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Escrow: A neutral third party holds the documents and money involved in a real estate transaction and ensures that all conditions of a sale are met.. Escrow also refers to a special account that a lender establishes to hold monthly installments from the borrower

Here’s a quick rundown on the term escrow from Yahoo Real Estate and The Lending Tree

If you’ve ever made an informal bet with a friend, you may have asked a third person to hold the money until the wager was resolved. When you take out a mortgage to buy a home, you’re doing something similar by opening an escrow account.

How it works

When you put money in escrow it is held by a neutral third party (called an escrow agent) who works for both the lender and the borrower. The agent’s role is to carry out the instructions agreed upon by both parties. The money is released when all the terms of the agreement are met. Escrow can be involved in anything from multimillion-dollar building projects to purchases made on online auction sites.

When it’s used

When your mortgage closes, your lender will usually require you to open an escrow account to cover property taxes and homeowner’s insurance. You’ll make an initial deposit, followed by payments to the account every month. (Usually these are added to your regular mortgage payment.) The escrow agent will then release these funds as your taxes and insurance premiums come due.

Its purpose

The idea is to protect the lender by ensuring that you pay your taxes and insurance on time. If you default on your property tax, for example, your municipality can put a lien on the house, which would make it difficult to sell. Or if your house burns down and you’ve neglected to pay the insurance, the lender would be left with no collateral.

How you benefit

Escrow can benefit borrowers by helping them spread insurance and tax expenses evenly over 12 payments. For example, assume your yearly property taxes are two payments of $1,000 each, and your insurance is $400 annually. If you paid these directly, it would mean three large payments a year; your escrow costs, however, would be a manageable $200 a month.

Escrow payments

Your escrow account will have a built-in cushion — if you miss a payment, the lender must still be able to pay your accounts on time. However, federal law prohibits lenders from requiring more than two months. expenses in escrow. And because your tax and insurance costs will change slightly from year to year, the lender will review and adjust your escrow payments annually.

When escrow may be waived

In most states, the money you place in an escrow account earns no interest for you. For that reason, many borrowers prefer to pay their taxes and insurance directly. Lenders may agree to this if your down payment is more than 20 percent, although some will raise your interest rate slightly to compensate. Once you agree to putting funds into an escrow account, however, it is difficult to cancel it, so make sure you fully understand the arrangement before your mortgage closes.

The below article is reprinted from Texas REALTOR® magazine

How will new laws affect you? Several changes to state laws that affect real estate professionals, property owners, and tenants go into effect Jan. 1, 2012. Here’s what you need to know.

Do you remember what happened during the 82nd Texas Legislature earlier this year? If you’re like most people, you can barely remember what you ate for breakfast today let alone what state legislators did in May. The Texas Legislature changed and added many laws, but some specific to real estate don’t take effect until Jan. 1, 2012. Here’s a summary of the changes to come and what they mean for you, property owners, tenants, and real estate transactions.

Changes for you and your transactions

You’ll need more experience to qualify for a broker’s license
The Texas Real Estate Commission will soon require more time spent as a salesperson to qualify for a broker’s license and will require you to submit evidence that you’ve performed a certain amount of brokerage activity during that time.

As of Jan. 1, 2012, you’ll need to have been licensed as a salesperson in at least four of the previous five years. You’ll also need to show, using TREC’s new point system, that you’ve participated as a salesperson in “enough” real estate transactions during that time.

How much is enough? TREC has devised a points system that awards you for various real estate tasks. For example, re
presenting a buyer or seller in a transaction that closed is worth 300 points, and an executed lease is worth 50 points. To qualify for a broker’s license, you’ll need at least 3,600 points, with some points earned in each of those four years.

Part of your broker-license application will include a sheet showing the points you’ve accumulated. If you’re part of a sales team, you may only claim points for brokerage activity for which your name is on a document (e.g., a sales contract or a property-management agreement). Initially, you won’t have to provide proof of your experience; you and your broker will sign the sheet. However, TREC will have the option to require supporting documentation.

Education requirements for a broker’s license remain the same.

