Home Buyer's Guide to the Title & Escrow Process

HOME BUYER’S CALIFORNIA GUIDE TO THE TITLE & ESCROW PROCESS

©2024 Fidelity National Title Builder Services (01/24) 2 TABLE OF CONTENTS Introduction. ................................................................................................................................... 3 Important Terms.............................................................................................................................. 4 Key Players Involved .......................................................................................................................7 Understanding Title Insurance – FAQ............................................................................................... 8 The Importance of Title Protection................................................................................................. 10 Types of Title Insurance Policies..................................................................................................... 11 The Preliminary Report .................................................................................................................12 Statement of Information .............................................................................................................13 Vesting - Common Ways of Holding Title....................................................................................... 14 Understanding Escrow – FAQ ........................................................................................................16 The Life of an Escrow.....................................................................................................................17 The Loan Process............................................................................................................................18 Property Taxes............................................................................................................................... 19

©2024 Fidelity National Title Builder Services (01/24) 3 INTRODUCTION At Fidelity National Title Builder Services, we possess an unparalleled experience of 165 years in underwriting, making us the most reliable provider of title and escrow services for California land developers and builders. Our team is exclusively focused on new home development and purchases, and we work closely with developers to guarantee a seamless home-buying process for YOU. Our team is committed to supporting and guiding you throughout your new home purchase. Please don’t hesitate to reach out to your dedicated Builder Services team if you have any questions or concerns. Thank you for choosing us. To give you an overview of the general process involved during the purchase of a new home and explain the various roles we will play in helping to close your transaction, we’ve prepared this booklet.

©2024 Fidelity National Title Builder Services (01/24) 4 AMORTIZATION Reduction of the principal of a debt in regular, periodic installments. APPRAISAL An estimate of value of property resulting from analysis of facts about the property; an opinion of value. ANNUAL PERCENTAGE RATE (APR) An interest rate reflecting the cost of a mortgagee yearly rate. This rate is likely to be higher than the stated note rate or advertised rate on the mortgage because it considers points and other credit costs. The APR allows home buyers to compare different types of mortgages based on the annual cost for each loan. ASSUMPTION OF MORTGAGE An obligation undertaken by a new purchaser of land to be liable for payment of an existing note secured by mortgage. BENEFICIARY The recipient of benefits, often from a deed of trust; usually the lender. CERTIFICATE OF REASONABLE VALUE (CRV) A document issued by the Department of Veterans Affairs (VA) that establishes the maximum value and loan amount for a VA mortgage. COMMUNITY FACILITY DISTRICT (CFD) A type of special tax district formed when property owners within a geographic area agree to impose a tax on property in order to fund infrastructure improvements or services. CLOSING DISCLOSURE (CD) Closing Disclosure form designed to provide disclosures that will be helpful to borrowers in understanding all of the costs of the transaction. This form will be given to the consumer three business days prior to closing. CLOSING (AKA “SETTLEMENT”) The completion of a real estate transfer, where the title passes from seller to buyer, or a mortgage lien is given to secure debt. COMPARABLE SALES Sales that have similar characteristics as the subject real property, used for analusis in the appraisal. Commonly referred to as “comps.” CONDITIONS, COVENANTS, & RESTRICTIONS (CC&R’s) A document that controls the use, requirements, and restrictions of a property. A B C CONDOMINIUM A statutory form of real estate development of separately owned units and jointly owned common elements in a multi-unit project. CONSUMMATION Occurs when the borrower becomes contractually obligated to the creditor on the loan, not, for example, when the borrower becomes contractually obligated to a seller on a real estate transaction. The point in time when a borrower becomes contractually obligated to the creditor on the loan depends on applicable state law. Consummation is not the same as close of escrow or settlement. DEED OF TRUST Written instrument that conveys title in place of a mortgage. DEED RESTRICTIONS Limitations in the deed to a parcel of real property that dictate certain uses that may or may not be made of the real property. DISBURSEMENT DATE The date the amounts are to be disbursed to a buyer and seller in a purchase transaction or the date funds are to be paid to the borrower or a third party in a transaction that is not a purchase transaction. EARNEST MONEY DEPOSIT A deposit of funds made by a buyer of real estate as evidence of good faith. EASEMENT A non-possessory right to use all or part of the land owned by another for a specified purpose. ENDORSEMENT As to a title insurance policy, a rider or attachment forming a part of the insurance policy expanding or limiting coverage. EQUITY The difference between the fair market value and current indebtedness also referred to as the owner’s interest. The value an owner has in real estate over and above the obligation against the property. FEDERAL HOUSING ADMINISTRATION LOAN (FHA LOAN) A loan insured by the Federal Housing Administration, open to all qualified home purchasers. FEDERAL MORTGAGE ASSOCIATION (AKA FANNIE MAE) A U.S. government-sponsored corporation dealing in the purchase of first mortgaged for the secondary market. D E F IMPORTANT TERMS Continued...

