Escrow, Title Insurance, Mello-Roos and CC&R's
Escrow
From The Title Consumer:
UNDERSTANDING MELLO-ROOS
In purchasing your new home, your future monthly payments will be made up of principal,
interest, real property taxes and insurance, but what is the tax for the Community Facilities
District, otherwise known as a Mello -Roos District? The CLTA has answered some of the
questions most commonly asked about the Mello-Roos Community Facilities Act.
Q. What is a Mello-Roos District?
A. A Mello-Roos District is an area where a special tax is imposed on those real property
owners within a Community Facilities District. This district has chosen to seek public financing
through the sale of bonds for the purpose of financing certain public improvements and
services. These services may include streets, water, sewage and drainage, electricity,
infrastructure, schools, parks and police protection to newly developing areas. The tax you
pay is used to make the payments of principal and interest on the bonds.
Q. Are the assessments included within the Proposition 13 tax limits?
A. No. The passage of Proposition 13 in 1978 severely restricted local government in its
ability to finance public capital facilities and services by increasing real property taxes. The
"Mello-Roos Community Facilities Act of 1982" provided local government with an additional
financing tool. The Proposition 13 tax limits are on the value of the real property, while
Mello-Roos taxes are equally and uniformly applied to all properties.
Q. What are my Mello-Roos taxes paying for?
A. Your taxes may be paying for both services and facilities. The services may be financed
only to the extent of new growth, and services include: Police protection, fire protection,
ambulance and paramedic services, recreation program services, library services, the
operation and maintenance of parks, parkways and open space, museums, cultural facilities,
flood and storm protection, and services for the removal of any threatening hazardous
substance. Facilities which may be financed under the Act include: Property with an
estimated useful life of five years or longer, parks, recreation facilities, parkway facilities,
open-space facilities, elementary and secondary school sites and structures, libraries, child
care facilities, natural gas pipeline facilities, telephone lines, facilities to transmit and
distribute electrical energy, cable television lines, and others.
Q. When do I pay these taxes?
A. By purchasing an interest in a subdivision within a Community Facilities District you can
expect to be assessed for a Mello-Roos tax which will typically be collected with your general
property tax bill. These special tax payments are subject to the same penalties that apply to
regular property taxes.
Q. How long does the tax stay in effect?
A. The tax will stay in effect until the principal and interest on the bonds are paid off along
with any reasonable administrative costs incurred in collecting the special tax or so long as it
is needed to pay the expenses of services, but in no case shall exceed 40 years.
Q. What happens if a general tax payment is not made on time?
A. Because the Mello-Roos tax is typically collected with your general property tax bill, the
Facilities District that obtained the lien may withdraw the assessment from the tax roll and
commence judicial foreclosure.
Q. What is the basis for the tax?
A. Most special taxes levied on properties within these districts have been structured on the
basis of density of development, square footage of construction, or flat acreage charges.
The act, however, allows for considerable flexibility in the method of apportionment of taxes,
and the local agencies may have established an entirely different method of levying the
special tax against property in the district in question.
Q. How much will the Mello-Roos payment be?
A. The amount of tax may vary from year-to-year, but may not exceed the maximum amount
specified when the district was created. In the case of the purchase of a new house within a
subdivision, the maximum amount of the tax will be specified in the public report. The
Resolution of Formation must specify the rate, method of apportionment, and manner of
collection of the special tax in sufficient detail to allow each landowner or resident within the
proposed district to estimate the maximum amount that he or she will have to pay.
Q. How is the special tax reflected on the real property records?
A. The special tax is a lien on your property, essentially like a regular tax lien. The lien is
recorded as a "Notice of Special Tax Lien" which is a continuing lien to secure each levy of
the special tax.
Q. How are Mello-Roos taxes affected when the property is sold?
A. The Mello-Roos tax is assessed against the land, but is not based upon the value of the
property, therefore, the possible increased value of the property does not affect the amount
of the tax when property is sold. The amount of the tax may not exceed the original
maximum amount stated in the Resolution of Formation. Any delinquent payments must be
satisfied before the sale of the real property since the unpaid amounts are a lien against the
property.

