WHAT HAPPENS IN ESCROW?
An escrow is an arrangement in which a disinterested third party, called an escrow holder, holds legal documents and funds on behalf of a buyer and seller, and distributes them according to the buyer's and seller's instructions.People buying and selling real estate often open an escrow for their protection and convenience. The buyer can instruct the escrow holder to disburse the purchase price only upon the satisfaction of certain prerequisites and conditions. The seller can instruct the escrow holder to retain possession of the deed to the buyer until the seller's requirements, including receipt of the purchase price, are met. Both rely on the escrow holder to carry out faithfully their mutually consistent instructions relating to the transaction and to advise them if any of their instructions are not mutually consistent or cannot be carried out. An escrow is convenient for the buyer and seller because both can move forward separately but simultaneously in providing inspections, reports, loan commitments and funds, deeds and many other items, using the escrow holder as the central depositing point. If the instructions from all parties to an escrow are clearly drafted, fully detailed and mutually consistent, the escrow holder can take many actions on their behalf without further consultation. This saves time and facilitates the closing of the transaction.
The escrow process was developed to help facilitate the sale or purchase of your home. The escrow holder accomplishes this by:- Acting as the impartial "stake-holder," or depository of documents and funds
- Processing and coordinating the flow of documents and funds
- Keeping all parties informed of progress on the escrow
- Responding to the lender's requirements
- Securing a title insurance policy
- Obtaining approvals of reports and documents from the parties as required
- Prorating and adjusting insurance, taxes, rents, etc.
- Recording the deed and loan documents
- Maintaining security and accountability of monies owed and owing.
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LIFE OF AN ESCROW
It all begins with the offer and acceptance skillfully negotiated by the real estate agents representing Buyer and Seller. The Buyer(s)Tenders a written offer to purchase (or accepts the Seller's counter-offer) accompanied by a good faith deposit amount. Approves and signs the escrow instructions and other related instruments required to complete the transaction. Approves the preliminary report and any property, disclosure or inspection report called by the purchase and sale agreement. (Deposit Receipt) Approves and signs new loan documents and fulfills any remaining conditions contained in the contract, lender's instructions and/or the escrow instructions. Deposits funds necessary to close the escrow. Approves any changes by signing amendments in the escrow instructions. The Lender (when applicable)Accepts the new loan application and other related documents from the Buyer(s) and begins the qualification process. Orders and reviews the property appraisal, credit report, verification of employment, verification of deposit(s), preliminary report and other related information. Submits the entire package to the loan committee and/or underwriters for approval. When approved, loan conditions and title insurance requirements are established. Informs Buyer(s) of loan approval terms, commitment expiration date and provides a good faith estimate of the closing costs. Deposits the new loan documents and instructions with the escrow holder for Buyer's approval and signature. Reviews and approves the executed loan package and coordinates the loan funding with the escrow officer. The Escrow OfficerReceives an order for escrow and title services. Orders the preliminary report and examination on the subject property from Chicago Title. Acts as the impartial "stakeholder" or depository, in a fiduciary capacity, for all documents and monies required to complete the transaction per written instructions of the principals. Prepares the escrow instructions and required documents in accordance with terms of the sale. With the authorization from the real estate agent or principal, orders demands on existing deeds of trust and liens or judgments, if any. For assumption or subject to loan, orders the beneficiary's statement or formal assumption package. Reviews documents received in the escrow: preliminary report, payoff or assumption statements, new loan package and other related instruments. Reviews the conditions in the lender's instructions including the hazard and title insurance requirements. Presents the documents, statements, loan package(s), estimated closing statements and other related documents to the principal(s) for approval and signature, and requests the balance of the buyer's funds. Reviews the proceeds of the loan(s) from the lender(s). Determines when the transaction will be in the position to close and advises the parties. Assisted by title personnel, records the deed, deed of trust and other documents required to complete the transaction with the County Recorder and orders the title insurance policies. Closes the escrow by preparing the final settlement statements, disbursing the proceeds to the Seller, paying off the existing encumbrances and other obligations. Delivers the appropriate statements, funds and remaining documents to the principals, agents and/or lenders. The Seller(s)Accepts Buyer's Offer to Purchase and initial good faith deposit to open escrow. Submits documents and information to escrow holder, such as: addresses of lien holders, tax receipts, equipment warranties, home warranty contracts, any leases and/or rental agreements. Approves and signs the escrow instructions, grant deed and other related documents required to complete the transaction. Orders inspections, receives clearances and approves final reports and/or repairs to the property as required by the terms of the purchase and sale agreement (Deposit Receipt). Fulfills any remaining conditions specified in the contract and/or escrow instructions; approves the pay off demands and/or beneficiary's statements. Approves any final changes by signing amendments to the escrow instructions or contract. Chicago TitleReceives an order for title service. Examines the public records affecting the real property and issues a preliminary report. Determines the requirements and documents needed to complete the transaction and advises the escrow officer and/or agents. Reviews and approves the signed documents, releases and the order for title insurance, prior to the closing date. When authorized by the escrow officer, Chicago Title records the signed documents with the County Recorder's office and prepares to issue the title insurance policies. |
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WHO MAY HOLD ESCROWS?
