[this post continues from part 1 of Buying a house in Pasadena]
Once the sellers had accepted our offer we had 17 days to remove our contingencies (our what? See below) and 35 days to close escrow (close what? See below). This also meant a crash course in US legaleze and a four way tussle between us, the sellers, our bank and the Escrow company, with the aim that at the end of the 35 days, all money, paperwork, and keys will have been transferred to the correct parties.
Below are the steps, as best as I can remember. At all stages the bank, our agent and the Escrow company were involved. Multiple phone calls had to occur between all parties to check everyone was on the same page, which they frequently weren’t – especially us. The quick version of what happened in 21 days is:
Open escrow – get inspections done – receive reports – organize insurance – do walk-through – sign loan documents – pay 17% deposit – close escrow – get keys.
I explain everything in detail below but let’s start with some definitions:
Escrow – the mechanism whereby a third party acts as a middleman between the buyer and seller. They hold the deposit, they manage the documents, and do the conveyancing – at least, as far as I can work out. Buyer and seller have to pay half-each for the privilege of this service which is about $2000-$3000 total.
Closing costs: all sorts of random fees and charges the various parties think of. The escrow fee is one; the ‘loan origination fee’ (four-figures) is another the bank invents. Good news though: no such thing as stamp duty here!
Contingencies: things you can invoke to pull out of the sale and get your 3% deposit back (see below).
(1) The first thing we did was ‘open’ Escrow. The seller chose the Escrow company (Golden West). We gave them (the Escrow company) a cashier’s check for 3% of the purchase price, the required ‘good faith deposit’.
(2) Next we told our bank we’d had an offer accepted. The bank has to organize an appraisal asap, as it is one of our contingencies. If, after their appraisal, they didn’t want to buy the house for us then we could withdraw from the sale. The appraisal happened within a few days, and it was fine.
(3) Another important contingency is the property inspection – if the house was falling down, or full of mould or something else, we could back out of the sale. Our agent gave us a choice of inspection companies then made the appointment for us. We paid $399 to Elite Group and that weekend the nice man came and went over every inch out the house – inside and out, in the roof and under the floor. He turned on all the appliances and the heating/AC and the taps. He verbally told us what he thought then he sent us the actual report a few days later.
(4) As a result of this inspection our agent recommended getting a Foundations report. The floor is sloping quite a bit in places, which may be unsurprising given the house is 111 years old (no, that is not a typo). So we paid $150 for a foundation guy to come in and check it out – he came within a few days and gave us a verbal report then sent us a written copy the next day.
(5) At some stage in the process we received a copy of the “Seller’s disclosure”. This is supposed to explain what the sellers know about things like whether any fences are shared with the neighbours (they said ‘no’, which is incorrect), but also things like whether the house is “within 1 mile of a former federal or state ordinance location”, and whether the house has ‘cripple walls’ (relevant for earthquakes). This document seemed largely pointless as we couldn’t rely on it – especially when they changed their answers (see #9 below).
(6) We also received a report from a (the?) Title company. As I understand it, the title is like a pink slip for your car, or your passport. This report tells you if there are any issues with the title – like the city is planning to build a freeway over it, or there is a contractor who has sued for not being paid. Ours was ‘surprisingly’ clean – our agent even phoned the title company to check.
(7) We also received a Natural Hazards Disclosure Report – which told us about earthquakes (in California? No.) and radon and soil problems. We had to sign to say we’d received it.
(8) Meanwhile the bank had been extremely efficient and had posted us a massive loan document which had about 50 places to sign. So we signed it and sent it back. This was stage 2 of the loan process (stage 1 = pre-approval, stage 3 = see #14 below).
(9) Then we were informed that the sellers had ‘remembered’ about a mould issue the house had had (2 months ago) and that they fixed. So, on the insistence of our agent, we gave $500 to Elite Group to get a mould inspection done. The original inspector had detected no mould, I didn’t smell any mould, and guess what? There was no mould. Next!
(10) Once we had completed all our inspections we had to send the seller a document called a “Request for repair” – this included things the foundation guy found, the mould guy found, and the original inspector found. We asked for repairs or ‘credit’ (i.e. money towards closing costs).
(11) Meanwhile we had to organize ‘hazard insurance’ – i.e. property insurance. This was a condition of our loan. I phoned Progressive but, ‘computer says no’; I tried Liberty Mutual – again, no – ‘house is too old’. In the end, after some coaching from our agent, we persuaded State Farm to insure us.
(12) Then, because everything was going so well, we asked the sellers if we could close Escrow early – i.e. get the keys 10 days earlier than we originally agreed. The seller said yes.
(13) At close-of-escrow-minus-7-days we did a walk-through – but we ended up doing two (the second at close-minus-5-days). The first time they still hadn’t fixed everything and the place was a tip (from builders tramping through) – so we sent them another big list. The second time there were still a couple of things not done so we gave them another list, but left it to our agent to check.
(14) Meanwhile the bank was preparing the final loan documents. At close-minus-3-days we had to physically go to Escrow and sign the loan documents and a wide range of other miscellaneous documents we hadn’t seen before. A notary was there. The Escrow company was pretty hopeless – they didn’t tell us what would happen, or what to bring (e.g. passport/ID). We spent an hour signing stuff and when we questioned certain documents we were told ‘you have to sign that’. Charming. That afternoon I went to the bank and wired the rest of the deposit (i.e. 17% of the purchase price), to the Escrow company, and hoped for the best.
(15) Close-minus-2-days was spent signing another bunch of stuff – city occupancy report (the city inspector checked the house was up to code), termite report (termites had been fixed) and the ‘HUD’ (pronounced /hud/, telling us, for the umpteenth time, our estimated closing costs). Inconveniently, Escrow and the bank just assumed that (a) my husband and I were in the same place during business hours (on a Wednesday) and (b) that we had access to a scanner. Neither of which was true. It was a pretty annoying afternoon.
(16) Close-minus-1-day, the bank ‘funded’ the loan (i.e. I think it gives the loan amount in cash to Escrow). The bank called us to let us know we were officially due to pay them back by 2044.
(17) Then on the Friday we got a call from our agent at about 11am to say Escrow had ‘recorded’ the sale and the place was ours. We picked up the keys from our agent later that afternoon and stepped through the door of our first house, amazed at how quickly we went from landing at LAX to massive lifelong debt! (and somewhere to live).