Buyers can get an HOA resale certificate
Beginning January 1, a homebuyer purchasing a property in a subdivision will have the ability to request a resale certificate directly from a homeowners association. The HOA may require the buyer to show he has a valid contract for the property and may require payment before beginning work on the resale certificate. The association is prohibited from processing the payment until the resale certificate is prepared and may not charge a fee at all if the certificate is not provided in a timely manner.

Buyer’s representatives should be aware that for contracts entered into on or after January 1, buyers will be required to pay the fee for the resale certificate unless the buyer and seller have negotiated otherwise in the sales contract. Currently, the TREC addendum provides options for delivery of the resale certificate and states the seller will pay for it. That addendum is likely to change early in 2012 to reflect the change in law.

The law still allows sellers, seller’s agents, and title and insurance companies to order updates to already issued resale certificates. But under the new law, a resale certificate is only good for 60 days. For any resale certificate older than that, a new one will have to be issued.

Tweaks to owner’s and lender’s title policies
Title policies could always exclude coverage of the ownership of minerals, but as of Jan. 1, 2012, title companies are no longer required to provide a 2% credit on the cost of the owner’s policy for this exclusion.

Also on January 1, title companies are no longer required to insure a loss from damage to property resulting from the use of the surface of the land to extract minerals. Prior to that date, if title companies excluded minerals from coverage, they were required, upon request, to insure against such damage. This insurance was provided through an endorsement to the policy, which cost $50. The endorsement is still available for the lender’s policy and the owner’s policy, but there will be no charge for the endorsement to the lender’s policy. For an endorsement to the owner’s policy, the charge remains $50.

Disclosure requirements for private transfer fees.
Most future private transfer fees on real property were prohibited on Sept. 1, 2011. However, as of Jan. 1, 2012, a real estate sales contract for a property with existing private transfer fees must disclose those fees.

Changes for property owners and tenants

HOAs face new rules for foreclosures, finances, and more
Homeowners associations, as of Jan. 1, 2012, have new guidelines for maintaining association documents, providing access to association records, and conducting open meetings. Also, unless waived in writing by a property owner, a homeowners association will be required to use an “expedited foreclosure” process, which includes obtaining a court order, before foreclosing against a property owner. Property owners can now add or remove an HOA’s foreclosure power by a two-thirds vote of association members. Additionally, HOAs are prohibited under the new laws from foreclosing a debt consisting solely of fees charged for obtaining copies of HOA records.

The new law dictates the order by which a homeowners association must apply owners’ payments: delinquent assessments, current assessments, attorneys’ fees, and fines—affecting their ability to foreclose. Also, the notice that must be given to a property owner by an HOA before it can take certain actions against the owner, including foreclosure proceedings, must now inform the owner that he may have special rights or relief if the owner is on active military duty.

Paperless property-tax bills.
Starting January 1, local tax offices can offer an electronic tax bill. Interested property owners should check with their tax office to see if they can begin receiving their bill via e-mail.

Appealing property appraisals without going to court
Also January 1, property owners in Collin, Denton, Fort Bend, and Montgomery counties whose properties are worth more than $1 million can appeal their property appraisals through the State Office of Administrative Hearings rather than taking that appeal to district court. Property owners in Bexar, Cameron, El Paso, Harris, Tarrant, and Travis counties were given that option two years ago.

Tenants can appeal eviction regardless of ability to pay court costs
Effective January 1, a tenant unable to pay the costs of appealing a judgment in a residential eviction suit may still appeal by filing a pauper’s affidavit. The tenant will still be required to pay rent, which goes into the registry of the court, and must make a rent deposit into the registry within five days of filing the pauper’s affidavit. Without this deposit, a landlord can request a writ of possession in his favor, which the court will immediately issue.

Lori Levy is legislative and regulatory counsel for the Texas Association. Reprinted from Texas REALTOR® magazine.

1. and 2. Austin, TX, and Houston, TX.

The bloom’s not off the yellow rose of Texas. Steady job growth and a construction revival make Austin and Houston two of my five cities to watch. Texas isn’t hung over from the housing boom like the other big states of the South and West, so there’s little to hold back growth. Honorable mention to Fort Worth and San Antonio.

See more here.

Chief Economist from the Real Estate Center at Texas A&M, Dr. Mark Dotzour, takles some of the questions he’s been asked when talking with business people from across the United States.

