funds are disbursed. The buyer s and seller s instructions must match in order for the escrow to move forward and to close escrow. The escrow is usually opened by the next business day after mutual acceptance of the purchase agreement. This is when the buyer s earnest money is deposited into escrow, and no later than three days after the contract is ratified. Preliminary Title Report The title company searches the public records for pertinent information about the property. Who is the owner of record? What liens exist against the property? What easements affect the property? Are there any judgments that might have to be cleared before title can be transferred? These items must be resolved during the escrow period and prior to closing. Title Insurance The title insurance policy is protection for the buyer against forgeries, errors in public records and other specific items. A CLTA (California Land Title Association) title insurance policy is issued to protect the buyer and the ALTA (American Land Title Association) title insurance policy is issued to protect the lender. It is customary that the buyer pays for these two policies.

15 Glossary of Terms and Definitions Adjustable Rate Mortgage (ARM): A mortgage with an interest rate that changes over time in line with movements in the index. ARM s can also be referred to as AMLS (adjustable mortgage loans) or VRMS (variable rate mortgages). Adjustment Period: The length of time between interest rate changes on an ARM. For example, a loan with an adjustment period of one year is called a one year ARM, which means that the interest rate can change after the first year and once a year thereafter. Agency: Any relationship in which one party (agent) acts for or represents another (principal) under the authority of the principal. Agency involving real property should be in writing, such as a listing, trust, powers of attorney, etc. ALTA: Abbreviation for the American Land Title Association. Amortization: Repayment of a loan in equal installments of principal and interest, rather than interest-only payments. Annual Percentage Rate (APR): The total finance charges (interest, loan fees, points) expressed as a percentage of the loan amount. Appraisal: An opinion of value based on factual analysis. Legally, an estimation of value by one or more disinterested persons of suitable qualifications. Assumption of Mortgage: A Buyer s agreement to assume the liability unde4r an existing note that is secured by a mortgager or deed of trust. The lender must approve the buyer in order to release the original borrower (usually the seller) from liability. This is very rare these days. Balloon Payment: A lump sum principal payment due at the end of some mortgages or other long term loans. Beneficiary: As used in a trust deed, the Lender is designated as the beneficiary, i.e., obtains the benefit of the security. Binder: Sometimes known as an offer to purchase or an earnest money request. A binder is the acknowledgement of a deposit along with a brief written agreement to enter into a contract for the sale of real estate. CAP: The limit on how much an interest rate or monthly payment can change, either at each adjustment or over the life of the mortgage. CC&R s: Covenants, Conditions and Restrictions. A document that controls the use, requirements and restrictions of a property, typically managed by a homeowners association. Certificate of Reasonable Value: A document that establishes the maximum value and loan amount for a VA guaranteed mortgage. Closing Statement: The financial disclosure statement that accounts for all of the funds received and expected at the closing, including deposits for taxes, hazard insurance, mortgage insurance, etc. Cloud on Title: An invalid encumbrance on real property, which, if valid would affect the rights of the owner. For example: A sells lot 1, tract 1, to B. The deed is mistakenly drawn to read lot 2 tract 1. A cloud is created on lot 2 by the recording of the erroneous deed. The cloud may be removed by quitclaim deed, or if necessary by court action. Condominium: A form of real estate ownership where the owner receives title to a particular unit and has a proportionate interest in certain common areas. The unit itself is generally a separately owned space whose interior surfaces (walls, floors and ceilings) serve as boundaries. Contingency: A condition that must be satisfied before a contract is binding. For instance, a sales agreement may be contingent upon the buyer obtaining financing. Conventional Loan: A mortgage loan which is not insured or guaranteed by a governmental agency. Conventional Mortgage: A mortgage or deed of trust not obtained under a government insured program such as FHA or VA. Conversion Clause: A provision in some ARMS that enables you to change an ARM to a fixed-rate loan, usually after the first adjustment period. The new fixed rate is generally set at the prevailing interest rate for fixed-rate mortgages This conversion feature may cost extra. Cooperative: A form of multiple ownership in which a corporation or business trust entity holds title to a property and grants occupancy rights to shareholders by means of proprietary leases or similar arrangements. CRS: Certified Residential Specialist: A professional designation granted to a Realtor who must be a member of the National Association of Realtors and have completed several educational courses as well as a minimum number of real estate transactions. Only about 4% of all Realtors in the country are CRS. Deed: Written instrument by which the ownership of land is transferred to a trustee as security for a debt or other obligation. Also called Trust Deed. Used in place of mortgages in many states. Due-On-Sale Clause: An acceleration clause that requires full payment of a mortgage or deed of trust when secured property changes ownership. Earnest Money: The portion of the down payment delivered to the seller or escrow office by the purchaser with a written offer as evidence of good faith.

