Kari McCoy's Real Estate Articles
ESCROW MADE SIMPLE
Escrow includes myriad elements which are important for both buyer and seller to understand. Understanding the escrow process will help you make sound decisions regarding buying and selling your house. An escrow is a neutral third party which facilitates and acts upon mutual instructions received by the buyer, seller, and any other parties involved in the transaction. Escrow officers generally work within the title company.
Escrow begins when the buyer and seller agree to a purchase contract and when the buyer’s “earnest money,” a.k.a. “good faith money” or “deposit” has been delivered within the agreed upon amount of time, usually one to two banking days after the signing of the purchase contract. Technically, escrow is opened when the deposit is accepted by the title/escrow company. Both the buyer and seller are assigned an escrow officer and a file number (same officer and file number for both parties). The escrow officer serves as contact for both buyer and seller throughout the closing process.
Usually, the buyer’s Realtor delivers the deposit check to the title company, which oftentimes performs the functions of an escrow company as well. Some real estate companies have their own “broker’s trust accounts” which can accept the deposit on behalf of the buyer and seller instead of the title/escrow company. In this case, both buyer and seller should be aware of their options and be clear as to the advantages and disadvantages of the deposit being held by a broker’s trust account versus a title/escrow company.
What takes place during escrow? During the closing process, the property will be researched and all necessary documents will be prepared by the title company. The buyer will solidify his loan (if he hasn’t been pre-approved by his lender).
Also during escrow, the buyer must select the way he wants to hold the title. For example, if the seller is holding the property in a trust, it’s important that the buyer arranges for the title to be held in a trust also. Four common ways for title to be held are joint tenancy; tenants in common; community property; sole and separate property. Speak to your Realtor, escrow officer, accountant and/or attorney for their input before you decide how you want the title be held.
The purchase contract will contain the following:
- Buyer’s contingencies or “to do” list with dates certain as to when each item contained therein needs to be completed for the successful completion of the transference of title.
- Seller’s contingencies or “to do” list with dates certain as to when each item contained therein needs to be completed for the successful completion of the transference of title.
- Who pays for what
- Legal ways in which contract may be terminated
- Closing date (the deadline determined and agreed upon by buyer and seller by which the transference of title must be successfully completed – in deciding upon the closing date, the buyer and seller should allow enough time for all the contingencies to be met)
That all contingencies be met by their designated dates certain is vital to ensure the completion of the transaction. Some possible contingencies contained in the purchase contract might be:
- appraisals (in order to secure your loan, the contract should contain an “appraisal contingency” to make sure that the home is appraised at the agreed upon purchase price - this gives the buyer an “out” if the home appraises lower than agreed upon price)
- financing terms met (for example, a seller contingency might require additional deposit moneys after the seller has completed his general property-related contingencies - such as a general house or termite inspection- and the buyer is satisfied that some of the contingencies or requirements he placed in the purchase contract to protect himself have been met to his satisfaction)
- property defects fixed
- any discovery of non-disclosure
- discovery of repairs that must be made that are the seller’s responsibility and proof that repairs have been made
- non-compliance with building codes
- any inspections (such as termite or dry rot inspections)
- any lender’s contingencies
Once all contingencies have been met, both buyer and seller should sign a document removing said contingencies from the purchase contract. Make sure the removal of contingencies is put into writing.
It is not uncommon for mistakes to occur on the final escrow and title documents. A diligent Realtor should request your closing documents and statements be delivered to her office prior to the buyer and seller’s appointment with the title/escrow company to sign the final documents. She should review the documents and allow enough time to request the title/escrow company fix any errors before the closing date. Then, she will review the final closing statement or HUD-1 in detail with you.
Review with your Realtor all fees or costs such as escrow fees, title fees, lenders fees, tax proration and other costs to make sure they are correct. It is imperative to have any errors or miscalculations corrected before you sign the closing documents to protect yourself from future misunderstandings.
You should receive copies from the title/escrow company of any and all papers you have signed. Then the title company/escrow company receives the buyer’s final payment (from either the buyer or the lender).
Now the escrow should be ready to be recorded at the county recorder’s office. At that moment of recording, the title is transferred from the seller to the buyer.
Many buyers and sellers are concerned about being out of town on the actual closing date. No worries. Neither buyer nor seller need to be physically present on the actual day of closing, because your savvy Realtor will have made sure that all necessary preparations for a successful closing have been made and that everything is in order.
Stay tuned for my next column which will give you the low-down on the “72-hour release clause.”
Kari McCoy is a resident of El Dorado Hills and owns the Kari McCoy Group, Residential Real Estate, at Coldwell Banker. Call her at (916) 933-KARI (5274), e-mail her at sold@karimccoygroup.com or visit www.KariMcCoyGroup.com.
Copyright© 2006 Kari McCoy