©2024 Fidelity National Title Builder Services (01/24) 5 GRANT DEED The absolute ownership of a parcel of land. The highest degree of ownership that a person can have in real estate, which gives the owner unqualified ownership and full power of disposition. HAZARD INSURANCE Real estate insurance protecting against fire, some natural causes, vandalism, etc., depending on the policy. Buyer often adds liability insurance and extended coverage for personal property. IMPOUNDS A trust type of account established by lenders for the accumulation of borrower’s funds to meet periodic payments of taxes, mortgage insurance premiums, and/or future insurance policy premiums, required to protect their security. JOINT TENANCY An equal undivided ownership of property by two or more persons. Upon death by the owner, the survivors take the decedent’s interest in the property. LEGAL DESCRIPTION A description of land recognized by the law, based on government surveys, thoroughly identifying the exact boundaries of the entire parcel of land. LIEN A claim upon a piece of property for the payment or satisfaction of a debt or obligation. For example, judgements, taxes, mortgages, and deeds of trust. LOAN ESTIMATE (LE) Form designed to provide disclosures that will be helpful to borrowers in understanding the key features, costs, and risks of the mortgage loan for which they are applying. Initial disclosure is to be given to the borrower three business days after application. LOAN TO VALUE RATIO The relationship between the amount of the mortgage loan and the appraised value of the property expressed as a percentage. G H I J L MELLO-ROOS California special tax district that sells bonds and levies taxes to fund new or additional community facilities and services within specific boundaries. MORTGAGE A conditioned pledge of property to a creditor as security for the payment of debt. NEGATIVE AMORTIZATION Occurs when your monthly payments are not large enough to pay the interest due on the loan. This unpaid interest is added to the unpaid balance on the loan. The danger of negative amortization is that the home buyer ends up owing more than the original amount of the loan. PERSONAL PROPERTY Any property which is not real property. For example, money, savings accounts, appliances, cars, boats, jewelry, etc. PERSONAL, INTEREST, TAXES, & INSURANCE (PITI) A payment that included principal, interest, taxes, and insurance. POWER OF ATTORNEY A written instrument whereby a principal gives the authority to an agent. PRIVATE MORTGAGE INSURANCE (PMI) In the event that a buyer does not have a 20% down payment, lenders will allow a smaller down payment – as low as 3% in some cases. With the smaller down payment loans, however, borrowers are usually required to carry private mortgage insurance. Private mortgage insurance will usually require an initial premium payment and may require an additional monthly fee, depending on the loan’s structure. PLANNED UNIT DEVELOPMENT (PUD) A community of single-family homes, and sometimes townhomes or condominiums. Everyone who lives in a PUD home is part of a homeowner’s association (HOA) which is run by a board of directors usually made up of individuals from the community. RECORDING Filing documents affecting real property with the appropriate government agency as a matter of public record. M N P R IMPORTANT TERMS Continued...

