Dear Kari,
My husband and I bought our first home last night.
We spent several hours with the sellers to reach the final terms and price. We were so excited we forgot to find out what happens next.
We have asked our Realtor several times, but it is so confusing to us.
Our Realtor referred to the word escrow several times. Can you help us understand what to expect?
Answer:
Escrow includes a myriad of important elements for both buyers and sellers. Understanding the escrow process will help you make sound decisions regarding buying and selling property.
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 buyers and sellers agree to a purchase contract and when the buyers’ “earnest money” or “good faith money” has been delivered to and accepted by the title company.
Both the buyers and sellers are assigned an escrow officer and a file number (same officer and file number for both parties).
The escrow officer serves as a contact for both buyer and seller throughout the closing process.
Usually, the buyers’ Realtor delivers the deposit check to the title company.
Some real estate companies have their own broker’s trust accounts that can accept the deposit on behalf of the buyers and sellers instead of the title company.
In this case, both buyers and sellers should be aware of the 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.
During the closing process the property will be researched and all necessary documents will be prepared by the title company.
The buyers will solidify their loan if they have not been pre-approved by the lender.
Also during escrow, the buyers must select the way to hold title.
Here are some common ways for title to be held — joint tenancy, tenants in common, community property or sole and separate property or perhaps in trust.
Speak to your Realtor, escrow officer, accountant and/or attorney for their input before you decide how you want the title to be held.
The purchase contract may additionally contain some of the following:
Buyers’ and sellers’ contingencies and/or “to do” lists with timeframes of when each item needs to be completed and what each entails for the successful transfer of title. Items such as, appraisal contingency, unforeseen property defects, fixed items, discovery items or non-disclosure, necessary repairs, any inspections such as pest control/termite, any non-compliance with building codes and so on.
Once all contingencies have been met, both buyers and sellers should sign a document removing said contingencies from the purchase contract. Make sure the removal of contingencies is put in writing.
It is not uncommon for mistakes to occur on the final escrow/title documents. Your Realtor should request your closing documents and statements be delivered to her or his office prior to the buyers and sellers appointment with the title/escrow company.
Review with your Realtor the closing statement or HUD-1 and 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 company of any and all papers you have signed. Then the title company receives the buyers’ final payments from the buyers and or from the buyers’ lender.
Now the escrow will be ready to be recorded at the county recorder’s office, and at that moment of recording the title is transferred from the sellers to the buyers and the transaction is completed.
Kari McCoy owns the Kari McCoy Group. She can be reached at (916) 941-9540.