16 Glossary of Terms and Definitions Easement: A right to cross or otherwise use someone else s land for a specified purpose. Examples include shared driveways, drainage ditch in the backyard of a property, etc. Encumbrance: A claim, lien, charge, or liability attached to and binding real property. Any right to, or interest in, land which may exist in one other than the owner, but which will not prevent the transfer of fee title. Escheat: The reversion of proper tot the state when an owner dies leaving no legal heirs, devisees or claimants. Escrow: A procedure in which a third party acts as a stakeholder for both the buyer and the seller, carrying out both parties instructions and assuming responsibility for handling all of the paperwork and distribution of funds. Fair Credit Reporting Act: A federal law giving one the right to see his/her credit report so that errors may be corrected. A lender refusing credit based on a credit report must inform the buyer which company issued the report. The buyer may see the report without charge if refused credit. FHA Loan: A loan insured by the Insuring Office of Department of Housing and Urban Development; the Federal Housing Administration. Federal National Mortgage Association (FNMA): Popularly known as Fannie Mae. A privately owned corporation created by Congress to support the secondary mortgage market. It purchases and sells residential mortgages insured by FHA or guaranteed by the VA, as well as conventional home mortgages. Federal Home Loan Mortgage Corporation: Popularly known as Freddie Mac. Also created by Congress to support the secondary mortgage market. It purchases residential mortgages in the secondary market from S&Ls, banks, and mortgage bankers and securities. Fee Simple: An estate in which the owner has unrestricted power to dispose of the property as he wishes, including leaving by will or inheritance. It is the greatest interest a person can have in real estate. Finance Charge: The total cost a borrower must pay, directly or indirectly, ob obtain credit according to Regulation Z. Graduated Payment Mortgage: A residential mortgage with monthly payments that starts at a low level and increases at a predetermined rate. Grant: A transfer of real property. Grantor: The person who makes the grant. GRI, Graduate of the Realtor Institute: A professional designation granted to a member of the National Association of Realtors who has successfully completed several real estate courses including ethics, law, marketing, technology in real estate, etc. Home Inspection Report: A qualified inspector s report on a property s overall condition. The report usually includes an evaluation of both the structure and mechanical systems. Home Warranty Plan: Protection or insurance against failure or operation of mechanical systems within the property. This policy is typically taken out for one year from the date of sale and is renewable by the Home Warranty Company. Impound Account: Funds retained by a lender to cover such items as taxes and hazard insurance premiums. Index: A measure of interest rate charges, used to determine changes in an ARM s interest rate over the term of the loan. Joint Tenancy: An equal undivided ownership of property by two or more persons. Upon the death of any owner, the survivors take the descendant s interest in the property. Lien: A legal hold or claim on property as security for a specified amount on specified terms. Lis Pendens: A legal notice recorded to show pending litigation relating to real property and giving notice that anyone acquiring an interest in said property subsequent to the date of the notice may be bound by the outcome of the litigation. Loan Commitment: A written promise to make a loan for a specified amount on specified terms. Loan-to-Value Ratio: The relationship between the amount of the mortgage and appraised value of the property, expressed as a percentage of the appraised value. Margin: The number of percentage points the lender adds to the index rate to calculate the ARM interest rate at each adjustment. Mechanics Lien: A lien created by statute for the purpose of securing priority of payment for the price or value of work performed and materials furnished in construction or repair of improvements to land and which attaches to the land as well as the improvements. Mortgage Life Insurance: A type of term life insurance often bought by mortgagors. The coverage decreases as the mortgage balance declines. If the borrower dies while the policy is in force, the debt is automatically covered by insurance proceeds.