©2024 Fidelity National Title Builder Services (01/24) 6 SECURED TAXES Taxes that are secured on the real property itself. SETTLEMENT STATEMENT Provides a complete breakdown of costs involved in a real estate transaction. SUBDIVISION A tract of land surveyed and divided into lots for purposes of sale. TENANCY IN COMMON An undivided ownership in real estate by two or more persons, without right or survivorship, interests need not be equal. TRID Stands for TILA-RESPA Integrated Disclosures, which is a federal consumer-protection law that requires lenders to disclose certain types of key information to borrowers. TRUST ACCOUNT An account separate and physically segregated from the broker’s own in which the broker is required by law to deposit all funds collected for clients. TRUSTEE The neutral third party in the deed of trust with limited powers. When the loan is paid in full, the property is reconveyed by the trustee back to the person(s) legally entitled to the land, or if delinquent, the property will be conveyed pursuant to nonjudicial foreclosure proceedings, to the highest bidder in a public sale. TRUSTOR The borrower, owner, and guarantor of the property conveyed in a deed of trust. TRANSFER TAX A one-time tax or fee imposed by a state or local jurisdiction upon the transfer of real property. S T UNSECURED TAXES Taxes that are levied against anything other than real property. VETERANS ADMINISTRATION LOAN (VA LOAN) Housing loans to veterans by banks, savings and loans, or other lenders that are guaranteed by the Veterans Administration, enabling veterans to buy a residence with little or no down payment. WARRANTY DEED Protects the buyer and ensures that the seller holds a free and clear title to a property without any outstanding liens or mortgages. A warranty deed is a legal real estate document and protects the buyer against future claims to the title of the property. U V W IMPORTANT TERMS

©2024 Fidelity National Title Builder Services (01/24) 7 ESCROW OFFICER The professional who leads the facilitation of your escrow, including escrow instructions preparation, document preparation, funds disbursement, and more. BUILDER / DEVELOPER The company that is constructing your new home. NOTARY The professional who is authorized by the state or federal government to administer oaths and attest to the authenticity of signatures. REAL ESTATE AGENT A licensed professional who represents buyers or sellers. LENDER An organization or person that lends money. TITLE OFFICER The professional who searches and examines records to determine ownership and interests in real property. They’ll collaborate with you to remove any title exceptions that you do not wish to accept and furnish you with the title insurance policy pertaining to the real property. KEY PLAYERS INVOLVED

©2024 Fidelity National Title Builder Services (01/24) 10 Title issues can pose a significant risk to both your real property and mortgage investment. Despite conducting a thorough search of public records, certain hidden risks may not be revealed immediately. This means that you may only become aware of these issues years later. To safeguard your ownership of your home, it is important to obtain title insurance from a reputable and financially secure company. UNKNOWN LIENS UNKNOWN EASEMENTS ILLEGAL DEEDS BOUNDARY/SURVEY DISPUTES ERRORS IN PUBLIC RECORDS UNDISCOVERED ENCUMBRANCES FORGERIES IMPERSONATION OF PREVIOUS OWNER MISSING HEIRS • UNDISCOVERED WILL We hope you never have a title claim, but in the instance that you do, you are in great hands with our team. SOME POTENTIAL ISSUES THAT COULD OCCUR IN TITLE INCLUDE: THE IMPORTANCE OF TITLE PROTECTION