Issues of Our Time
by Mark Dotzour

Do you feel confused about what is happening in our country? Do you find it hard to make investment decisions? Well, you are not alone. Many in this country are struggling to make sense of what is going on. It doesn’t matter if you are a CEO or a retired widow, it’s hard to anticipate where we are headed. This uncertainty is causing investors and business owners to postpone decisions. It’s leading to a very slow, prolonged recovery.

Previous Federal Reserve officials have referred to times like this with statements like: “There seems to be a lack of transparency in the markets.” When you translate this into Main Street English, this means, “We have no earthly idea of what is going to happen next.”

From my perspective, from talking to businessmen and -women all over this country almost every week for the past 14 years, here are the key “Issues of Our Time” that are causing concern.

Are we headed for inflation or deflation?

This question is very perplexing because the markets are giving off strong and conflicting signals. Many know that banks have enormous excess reserves that could be deployed to make loans. This could lead to inflation. Gold at $1,600 seems to confirm this viewpoint. But the 10-year treasury bond rate has fallen to 2.9 percent. People buy bonds when they think inflation is going to be low or they might actually experience deflation. Who is right, the gold buyers or the bond buyers?

Are we going to continue the very modest recovery from the recent recession, or are we going to slide back into another recession?

Corporate profits are up and the private sector has been hiring. Government layoffs have offset most of the private sector gains. Companies have about $2 trillion in cash on their balance sheets. When will they deploy it? What are they waiting for? How can we staunch the drain of American wealth to China? Will we outsource all of our IT jobs to India? Where will U.S. companies find engineers this year?

Will the federal government begin the struggle to return to a balanced budget?
Gold buyers are betting they won’t. Bond buyers are betting they will. Who’s right? Clearly the current trends in government spending cannot continue. But there are a lot of people in America who rely on the federal government for their jobs and/or their incomes. If everyone doesn’t share in the sacrifice, then nobody will want to share in the sacrifice.

When will the residential real estate market rebound?

People still want to live in homes. Mortgage rates are ridiculously low, creating an incredible buying opportunity. What’s holding them back? Some are worried about losing their job. Others are worried that home prices could fall further. How long will it take the large banks in our country to foreclose on the delinquent loans? As long as this “shadow inventory” overhangs the market, buyers will be nervous. The sooner we foreclose on these properties, the quicker the housing market starts to recover.

How far will the rebound in commercial real estate go?

Trophy properties in gateway cities have rebounded almost to the highs of the market peak in 2007. But properties in smaller cities and Class B and C properties are having a hard time getting bids. For some properties you can get 70 percent financing at low rates, while other properties are denied. Billions of investor dollars are prowling the country looking for deals.

Why do investors like to put money to work in Texas real estate?

As I travel around the country, I’ve met lots of private equity firms and high-net-worth individuals that may live in New York, Boston or Laguna Beach and want to own Texas real estate. The long-term outlook for Texas is strong, with population and job growth on the horizon. Houses will need to be built. Shopping centers and offices will come with the houses. Construction jobs will play a role in the future recovery as Texas leads the country out of recession.

In coming posts, I will answer these questions and other pressing Issues of Our Time in more detail.

This video from smartmoney.com explains how to fight your property taxes. Although it concentrates on residential real estate taxes many of the tips can be used when fighting commercial property taxes as well.

If this process is new to you or overwhelming, let Clay & Company know and we can help guide you through the process.

As a land owner it is important to understand the politics and specifics regarding easements and how they might affect your land. Below is a summary from an article published by the Texas A&M Real Estate Center:

Many people believe if you own land in Texas you have the unquestionable legal right to access it. Nothing could be further from the truth. As Texas’s population increases and land becomes more and more fragmented, landlocked property becomes more prevalent. Understanding easements is critical if access depends on one.

• As large tracts in Texas are broken into smaller properties, landlocked properties increase. Before purchasing land, buyers should investigate whether easements exist and, if so, what type of easements.

• Appurtenant easements attach to the property and benefit the buyer and subsequent owners.

• An easement in gross attaches to the person who receives it and may stay with that person even if ownership of the land changes.

