Escrow and Title Process

 

In real estate, escrow is a transaction where the buyer and seller of real property each delivers items of value to a third party (the "escrow holder"), to be held until all conditions of the sale have been met. Both parties to a real estate transaction entrust legal documents and various funds to the escrow holder, which transfers the papers and funds upon closing of the escrow. As a neutral third party, the escrow holder ensures that both buyer and seller meet all mutually agreed to terms before the transaction is completed.

Using the escrow holder as a common depository, the buyer and seller can proceed simultaneously in providing funds, deeds, inspection reports, insurance information, and other required documents. Both parties give written instructions, the requirements of which must be met before the transaction is complete, to an experienced escrow officer. Lenders also specify their conditions for completing the loan process. Provided that the instructions are clear and mutually consistent, the escrow officer, as a limited agent for all parties, saves time in the closing process.

Escrow Provides Mutual Protection

The authority given to an escrow holder is strictly limited by instructions provided by the buyer and seller. The escrow officer is authorized by instructions to allocate funds for the items during the escrow period, such as real estate commissions, title insurance, liens, recording fees, and other closing costs. Instructions also specify the method of collecting funds, proration of insurance and taxes, and time limitations on settling transactions. The escrow process protects all parties involved by retaining money and documents until the mutual instructions are met. Confidentiality is another important aspect of escrow. To effectively handle a transaction, your escrow officer must be instructed as to the required terms necessary to close. The officer will discuss escrow matters only with the parties directly involved, specifically the buyer, seller, lender and real estate agent. No one else has access to this information, except through proper legal procedures. The escrow officer retains impartiality and confidentiality concerning the real estate process.

Closing Escrow

Upon closing, the escrow holder causes the required documents to be recorded with the appropriate governmental authorities and disburses funds according to the instructions given to the escrow officer. Escrow fees are included in these costs, and are based on the sale price of the property, the loan amount, and services required.

Responsibilities of Each Party

The Buyer

  • Deposit funds to pay for the purchase price, and funds for property and closing costs.
  • Deposit funds to pay for the purchase price, and funds for property and closing costs.
  • Provide deed of trust or mortgages needed to secure the loan.
  • Arranges for borrowed funds to be deposited in escrow.
  • Provides, if required, documents such as inspection reports, insurance policies, and lien information to verify compliance to the instructions.

The Seller

  • Deposits the deed for the property with the escrow holder.
  • Provides evidence to meet the buyer's condition of sale, such as proof of repair work and inspections.
  • Submits other documents, such as tax receipts, mortgage information, insurance policies, and warranties.

The Lender (When Applicable)

If a loan is being obtained to purchase the property, the lender deposits loan funds, lender instructions and other loan documents with the escrow holder.

The Escrow Holder

  • Serves as a central depository for funds and documents.
  • Serves as a central depository for funds and documents.
  • Obtains a title insurance policy, when required.
  • Fulfills the lender's requirements if applicable.
  • Secures approval from the buyer on requested documents.
  • Prorates insurance, taxes, and rents, as instructed.
  • Fulfills buyer and seller instructions.
  • Allocates funds for closing costs, and verifies that required funds from each party are deposited into escrow.
  • Once all conditions are met, the escrow holder causes the necessary documents to be recorded. Executed loan documents are forwarded to the lender.

What Is Title?

Fire Insurance protects you against loss from fire. Collision insurance guards you against the cost of a damaged car. Theft insurance protects you against losses due to theft. Title insurance protects your title to real estate that you are about to acquire. To understand why title protection is essential, we need to consider real estate for a moment.

Real estate has always been considered man's most valuable possession. It is so basic a form of wealth that many special laws have been enacted to protect ownership of land and the buildings which stand on the land. When you buy property, the owner who is selling it to you has extremely strong rights as do his family and heirs. Also, there may be other entities who have certain rights to the property you are going to buy: governmental bodies, utility companies, and contractors, to name a few. Some of the things a title search might uncover include:

  • Unpaid taxes
  • Mortgage judgments against previous owners
  • Mineral rights held by other parties
  • Easements (road, utility, ingress/egress)
  • Liens and other court actions

A title company finds and reports such defects in the title to the real estate you wish to buy, so that these matters can be corrected and cleared up. It is the first benefit you receive when title insurance is ordered. While we discuss escrow and title separately, it is common for title companies to also provide escrow services. Unlike other forms of insurance, the original premium is your only cost as long as you own the property. There are no annual payments to keep your Owners Title Insurance Policy in force.
 
Protecting You Against Hidden Risks

Another protection title insurance provides is for loss from claims on real estate which cannot be discovered by examination of the public records. For example, the title to the home which you have purchased could be threatened by such circumstances as forgery, confusion due to similar names, or errors in the records. If a claim is made against your title as covered by your policy, most title companies protect you by:

  • Defending your title, in court if necessary, at their expense.
  • Bearing the cost of settling the claim if it proves to be valid, in order to perfect your title and keep you in possession of your property.

 

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