©2024 Fidelity National Title Builder Services (01/24) 11 * Subject to deductible and maximum liability, which is less than the policy amount. TYPES OF TITLE INSURANCE POLICIES 1. Someone else owns an interest in your title to the property 2. A document is not properly signed 3. Forgery and fraud 4. Defective recording of any document 5. Restrictive covenants 6. There is a lien on your title because there is: a. a deed of trust b. judgment, tax or special assessment c. a charge by the HOA (homeowner’s association) 7. Title is unmarketable 8. Lack of right of access to and from the land 9. Mechanics’ lien protection 10. Forced removal of structure because it: a. extends onto other land or onto an easement b. violates a restriction in Schedule B of policy c. violates an existing zoning law 11. Cannot use land for SFD (single-family dwelling) due to zoning or restrictions 12. Unrecorded lien by the HOA 13. Unrecorded easements 14. Others have rights arising out of leases, contracts or options 15. Pays rent for substitute residence 16. Inflation Protection 17. Building permit violations – forced removal* 18. Subdivision Map Act violations* 19. Zoning violations–forced encroachment* 20. Boundary wall or fence encroachment* 21. Restrictive covenant violations 22. Post-policy defect in title 23. Post-policy contract or lease rights 24. Post-policy forgery 25. Post-policy easement 26. Post-policy limitation on use of land 27. Post-policy damage from minerals or water extraction 28. Post-policy living trust coverage 29. Post-policy encroachment by neighbor other than wall or fence 30. Enhanced access–vehicular and pedestrian 31. Damage to structure from use of easement 32. Post-policy automatic increase of 10% annually up to 150% 33. Post-policy correction of existing violation of covenant 34. Post-policy limitation of use 35. Post-policy prescriptive easement 36. Street address is correct 37. Map not consistent with legal description 38. Coverage for spouse acquiring through divorce 39. Violations of building setbacks 40. Discriminatory covenants ALTA POLICY CLTA POLICY

©2024 Fidelity National Title Builder Services (01/24) 12 THE PRELIMINARY REPORT A Preliminary Report provides a list of the matters that will be shown as exceptions to coverage in a designated policy or policies of title insurance, if issued concurrently, covering a particular state or interest in land. It is designated to provide a preliminary response to an application for title insurance and is intended to facilitate the issuance of the designated policy or policies. It is normally prepared after application (order) for such policy(ies) of title insurance on behalf of the principals to a real property transaction. The Preliminary Report states on its face that it is made solely to facilitate the subsequent issuance of a title insurance policy and that the insurer assumes no liability for errors in the report. Accordingly, any claim arising from a defect in title must be made under the title policy and not the Preliminary Report. If a title policy is not contemplated, a Preliminary Report should not be ordered. Instead, consideration should be given to requesting a Condition of Title Report or other similar title product. After a title order has been placed, matters relative to the title policy coverage on the subject property are assembled in a title search package and examined by skilled technicians. This is when the Preliminary Report is prepared and sent to the customer. The report contains relevant information so that the parties to the transaction will become aware of matters which will not be insured against by the title company. This report is issued before the title policy, hence the name Preliminary Report. The Preliminary Report is an offer to issue a policy of title insurance covering a particular estate or interest in land subject to stated exceptions. Since these exceptions may point to potential problems with an intended purchase, it is important for all parties to review the report once it is received.

©2024 Fidelity National Title Builder Services (01/24) 13 STATEMENT OF INFORMATION Every day documents affecting real property – liens, court decrees, bankruptcies – are recorded. Whenever a title company uncovers a recorded document in which the name is the same or similar to that of the buyer, seller or borrower in a title transaction, the title company must ask, “Does this document affect the parties we are insuring?” Because if it does, it affects title to the property and would, therefore, be listed as an exception from coverage under the title policy. A properly completed Statement of Information will allow the title company to differentiate between parties with the same or similar names when searching documents recorded by name. This protects all parties involved and allows the title company to carry out its duties without unnecessary delay. A Statement of Information is a form routinely requested from the buyer, seller, and borrower in a transaction where title insurance is sought. The completed form provides the title company with information needed to adequately examine documents so as to disregard matters that do not affect the property to be insured, matters which actually apply to some other person. WHAT IS A STATEMENT OF INFORMATION? WHAT DOES IT DO?