• If an easement exists or will be created to access the property, get an attorney to determine whether the easement is appurtenant or in gross. An easement in gross will not benefit the new owner unless it can be (and is) assigned.

• Likewise, have the attorney determine whether any impediments such as gates or cattleguards may be constructed at the entry or across the easement. This depends on the intent of the parties. Some courts determine intent solely from the wording in the easement. Others examine the four factors described in McDaniel.

• If the language is ambiguous or uncertain, the resolution of the issue will be against the servient estate (the tract being crossed) in favor of the dominant estate.

• As a general rule, the servient estate cannot interfere with the rights of the dominant estate to use the easement for the purpose for which it was granted, unless specifically limited.

• Only the owners of the land described as the dominant estate(s) in the appurtenant easement may use it for access. If you are purchasing land that has a recorded easement, but the tract or tracts being purchased are not described as a dominant estate, the property may be landlocked.

• If an unauthorized use of the easement has occurred or is occurring at the time of the purchase, make sure the statutes of limitation have not expired to remedy the infraction. Likewise, make sure an assignment of the right to cure the infraction judicially is conveyed to the purchaser.

Full Article Here.

• A Real Estate Center research study found that the larger the share of housing expenditures in consumers’ budgets, the more home prices in their region fell since 2007. The Center’s analysis of consumer spending data explains why the Texas housing market has fared far better than other states that have suffered plummeting home values and rising foreclosure rates. More importantly, the study suggests why the state’s economy is expected to continue to do better than the rest of the U.S. economy.
• When expenditures in a particular category in the consumer’s budget take larger and larger shares of total expenses, consumers look for less expensive substitutes. This can lower demand for more expensive goods and services, leading to lower prices for those goods and services. For example, if the price of beef gets too high, people eat more chicken. Consumers in housing markets have a number of options. The most important choice is whether to rent or buy.
• The two Texas metros did not have large increases in their expenditure shares for shelter from 1987 to 2008. Houston’s share rose by 1 percent while Dallas’ share increased by 2.2 percent. Percent change in median home values sold from 2007 to 2009 according to the National Association of Realtors is shown in the table. Houston is the only metro in the study to post home price appreciation during the nationwide home price correction. Dallas had the smallest rate of home price decline.
• Home price changes have expenditure effects and wealth effects. On the demand side, lower housing costs allow consumers to spend more on nonhousing goods and services, leading to higher regional economic growth rates. More affordable housing also can attract more immigrants to a region, leading to higher population growth rates, a larger labor force and more demand for goods and services. On the supply side, lower costs and prices of real estate properties can significantly increase profitability of more economic activities, leading to more investments in a region and higher economic growth rates.
• Texans pay a smaller portion of their incomes on housing than those in other states. A Center research study based on consumer spending data for major U.S. metropolitan areas found that the larger the share of their budgets consumers pay for shelter costs, the more home prices in their regions have fallen since 2007. Study results suggest why Texas has suffered less than other states during the downturn, and why continuing home price declines are unlikely in the state.

Full article here.

In Houston we are lucky to be close the Real Estate Center at Texas A&M University. The Center is the nation’s largest publicly funded organization devoted to real estate research and conducts in depth research on financial, socioeconomic, public policy, trade, legal, land use and local market analysis issues related to real estate.

The November 24 edition of the Real Estate Center’s Online Newsletter highlights the climbing home sales in Texas. Although the following report focuses on residential real estate, it is beneficial to look as it provides an indicator of the overall market.

From RECON, November 24, 2009 – A total of 19,347 existing single-family homes were sold in Texas last month, a 15 percent increase from October 2008, according to MLS data compiled by the Real Estate Center at Texas A&M University.

The median price rose 1 percent to $143,300 during the same period, and the state finished the month with a 6.9-month inventory of existing homes.

Here is how select Texas cities fared in October (data current as of Nov. 24, 2009):
  
Additional home sales data for these and other major Texas cities are available on the Center’s website.

At the national level, the National Association of Realtors reported this week that single-family home sales rose 9.7 percent to a seasonally adjusted annual rate of 5.33 million in October from a pace of 4.86 million in September. That was 21.4 percent above the October 2008 pace. The median price was $173,100 in October, down 6.8 percent from a year ago.