Most real estate transactions go through a process called escrow and ensure that no exchange of funds or property will take place until all conditions are met. Real estate agents will usually recommend an escrow company and all parties to the transaction must agree upon the escrow holder. The authority given to an escrow holder is strictly limited by instructions provided by the parties involved. Consequently, an escrow holder acts on mutual instructions deposited into escrow and does not represent any party.
Once there is a fully executed contract, a real estate agent will submit the purchase agreement to the escrow holder and the buyer will submit the earnest money deposit as soon as possible. The escrow holder will write escrow instructions based on the conditions of the purchase agreement. Escrow instructions define all the conditions that must occur before the transaction can be finalized. The escrow officer will send escrow instructions for signing along with other forms such as vesting instructions, statement of confidential information, and change of ownership form. Its important to complete and return escrow documents as sson as possible.
The escrow officer reviews a preminary title search report which will show encumbrances such as taxes, liens along with other important information about the property. The escrow holder will order payoff statements from creditors holding a lien on the property and other miscellaneous information as required by law or as required by the contract. The escrow holder also orders insurance verification and loan documents for the buyers.
The closing process is where the escrow company settles all liens against the property, prepares a closing statement for both parties, orders document recording, delivers all contracts, statements and policies to the appropriate parties, and requests that the buyer’s loan funds be transferred, as well as all necessary funds from both the buyer and seller, for closing costs, down payment, prepaid items and credits.
The recording of the grant deed from sellers to buyers is when the official tranfer of ownership takes place. The sellers agent will deliver the keys to the buyers agent after recording. Recording can take place at any time throughout the day and is dependent on how busy the county recorder is.
Escrow then prepares final closing statements and sends any funds due to the buyer and seller and escrow is closed. The escrow process is complicated and it is another reason to have experienced and dependable professionals by your side to help you navigate.
NOTE* An escrow account (also called an impound account) is different than escrow and the two are often confused by consumers. Once the transaction is complete, a loan servicing company may setup an escrow account on behalf of the borrower in which a portion of the borowers funds are deposited immediately. An escrow account is established for the recurring payments of property taxes and hazard insurance and operates similarly to a savings account and may actually yield a small yearly interest for the borrower. Each month a deposit is made into the escrow account and is taken out of the borrowers (PITI) payment to the lender or servicing company. When the property taxes or insurance become due, the lender will withdraw funds from the escrow account to pay the expenses on the borrower's behalf. Any money remaining in the escrow account at the end of the year in excess of the minimum operating funds required by law is refunded to the borrower. The lender will review the account every year and make adjustments to the monthly contribution in anticipation of an increase or decrease in costs. A statement will be sent to the borrower detailing the new amount that will be added to the monthly principal and interest loan payment. The escrow account process assures the lender that taxes and insurance are paid on time. Many loan programs require that borrowers have escrow accounts. When not required, the establishment of an escrow account or impound account is generally personal preference.
A Subescrow Fee is Charged By A Title Company For The Following Services:
- Coordinating with the escrow holder/lender for recording
- Verifying and updating pay-off demand figures with the lender
- Verifying payment of property taxes
- Calculating the pay-offs on the day of closing
- Disbursing all pay-offs and net proceeds per instructions
- Notifying the escrow company upon confirmation of recording
- Processing refunds
Important information about payoffs
One of the most important responsibilities of escrow is the payoff of any existing mortgages and/or other liens on the property. Once escrow receives the mortgage information from the seller, they order a payoff statement/demand from the lender. In many cases, these payoffs can be ordered by phone and received within 24 hours.
However, there are many lenders that either require the borrowers permission, a faxed request, refuse to give verbal information due to the privacy acts or take days and sometimes weeks to provide a statement (by law they have up to 21 calendar days). If there is a prepayment penalty, it can take a longer time as they have to pull their actual file to confirm and calculate the prepayment fee.
To ensure a timely closing, call escrow immediately and provide the loan information to help expedite the process. Remember, escrow cannot close without a payoff demand and if the demand takes along time to come in, it could delay closing.
Avoid unecessary issues problems by talking with your real estate agent about existing liens before escrow is open!
Understanding the statement of information
A Statement of Information is a form routinely requested from the buyer and 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. Statements of Information provide title companies with the information they need to distinguish the buyers and sellers of real property from others with similar names. After identifying the true buyers and sellers, title companies may disregard the judgments, liens or other matters on the public records under similar names.
The information you supply is completely confidential and only for title company use in completing the search of records necessary before a policy of title insurance can be issued. The information requested is personal in nature, but not unnecessarily so. The information requested is essential to avoid delays in closing the transaction. You, and your spouse if you are married, will be asked to provide full name, social security number, year of birth, birthplace, and information or citizenship. If you are married, you will be asked the date and place of your marriage.Residence and employment information will be requested, as will information regarding previous marriages if you are divorced.
Failure to provide the requested Statement of Information will hinder the search and examination capabilities of the title company, causing delay in the production of your title policy or it could prohibit the close of your escrow. Without a Statement of Information, it would be necessary for the title company to list as exceptions from coverage judgments, liens or other matters which may affect the property to be insured. Such exceptions would be unacceptable to most lenders, whose interest must also be insured.
Title companies make every attempt in issuing a policy of title insurance to identify known risks affecting your property and to efficiently and correctly transfer title so as to protect your interests as a homebuyer. By properly completing a Statement of Information, you allow the title company to provide the service you need with the assurance of confidentiality.