©2024 Fidelity National Title Builder Services (01/24) 14 VESTING - COMMON WAYS OF HOLDING TITLE Fidelity National Title Builder Services has provided these comparisons for informational purposes only. These charts are not to be used to determine how you should acquire ownership in the property. It is strongly recommended that you seek professional help from an attorney and/or your tax advisor to determine the legal and tax consequences how your title should be vested. Community Property Joint Tenancy Tenancy in Common Partnership Holding Title Title Holding Trust Community Property Right of Survivorship Registered Domestic Partners Parties Married spouses or domestic partners Any number of persons (can be married spouses or registered domestic partners) Any number of persons (can be married spouses or registered domestic partners) Only partners (any number) Individuals, groups of persons, partnerships or corporations, a living trust Married spouses or domestic partners Only partners that are registered with the California Secretary of State’s Domestic Partners Registry Division Owners and managerial interests are equal (except control of business is solely with managing spouse) Ownership interest must be equal Ownership can be divided into any number of interests equal or unequal Ownership interest is in relation to interest in partnership Ownership is a personal property interest and can be divided into any number of interests Ownership and managerial interests are equal Ownership and managerial interests are equal (except control of business is solely with managing domestic partner) Title Title is in the “community”. Each interest is separate but management is unified Sale or encumbrance by joint tenant severs joint tenancy Each co-owner has a separate legal title to his/ her undivided interest Title is in the “partnership” Legal title is held by the trustee; beneficiary has equitable title Title is in the “community,” management is unified Title is in the “community.” Each interest is separate but management is unified Possession Both co-owners have equal management and control Equal right of possession Equal right of possession Equal right of possession, but only for partnership purposes Right of possession as specified in the trust provisions Both co-owners have equal management and control Both co-owners have equal management and control Conveyance Personal property (except “necessaries”) may be conveyed for valuable consideration without consent of other spouse; real property requires written consent of other spouse, and separate interest cannot be conveyed except upon death Conveyance by one co-owner without the others breaks the joint tenancy Each co-owner’s interest may be conveyed separately by its owner Any authorized partner may convey part or entire interest in partnership property for partnership purposes. Purchaser acquires interest that partnership owned Designated parties within the trust agreement authorize the trustee to convey property. Also, a beneficiary’s interest in the trust may be transferred Right of survivorship may be terminated pursuant to the same procedures by which a joint tenancy may be severed Personal property (except “necessaries”) may be conveyed for valuable consideration without consent of other partner; real property requires written consent of other partner, and separate interest cannot be conveyed except upon death Purchaser’s Status Purchaser can only acquire whole title of community; cannot acquire a part of it Purchaser will become a tenant in common with the other co-owners in the property as to the purchaser’s interest. Other owner’s may remain joint tenants Purchaser will become a tenant in common with the other co-owners in the property Purchaser can acquire part of entire interest in partnership property. If in part, the purchaser will become a tenant in common with the partnership A purchaser may obtain a beneficiaries interest by assignment or may obtain legal and equitable title from the trust Purchaser can only acquire whole title of community; cannot acquire a part of it Purchaser can only acquire whole title of community; cannot acquire a part of it Partners Continued... in California

©2024 Fidelity National Title Builder Services (01/24) 15 Community Property Joint Tenancy Tenancy in Common Partnership Holding Title Title Holding Trust Community Property Right of Survivorship Registered Domestic Partners Death On co-owner’s death, 1/2 belongs to survivor in severalty. 1/2 goes by will to descendant’s devisee or by succession to survivor On co-owner’s death, his/her interest ends and cannot be disposed of by will. Survivor owns the property by survivorship On co-owner’s death, his/her interest passes by will to devisee or heirs. No survivorship rights On partner’s death, his/ her partnership interest passes to the surviving partner pending liquidation of the partnership. Share of deceased partner then goes to his/her estate Successor beneficiaries may be named in the trust agreement, eliminating the need for probate Upon death of spouse, his/her interest passes to the surviving spouse, without administration, subject to the same procedures as property held in joint tenancy On co-owner’s death, 1/2 belongs to survivor in severalty. 1/2 goes by will to descendant’s devisee or by succession to survivor Successor’s Status If passing by will, tenancy in common between devisee and survivor results Last survivor owns property Devisee or heirs become tenants in common Heirs or devisees have rights in partnership interest but not specific property Defined by the trust agreement, generally the successor becomes the beneficiary and the trust continues Surviving spouse owns property If passing by will, tenancy in common between devisee and survivor results Creditor’s Rights Property of the community is liable for debts of either spouse, which are made before or after marriage. Whole property may be sold on execution sale to satisfy creditor Co-owner’s interest may be sold on execution sale to satisfy his/her creditor. Joint tenancy is broken, creditor becomes a tenant in common Co-owner’s interest may be sold on execution sale to satisfy his/her creditor. Creditor becomes a tenant in common Partner’s interest may be sold separately by “Charging Order” by his/her personal creditor, or his/her share of profits may be obtained by a personal creditor. Whole property may be sold on execution sale to satisfy partnership creditor Creditor may seek an order for execution sale of the beneficial interest or may seek an order that the trust estate be liquidated and the proceeds distributed Property of community is liable for debts of either which are made before or after marriage; whole property may be sold on execution sale to satisfy creditor Property of community is liable for debts of either partner, which are made before or after registration as domestic partners. Whole property may be sold on execution sale to satisfy creditor Presumption Strong presumption that property acquired by married spouses is community Must be expressly stated Favored by doubtful cases except married spouses Arise only by virtue or partnership status in property placed in partnership A trust is expressly created by an executed trust agreement Must be expressly stated Must be expressly stated Fidelity National Title Builder Services has provided these comparisons for informational purposes only. These charts are not to be used to determine how you should acquire ownership in the property. It is strongly recommended that you seek professional help from an attorney and/or your tax advisor to determine the legal and tax consequences how your title should be vested. in California VESTING - COMMON WAYS OF HOLDING TITLE

