Title and Escrow

Published On: April 19, 2009

Here's some general information on Title and Escrow for your information:

The Functions of an Escrow
Buying or selling a home (or other piece of real property) usually involves the
transfer of large sums of money. It is imperative that the transfer of these funds and
related documents from one party to another be handled in a neutral, secure and
knowledgeable manner. For the protection of buyer, seller and lender, the escrow
process was developed.

As a buyer or seller, you want to be certain all conditions of sale have been met
before property and money change hands. The technical definition of an escrow is
a transaction where one party engaged in the sale, transfer or lease of real or
personal property with another person delivers a written instrument, money or other
items of value to a neutral third person, called an escrow agent or escrow holder.
This third person holds the money or items for disbursement upon the happening of
a specified event or the performance of a specified condition.

Simply stated, the escrow holder impartially carries out the written instructions
given by the principals. This includes receiving funds and documents necessary to
comply with those instructions, completing or obtaining required forms and
handling final delivery of all items to the proper parties upon the successful
completion of the escrow.

The escrow must be provided with the necessary information to close the
transaction. This may include loan documents, tax statements, fire and other
insurance policies, title insurance policies, terms of sale and any seller-assisted
financing, and requests for payment for various services to be paid out of escrow
funds.

If the transaction is dependent on arranging new financing, it is the buyer's or the
buyer's agent's responsibility to make the necessary arrangements. Documentation
of the new loan agreement must be in the hands of the escrow holder before the
transfer of property can take place. A real estate agent can help identify appropriate lending institutions.

When all the instructions in the escrow have been carried out, the closing can take
place. At this time, all outstanding funds are collected and fees--such as title
insurance premiums, real estate commissions, termite inspection charges--are
paid. Title to the property is then transferred under the terms of the escrow
instructions and appropriate title insurance is issued.

Payment of funds at the close of escrow should be in the form acceptable to the
escrow, since out-of-town and personal checks can cause days of delay in
processing the transaction.

Closing and Title Costs
It's the big day.
The day you go to the title or escrow company, sign your name on the dotted line,
hand over a check and prepare to take ownership of your new home.

It's also the day that you and the seller will pay "closing" or settlement costs, an
accumulation of separate charges paid to different entities for the professional
services associated with the buying and selling of real property.

It's too often a day filled with uncertainty and stress.

To help you better understand this confusing subject, the Land Title Association
has answered some of the questions most commonly asked about title, closing and
closing costs.

What services will I be paying for when I pay closing costs?
You will usually be paying for such things as real estate commissions, appraisal
fees, loan fees, escrow charges, advance payments such as property taxes and
homeowner's insurance, title insurance premiums, pest inspections and the like.

How much should I expect to pay in closing costs?
The amount you pay for closing costs will vary; however, when buying your home
and obtaining a new loan, an estimate of your closing costs will be provided to you
pursuant to the Real Estate Settlement Procedures Act after you submit your loan
application. This disclosure provides you with a good faith estimate of what your
closing costs will be in the real estate process. An itemized list of charges will be
prepared when you close your transaction and take title to your new property.

How do I go about clearing unwanted liens and encumbrances?
You will wish to carefully review the preliminary report. Should the title to the
property be clouded, you and your agents will work with the seller and the
seller's agents to clear the unwanted liens and encumbrances prior to taking
title.

Who can I turn to for further information regarding Preliminary Reports?
Your real estate agent and your attorney, should you choose to use one, will
help explain the preliminary report to you. Your escrow and title company can
also be helpful sources.

CONCLUSION: In a business which is directed at risk elimination, the efforts
leading to the production of the preliminary report, which is designed to
facilitate the issuance of a policy of title insurance, is perhaps the most
important function undertaken.

What is a Statement of Information?
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 which do not
affect the property to be insured, matters which actually apply to some other
person.

What does a Statement of Information do?
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.

Can the trustee give someone a power-of-attorney?
Only if the trust specifically provides for the appointment of an attorney-in-
fact.

