What Is Escrow?
When the decision is made to purchase a property, terms and conditions are established for the ownership transfer of property.
These terms and conditions are given to a third party known as the escrow holder. The escrow holder acts for both parties and protects interests of each within the authority of the escrow instructions.
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 a down payment and your lender’s fund and documents for a new loan. Generally, the buyer deposits a down payment, and the seller deposits the deed and any other necessary documents with the escrow holder. Prior to close of escrow, the buyer deposits the balance of required funds with the escrow holder.
The escrow holder forwards the deed to the title company for recording and delivers the monies to the seller. The title company notifies the escrow holder 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 handles the prorations and adjustments on any fire/hazard insurance, real estate taxes, rents, interest, etc., based on the escrow instructions of both parties.
Escrow is complete once all terms and conditions have been satisfied, documents have been recorded and funds have been disbursed.
How Do I Open An Escrow?
As your real estate agent, I will open the escrow for you. As soon as you execute your purchase agreement/joint escrow instructions, I will place your initial deposit into an escrow account with a closing company.
How Will I Know Where My Money Has Gone?
Written evidence of your deposit is generally included in your copy of the purchase agreement/joint escrow instructions. Your funds will then be deposited in an escrow or trust account.
How Long Is An Escrow?
The length of an escrow is determined by the terms of the purchase agreement and can range from a few days to several months.
What Information Will I Have To Provide?
Confidential Statement of Identity Because many people have the same name, the statement of identity is used to identify the specific person in the transaction by determining date of birth, social security number, etc. The statement form is necessary and information is kept confidential.
Lender Information Provide the escrow holder with the name, address and phone number of your lender as soon as possible after opening escrow.
Fire/Hazard Information If you are purchasing a single family, detached homes, or in some cases, a town home, be sure to order your fire/hazard insurance once your loan has been approved. You should immediately begin looking for an insurance agent; not all companies can write fire/hazard insurance. Call your escrow holder with the insurance agent’s name and phone number so that he/she can make sure the policy complies with your lender’s requirements. You must have your insurance in place before the lender will fund money to the title company.
Title To Home The escrow holder will need to know how you wish to hold title in order to prepare the grant deed, and your lender will need this information to prepare loan documents. We suggest you consult an attorney, tax consultant or other qualified title professional before you decide. You can download a pdf copy of "Ways to Hold Title" at the bottom of the page under "Downloads".
What Is “Close Of Escrow”?
The close of escrow signifies legal transfer of title from the seller to the buyer. The new lender takes 1-3 business days to review the final executed documents and then wires the loan funds to the title company. Escrow collects the remainder of the buyer’s down payment and closing costs. When loan funds are wired, the file is then set up to record (a legal transfer of title from the seller to the buyer). The escrow holder then handles all final accounting, issuance of official closing statements and disbursement of any remaining proceeds to all parties.
Structural Pest Control Inspection
Often referred to as a “Termite Report”, the Structural Pest Control Inspection is conducted by a licensed inspector. In addition to actual termite damage, the Pest Report will indicate any type of wood-destroying organisms that may be present, including fungi (sometimes called “dry rot”), that generally results from excessive moisture. Most Pest Reports classify conditions as Section 1 and Section 2 items.
Section 1 Conditions
Section 1 conditions are those that are “active”, or currently causing damage to the property. Generally, Section 1 items need to be corrected before a lender will make a loan on a home.
Section 2 Conditions
Those that are not currently causing damage, but are likely to if left unattended, are Section 2 items. A typical Section 2 item is a plumbing leak where moisture has not yet caused fungus decay. Who Pays? The Purchase Contract will specify who is responsible for the inspection and making the corrections. This is a negotiable item and should be considered carefully.
Physical Inspection
The Physical Inspection clause in your Purchase Contract, when initialed by both parties, gives permission to have the property thoroughly inspected. This is typically done through a General Home Inspection. The inspections and the resulting report provide an overall assessment of the present condition of the property.
What Is Inspected?
The Home Inspection covers items such as exterior siding, paint, flooring, appliances, water heater, furnace, electrical service, plumbing and other visible features of the property. This is a general inspection and may call for additional trade specific inspections, such as roof and furnace inspections.
Further Inspections
If conditions warrant, the Home Inspector may recommend a Structural Engineers Report. Such a report would identify structural failures and detail recommended corrections. Who Pays? Typically, this inspection is paid by the Buyer.
Geological Inspection
You may also elect to have a Geological Inspection to educate yourselves as to soil conditions at the home. This inspection is performed by a Geological Engineer and involves not only physically inspecting the property but also researching past geological activity in the area. The primary purpose of a Geological Inspection is to determine the stability of the ground under and around the home. Who Pays? Typically, the Buyer pays, but as with other inspections, this is negotiable according to the contract.
Home Warranty
Home Protection Plans are available for purchase by the Buyer or Seller. Such plans provide additional protection of certain systems and appliances in the home.
Title insurance offers home buyers financial protections against ownership disputes and other title problems after escrow closes. When you consider that real estate is probably your most valuable asset and the most significant investment you may ever make, title insurance offers welcome peace-of-mind.
Title insurance is also a selling feature used to make your property more attractive to buyers as well as to lenders who are willing to make mortgage funds available in areas where they know little about local market conditions.
Title Insurance Uncovers Hidden Problems
The title insurance process begins with a search for title records on the property for purchase. The search may uncover things that need corrections before providing a clear title, such as:
· Outstanding mortgages, judgements and tax liens
· Deeds, wills and trusts that contain improper vestings or incorrect names
· Incorrect notary acknowledgments
· Restrictions on height or use of the land
· Easements for utilities or access rights
In spite of the expertise and dedication that go into a search and examination, hidden defects are still a possibility after a real estate purchase is complete, including:
· Previously undisclosed heirs with claims against the property
· A forged deed that transfers no title to real estate
· Instruments executed under expired or fabricated power of attorney
· Mistakes in the public records or unrecorded claims
· Forced removal of encroachments onto the adjoining property
The Title Insurer Is Your Advocate
The title insurer, on your behalf, negotiates with third parties, defends against title dispute and pays on any valid claims. Unlike other kinds of insurance that protect against future events and charge an annual premium, title insurance is a one-time payment and safeguards against loss from hazards and defects already existing in the title. Extended coverage is also available to cover certain future events.
Listed below is the traditional distribution of expenses associated with the purchase of real estate. However, many of these items can be negotiated by both parties at the time of the offer, excluding some expenses required by the lender to be paid specifically by the seller.
Buyer Typically Pays For:
· Escrow fees
· Document preparation (if applicable)
· Notary fees
· Recording charges for all documents in a buyer’s name
· Tax proration (from date of acquisition)
· All new loan charges (except those required by lender for seller to pay)
· Interest on new loan from date of funding to 30 days prior to first payment
· Assumption/Change of Records fees for take-over of existing loan
· Inspection fees (roofing, property inspection, geological, etc.)
· Home warranty (according to contract)
· Title Insurance
· Fire insurance premium for first year
Ways To Hold Title (pdf)
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