©2024 Fidelity National Title Builder Services (01/24) 16 UNDERSTANDING ESCROW – FAQ WHAT IS AN ESCROW? Buyers and sellers of a piece of property establish terms and conditions for the transfer of ownership of the property. These terms and conditions are given to a third party known as the escrow holder. In turn, the escrow holder has the responsibility of seeing that terms of the escrow are carried out. The escrow is an independent neutral account and the vehicle by which the mutual instructions of all parties to the transaction are complied with. WHY IS ESCROW NEEDED? Whether you are the buyer or the seller, you want assurance that no funds or property will change hands until all instructions have been followed. With the increasing complexity of business, law, and tax structures, it takes a trained professional to supervise the transaction. HOW LONG IS AN ESCROW? The length of an escrow is determined by the terms of the purchase agreement joint escrow instructions and can range from a few days to several months. HOW DOES THE ESCROW PROCESS WORK? The escrow is a depository for all monies, instructions and documents necessary for the purchase of your home, including your funds for down payment and your lender’s funds and documents for the new loan. Generally, the buyer deposits a down payment with the escrow holder and the seller deposits the deed and any other necessary documents with the escrow holder. Prior to the close of escrow the buyer deposits the balance of the funds required and agreed upon by the parties with the escrow holder. The buyer instructs the escrow holder to deliver the monies to the seller when the escrow holder: • Forwards the deed to the title company for recording • Is notified by the title company that a policy of title insurance can be issued showing title to the property is vested in the name of the buyer The escrow holder thus acts for both parties and protects the interests of each within the authority of the escrow instructions. Escrow cannot be completed until the terms and conditions of the instructions have been satisfied and all parties have signed escrow documents. The escrow holder takes instructions based on the terms of the purchase agreement and the lender’s requirements.

©2024 Fidelity National Title Builder Services (01/24) 18 THE LOAN PROCESS APPLICATION LOAN APPROVAL AWAITING DOCUMENTATION FUNDING ORDERING DOCUMENTATION LENDER PREPARATION OF DOCUMENTS LOAN SUBMISSION RECORDATION STEP STEP STEP STEP STEP STEP STEP STEP

©2024 Fidelity National Title Builder Services (01/24) 19 PROPERTY TAXES Annual Secured Property Tax Bills are prepared and mailed by the Treasurer and Tax Collector in October of each year. The first installment of your tax bill is due on November 1 and becomes delinquent by the close of business on December 10. The second installment of your tax bill is due on February 1 and becomes delinquent by the close of business on April 10. Each installment is subject to penalties if not received by the Treasurer and Tax Collector by the aforementioned dates, and the second installment is also subject to costs in addition to penalties if not paid timely.

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