(The Title Consumer is published by the California Land Title Association. Member companies of
the California Land Title Association are dedicated to facilitating the transfer of real property
throughout California and increasing the public's awareness of the value and purpose of title
insurance.)
What are CC&R's?
The transfer deeds to houses in new developments almost always include limitations on
how the property can be used. Usually these limitations, called covenants, conditions, and
restrictions (CC&Rs), put decision-making rights in the hands of a homeowners' association.
Some associations enforce every rule with the enthusiasm of a Marine drill sergeant; others
are run in a far more relaxed way. Most associations try to make decisions that will enhance
the value of the houses.
Make sure the CC&Rs are compatible with your lifestyle. CC&Rs commonly limit the color or
colors you can paint your house (often brown or gray), the color of the curtains or blinds
visible from the street (usually white) and even the type of front yard landscaping you can
do.
Some CC&Rs go on to require that garages facing the street be kept neat, insist that
laundry be dried indoors rather than hung on a line, prohibit basketball hoops in the
driveway or front yard, and prohibit parking RVs or boats in the driveway. See the list below
for more examples of the excruciating detail with which many homeowners' associations
regulate members' everyday lives.
Read the CC&Rs carefully before you buy, and if you don't understand something, ask for
more information, and seek legal advice if necessary.
Once you've moved in, getting relief from overly restrictive CC&Rs isn't easy. You'll likely
have to submit an application (with fee) for a variance, get your neighbors' permission, and
possibly go through a formal hearing. And if you want to make a structural change to your
house, such as building a fence or adding a room, you'll likely need formal permission from
the association (on top of having to comply with city zoning rules). Typically covered under
most CC&R's: shingles and exterior paint, fences and hedges, trees, lawns, and weeds,
pools, swingsets and basketball hoops, garages and sheds, mailboxes, clotheslines and
garbage cans, outdoor lights and TV antennas, window coverings and wreaths, home
businesses, pets (size or even acceptability), noises and obstructions of views.
Escrow – What is it?
Very simply defined, an escrow is a deposit of funds, a deed or other instrument by one party
for the delivery to another party upon completion of a particular condition or event. The
California Escrow Law – Section 17003 of the Financial Code – provides the legal definition.

Why Do I Need an Escrow?
Whether you are the buyer, seller, lender or borrower, you want the assurance that no funds
or property will change hands until ALL of the instructions in the transaction have been
followed. The escrow holder has the obligation to safeguard the funds and/or documents
while they are in the possession of the escrow holder, and to disburse funds and/or convey
title only when all provisions of the escrow have been complied.

Escrow – How Does it Work?
The principals to the escrow – buyer, seller, lender, borrower – cause escrow instructions,
most usually in writing, to be created, signed and delivered to the escrow officer. If a broker
is involved, he will normally provide the escrow officer with the information necessary for the
preparation of your escrow instructions and documents.

The escrow officer will process the escrow, in accordance with the escrow instructions, and
when all conditions required in the escrow can be met or achieved, the escrow will be
"closed." Each escrow, although following a similar pattern, will be different in some respects,
as it deals with your property and the transaction at hand.

The duties of an escrow holder include; following the instructions given by the principals and
parties to the transaction in a timely manner; handling the funds and/or documents in
accordance with the instruction; paying all bills as authorized; responding to authorized
requests from the principals; closing the escrow only when all terms funds in accordance with
instructions and provide an accounting for same – the Closing or Settlement Statement.

Who Chooses the Escrow?
The selection of the escrow holder is normally done by agreement between the principals. If a
real estate broker is involved in the transaction, the broker may recommend an escrow
holder. However, it is the right of the principals to use an escrow holder who is competent
and who is experienced in handling the type of escrow at hand. There are laws that prohibit
the payment of referral fees; this affords the consumer the best possible escrow services
without any compromise caused by a person receiving a referral fee.

What Do I have to do while in Escrow?
The key to any transaction as important as your sale, purchase or loan is to read and
understand your escrow instructions. If you do not understand them, you should ask your
escrow officer to explain the instructions.

Your escrow officer is not an attorney and cannot practice law; you should consult your
lawyer for legal advice. Do not expect your escrow officer to advise you as to whether or not
you have a "good deal" or are doing things the right way. The escrow officer is there to follow
the instructions given by the principals in the escrow.

In order to expedite the closing of the escrow, you should check with your escrow officer as
to what specific items you could do to assist. Ask the question – "What can I do to expedite
the closing of this escrow?"

Respond quickly to correspondence. This will assist in the timely closing of the transaction.

If you are required to deliver funds into the escrow, make sure that you provide "good" funds
in the form required by the escrow officer. Company procedures differ in this regard, and
there are many ways you can help at the time of closing; check with your escrow officer. Do
not give the escrow officer a personal check and expect the escrow to close immediately; the
escrow can only close on cleared funds, and the processing of a personal check can take
days, possibly even a week or more.