17 Glossary of Terms and Definitions Negative Amortization: Negative amortization occurs when monthly payments fail to cover the interest cost. The interest that isn t covered is added to the unpaid principal balance, which means that even after several payments you could owe more than you did at the beginning of the loan. Negative amortization can occur when an ARM has a payment cap that results in monthly payments that aren t high enough to cover the interest. Note: A unilateral agreement containing an express and absolute promise of the signer to pay to a named person, order, or bearer, a defined sum of money at a specified date or on demand. Usually provides for interest and, concerning real property, is secured by a mortgage or trust deed. Notice of Default: A notice filed to show that the borrower under a mortgage or deed of trust is in default (behind in the payments). Origination Fee: A fee or charge for work involved in evaluating, preparing, and submitting a proposed mortgage loan. Piggyback Loan: A loan made jointly by two or more lenders on the same property under one mortgage or trust deed. PITI: Principal, interest, taxes and insurance. Planned Unit Development (PUD): A zoning designation for property developed at the same or slightly greater overall density than conventional development, sometimes with improvements clustered between open, common areas. Uses may be residential, commercial or industrial. Point: An amount equal to 1 percent of the principal amount of the investment or note. The lender assesses loan discount points at closing to increase the yield on the mortgage to a position competitive with other types of investments. Power of Attorney: An authority by which one person (principle) enables another (attorney-in-fact) to act for him. (1) General power authorizes sale, mortgaging, etc., of all property of the principle. This is invalid in some jurisdictions. (2) Special power specified property, buyers, price and terms. How specific it must be varies in each state. Preliminary Title Report: A report showing the condition of title before a sale or loan transaction. After completion of the transaction a title insurance policy is issued. Pre-Payment Penalty: A fee charged to a mortgagor who pays a loan before it is due. Not allowed for FHA or VA loans. Private Mortgage Insurance (PMI): Insurance written by a private company protecting the lender against loss if the borrower defaults on the mortgage. Promissory Note: A promise in writing, and executed by the maker, to pay a specified amount during a limited time, or on demand, or at sight, to a named person, or an order, or to bearer. Purchase Agreement: A written document in which the purchaser agrees to buy certain real estate and the seller agrees to sell under stated terms and conditions. Also called a sales contract, earnest money contract or agreement for sale. Quitclaim Deed: A deed operating as a release; intended to pass any title, interest, or claim which the grantor may have in the property, but not containing any warranty of a valid interest or title in the grantor. Real Estate Owned (REO) Property: Property which is in the possession of a lender as a result of foreclosure or forfeiture. Realtor: A licensed real estate broker or associate/agent active in a local real estate board affiliated with the National Association of Realtors (NAR). Real Property: Land and buildings as opposed to personal property or chattels. Reconveyance: An instrument used to transfer title from a trustee to the equitable owner of real estate, when title is held as collateral security for a debt. Most commonly used upon payment in full of a trust deed. Also called a deed of reconveyance or release. Recordation: Filing for record of a sale in the office of the county recorder. Regulation Z: The set of rules governing consumer lending issued by the Federal Reserve Board of Governors in accordance with the Consumer Protection Act. Tax Lien: (1) A lien for nonpayment of property taxes. Attaches only to the property upon which the taxes are unpaid. (2) A federal income tax lien. May attach to all property of the one owing taxes. Tenancy in Common: A type of joint ownership of property by two or more persons with no right of survivorship. Title Insurance Policy: A policy that protects the purchaser, mortgagee or other party against losses. Transfer Tax: State or city tax on the transfer of real property. Based on the purchase price or money changing hands. Also called documentary transfer tax. VA Loan: A loan that is primarily guaranteed by the Veteran s Administration and made by a private lender. Wrap-Around Mortgage: A second or junior mortgage with a face value of both the amount it secures and the balance due under the first mortgage. The mortgage under the wrap-around collects a payment based on its face value, then pays the first mortgagee.

18 LINDA TRAURIG License # Cell/Direct: Office/Direct: Fax: ltraurig@apr.com ALAIN PINEL REALTORS 900 Main Street, #101 Pleasanton, California 94566