What will the title company require if all the trustees have died or are unwilling
to act?
If the trustor is not able to do so, or the trust provisions prohibit the trustor
from appointing a new trustee, the court may do so.

How does a notary acknowledge the signature of the trustee?
Title is vested in the trustee. Hence, if the trustee is an individual or a
corporation, then the new general form of acknowledgment will be prepared to
reflect the intrinsic nature of the trustee.

How would the deed to the trustee ordinarily be worded to transfer title to the
trustee?
"John Doe and Mary Doe, as trustees of the Doe family trust, under
declaration of trust dated January 1,1992."

What about my original title insurance policy?
When you bought your home, you purchased a Homeowners title policy. The
Homeowners’ policy stays in force as long as you or your heirs own the
home. When you refinance, your lender will often require that you purchase a
new lender's policy to protect their new security interest in the property. Thus,
you are buying a policy to protect your lender, not a new Homeowner's policy.

What could possibly have happened since I purchased my home which
warrants a new lender's policy?
Since the time that the original loan was made, you may have taken out a
second trust deed on the house or had mechanic's liens, child support liens
or legal judgments recorded against you - events that could result in serious
financial losses to an unprotected lender. Regardless if it has been only 6
months or less since you purchased or refinanced your home, a myriad of
title defects could have occurred. While you may not have any title defects,
many Homeowners do. The only way for a lender to adequately protect itself
is to get a new lender's policy each time you purchase or refinance your
home.

Are there any discounts available for title insurance on a refinance
transaction?
Yes. Title companies offer a refinance transaction discount or a short-term
rate. Discounts may also be available if you use the same lender for your
refinance loan and your original loan. Be sure to ask your title company how
they can save you money.

Creative financing
Creative financing: You've heard of it, and, as a seller, the idea sounds pretty
attractive. But, do you know everything you need to know about carrying
back a second; essentially, about becoming a lender? You better know the
same things that financial institutions know - you better know about lender's title insurance.

It's time to sell your $150,000 home, a home that you have owned for fifteen
years, a home in which you have substantial equity. The loan terms call for a
$20,000 down payment from your buyer, a new $100,000 loan from a local
savings and loan, and for you, the seller, to carry back a note for the
remaining $30,000.

Will you, the seller, need title insurance?
Yes, you will. Everyone who retains an interest in the property needs title
insurance. When you took on the role of lender, you retained a record title
interest which you will want to protect for the term of the loan.

But, why would you need lender's title insurance when the repayment of your
loan is assured by a lien in the form of a recorded deed of trust against the
property? What could possibly go wrong?

You must insure yourself for the same reason that financial institutions obtain
title insurance - for the protection of your investment. You must be assured
that your lien on the property cannot be defeated by a prior lien or other
interest in the property, which, if exercised, would wipe out your security.
Anything that involves the new buyer's ownership rights to the property is of
direct interest to you because you are holding the second mortgage. If such
ownership rights are in question or defective, you may have trouble collecting
your monthly mortgage payments. But, you say, there is nothing in your
property's history that could cause problems: no problems with easements,
no problems with boundaries, no problems with rights-of-way.

Contrary to what may be popular belief, these matters are not the only source of title problems; a large proportion of title problems arise out of man's
interaction with man. The fact of a marriage, a divorce, a death, a forgery, a
judgment for money damages, a failure to pay state or federal taxes - these
occurrences can and usually will affect your rights as a mortgage lender.

As an example of what can befall the lender, did you know that a federal tax
lien recorded against your "buyer" before the loan transaction is concluded
may result in the loss of security in "your" home? Sophisticated mortgage
lenders are aware of this possibility as well as many others which could
jeopardize their loan security and seek the protection afforded by a lender's
title insurance policy.

If you are considering carrying back a second, be sure to get all the facts
regarding the benefits of lender's title insurance. Your local title insurance
company should be happy to provide the information you need.