When the escrow officer closes the escrow, some of you may want the closing papers,
checks, title policies, statements, etc. Made available immediately. There are many aspects to
the closing of the escrow, and some of these cannot be processed on the day of the closing;
they may take several days. If you have a special need, for example, a cashier’s check on the
day of closing, you should communicate that need to the escrow officer early in the
processing of the escrow.

Escrow and Your New Loan
If you are obtaining a new loan, your escrow officer will be in touch with the lender who will
need copies of the escrow instructions, the preliminary title report and any other documents
escrow could supply. In the processing and the closing of the escrow, the escrow holder is
obligated to comply with the lender’s instructions.

It has become a practice of some lenders to forward their loan documents to escrow for
signing. You should be aware that these papers are lender’s documents and cannot be
explained or interpreted by the escrow officer. You have the option of requesting a
representative from the lender’s office to be present for explanation, or arrange to meet with
your lender to sign the documents in their office.

Prepared by the Escrow Institute of California, P.O. Box 5792, Orange, CA 92613-5792
(The information presented here was taken from a pamphlet prepared by the Escrow Institute of
California to be handed out by escrow companies to their clients.  We decided to present it pretty
much as written because escrow companies very rarely get to explain what goes on in escrow in
their own words.)
Title Insurance
Mello-Roos
CC&R's
What is Title Insurance?
Title insurance, unlike other forms of insurance, such as automobile or life insurance, involves
a one-time premium, paid when you close the real estate transaction. When you purchase
title insurance, you don’t have to make monthly, quarterly or yearly payments as you do with
car and life insurance. Unlike medical and casualty insurance premiums, which are paid to
insure against an unpredictable future event, title insurance guarantees that all events in
the past have been cleared. This is an important distinction. Since a title company has
searched and evaluated the condition of the title to your property, title insurance guarantees
that the title company has not missed any items which may affect your property.
The goal of title companies is to conduct such a thorough search and evaluation of public
records that no claims will ever arise. Of course, as humans we are never 100% right! Title
insurance means that you can make a claim in the event that the conditions of your title is
not as we say it is. In fact, title insurance companies set aside a percentage of their profits
to pay for any claims that arise. In actuality; however, the number of claims is relatively
small. When your escrow closes, the title company will issue you a policy of insurance. Keep
this with your home records, as a copy of it will come in handy in the unlikely event that a
problem does arise. Title companies keep records that go back decades, so we will always be
ready to back up our policy.

Types of Policies
There are basically two types of title insurance policies -- one for property owners and one
for lenders. Policies for both owners and lenders are written according to guidelines set
down by either the California Land Title Association (CLTA) or the American Land Title
Association (ALTA). All title companies in Northern California can issue both types of policies.
The standard in Northern California is a CLTA policy for owners and an ALTA policy for
lenders. However; some people do request the additional residential coverage provided by
the ALTA RESIDENTIAL policy, which usually requires a physical inspection and covers some
items not covered in the CLTA owner’s policy. Here is a summary of the types of policies and
what they cover:
CLTA POLICIES
CLTA HOMEOWNER'S POLICY:
This is a new and enhanced policy which is now the standard in residential policies. The CLTA
Homeowner's Policy insures:
* Ownership of the property
* That there is access if the property abuts upon an open, public, dedicated street
* That there are no forgeries or failed conveyances in the chain of title
* That the insured has a marketable interest in the real property
In addition, the Eagle Policy offers some expanded features not available in other policies:
* Coverage for building permit violations incurred by previous owner
* Protection against forgeries which may occur in the future to cloud title
* Protection in the event a structure encroaches into the insured property
* Enhanced right of access coverage, including vehicular and pedestrian access
* Several other features including Subdivision Map Act coverage, Restrictive Covenant
Violations coverage, Structural Damage from
* Mineral Extraction coverage, Map Inconsistencies coverage and Post Policy Increase in
Value to 125%.

CLTA OWNERS INSURANCE:
This is the most common type of owners’ insurance available for any commercial property,
residential real property and vacant land. The CLTA policy insures:
* Ownership of the property
* That there is access if the property abuts upon an open, public, dedicated street
* That there are no forgeries or failed conveyances in the chain of title
* That the insured has a marketable interest in the real property
The CLTA Owners Policy insures all recorded matters affecting title to the property in order of
their priority. In other words, it will show the lender of the first mortgage before the lender
on the second mortgage because the first lender has priority.
The CLTA policy may also be ordered by lenders, normally on second deeds of trust by
individuals and non-banking or savings and loan lenders. When the CLTA policy is ordered for
lenders, it insures all types of property, normally on second deeds of trust by individuals and
non-banking or savings and loan lenders. The CLTA policy does not cover:
* Matters which a correct survey would show
* Unrecorded matters
* Matters which a physical inspection of the property would disclose
* Rights of parties in possession
* Unpatented water and mineral rights
* Matters known, created or assumed by the insured
ALTA POLICIES
ALTA RESIDENTIAL POLICY
The ALTA Residential Policy is an owner’s policy insuring owners of 1-4 family residential lots
or condominium units. In addition to the basic coverage provided by the CLTA policy, the ALTA
residential policy protects the insured against losses caused by:
* Mechanic Liens (labor and material liens) arising out of work done on the property which
the insured did not agree to or agree to pay for
* Major encroachments – The insured is protected against forced removal of an existing
structure (other than a boundary wall or fence) because it extends onto adjoining land or
onto an easement
* Unrecorded interest arising from off record leases, contracts or option
* Zoning Compliance (as long as property in question and zoning are both residential) CC&Rs
compliance
Most title companies will insure a seller carryback deed of trust under an ALTA residential
policy by endorsement (an addendum to a title policy with a small additional cost). This is the
only type of deed of trust that may be insured under this policy.

ALTA LENDERS POLICY
The ALTA Lenders Policy is for institutional lenders only (such as banks and savings and
loans). It insures lender priority and the fact that it is marketable. It covers both recorded
matters as well as unrecorded matters such as:

* Encroachments
* Unrecorded easements
* Access
* Loss of priority
* Unrecorded liens and encumbrances.
The coverage on this policy is quite broad. A survey or inspection is often required before a
policy is issued This policy can be issued on all types of real property.
ALTA OWNERS POLICY

Do not confuse this with an ALTA residential owners policy. This is the broadest form of
insurance given in California. This policy requires an ALTA survey to be provided to the title
company. In addition to the coverage given by a CLTA policy, it insures:
* Encroachments
* Access
* Rights of parties in possession
* Unrecorded liens and encumbrances
* Taxes
* Matters which correct survey would show
An ALTA OWNER'S POLICY DOES NOT COVER MATTERS KNOWN CREATED OR ASSUMED BY OUR
INSURED.
When this policy is requested, we may require:
* An ALTA survey (usually at a cost of between $3,000 and $7,000)
* A field inspection by our chief title officer
* A check with all utilities to make sure they have no unrecorded easements
* Copies of all leases and or tenant list.


Who Pays What?
What Costs Does the Seller Pay?
Closing costs are paid by both the buyer and the seller in the transaction. Some of the fees
may be assigned within the real estate contract. In some counties, it is the seller who pays
the cost of the owner's title insurance premium, while the buyer pays the lender's title
insurance premium. In other counties, that is reversed or costs are shared equally. Here are
some of the costs a seller may pay:
* Owner’s title insurance premiums
* Real estate commission
* Escrow fee
* Document preparation fee for Deed
* Documentary transfer tax
* 50% of city transfer/conveyance tax (according to contract)
* Payoff of all loans in seller’s name (or existing loan balance if being assumed by buyer)
* Termite inspection (according to contract)
* Home warranty (according to contract)
* Any judgments, tax liens, etc. against seller
* Recording charges to clear all documents of record against seller
* Tax pro-ration (for any unpaid taxes at time of transfer of title)
* Any unpaid homeowner’s dues
* Any bonds or assessments (according to contract)
* Any and all delinquent taxes
* Courier, special overnight or other delivery fee
What Costs Does the Buyer Pay?
In some cases the buyer splits fees with the seller. Again, some fees are specified within the
real estate contract. Here are some of the costs which may be the responsibility of the buyer:

* Lenders title policy premiums
* 50% of city transfer/conveyance tax (according to contract)
* Document preparation (if applicable)
* Notary fees
* Courier, special overnight, or other delivery fees
* Recording charges for all documents in buyers’ names
* Termite inspection (according to contract)
* Tax pro-ration (from date of purchase)
* Homeowner’s transfer fee
* All new loan charges (except those required by lender for seller to pay)
* Interest on new loan from the date of funding to 30 days prior to first payment date
* Assumption/change of records fees for takeover of existing loan
* Beneficiary statement fee for assumption of existing loan
* Inspection fees (roofing, pool, property inspection, geological, etc.)
* Home warranty (according to contract)
* Fire insurance premium for first year
916-787-1212
Roseville Real Estate Escrow
Dennis Stettner
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