The escrow holder may be any disinterested third party (although some states require that certain escrow holders be licensed).
There are two important reasons for selecting an established, independent escrow firm, an attorney, or an escrow officer with a bank, S&L, or title insurance company. One is that real estate transactions require. a tremendous amount of technical experience and knowledge. The other is that the escrow holder will generally be responsible for safe-guarding and properly distributing the purchase price.
Escrow officers with established firms, such as Chicago Title, generally are experienced and trained in real estate procedures, title insurance, taxes, deeds and insurance.
Impartiality
An escrow officer must remain completely impartial throughout the entire escrow process. He or she will normally adopt a courteous but rather formal manner when dealing with parties to the escrow, keeping conversation to the matters at hand in the escrow. This formal behavior is meant for the benefit of all concerned, since the escrow officer must follow the instructions of both parties without bias. |
ESCROW INSTRUCTIONS
Escrow instructions are written documents, signed by the parties giving them, which direct the escrow officer in the specific steps to be completed so the escrow can be closed.
Typical instructions include:
- The method by which the escrow holder is to receive and hold the purchase price to be paid by the buyer.
- The conditions under which a lapse of time or breach of purchase contract provision will terminate the escrow without a closing.
- The instruction and authorization to the escrow holder to disburse funds for recording fees, title insurance policy, real estate commissions, and any other closing costs incurred through escrow.
- Instructions as to the proration of insurance and taxes.
- Instructions to the escrow holder on the payment of prior liens and charges against the property and distribution of the net sale proceeds.
Since the escrow holder can only follow the instructions as stated, and may not exceed them, it is extremely important that the instructions be stated clearly and be complete in all details. |
WHAT EACH PARTY DOES IN ESCROW
The Seller:- Deposits the executed deed to the buyer with the escrow holder.
- Deposits evidence of pest inspection and any required repair work.
- Deposits other required documents such as tax receipts, addresses of mortgage holders, insurance policies, equipment warranties or home warranty contracts, etc.
The Buyer:- Deposits the funds required, in addition to any borrowed funds, to pay the purchase price with the escrow holder
- Deposits funds sufficient for home and title insurance.
- Arranges for any borrowed funds to be delivered to the escrow holder.
- Deposits any deed of trust or mortgages necessary to secure loans.
- Approves any inspection reports, the Preliminary Report for title insurance, etc., called for by the purchase and sale agreements.
- Fulfills any other conditions specified in the escrow instructions.
The Lender (if applicable):- Deposits proceeds of the loan to the purchaser.
- Directs the escrow holder on the conditions under which the loan funds may be used.
The Escrow Holder:- Opens the order for title insurance.
- Obtains approvals from the buyer on the Preliminary Report, pest and other inspections.
- Receives funds from the buyer and/or any lender.
- Prorates insurance, taxes, rents, etc.
- Disburses funds for title insurance, recording fees, real estate commissions, lien clearance, etc.
- Prepares a final statement for each party, indicating amounts to be disbursed for services and any further amounts necessary to close escrow.
- Records deed and loan documents, delivers the deed to the buyer, loan documents to the lender and funds to the seller, closing the escrow.
Questions?
If you have questions about the escrow process, please call your local Chicago Title office. Click on Employee/Office Locator in the Title Bar above.
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CLOSING THE ESCROW AND DIVISION OF CHARGES
Closing the Escrow Once all the terms and conditions of the instructions of both parties have been fulfilled, and all closing conditions satisfied, the escrow is closed and the safe and accurate transfer of property and money has been accomplished.
Division of Charges
The method of dividing the charges for the services performed through escrow or as a result of escrow varies from place to place. The fees and service charges to be divided might include, for example, the title insurance policy premium, escrow fee, any transfer taxes, recordation fees and cost in connection with any loan being obtained. Unless there is some special agreement between the buyer and seller as to how these charges are to be paid, local custom will generally be followed in drafting the instructions to the escrow holder as to how they are to be divided. |
WHAT IS TITLE INSURANCE?
A Word About Real Estate Real estate has traditionally been a family's most valuable asset. It is a form of wealth that is protected by many laws. These laws have been enacted to protect one's ownership of real estate and the improvements located on the land. The owner, the owner's family, and the owner's heirs have extremely b rights or claims in and to the property that you are buying. Those who may have an interest in or lien upon the property could be governmental bodies, contractors, lenders, judgment creditors, the Internal Revenue Service, or various other individuals or corporations. The real estate may be sold to you without the knowledge of the party having a right or claim in and to the property. In addition, you may purchase the real estate without having any knowledge of these rights or claims. In either event, these rights or claims remain attached to the title to the property that you are buying until they are extinguished. The Past Can Determine Your Future Generally, a person thinks of insurance in terms of the payment of future loss due to the occurrence of some future event. For instance, a party obtains automobile insurance in order to pay for future loss occasioned by a future "fender bender" or for the future theft of the car. Title insurance is a unique form of insurance. It provides coverage for future claims or future losses due to title defects which are created by some past event (i.e., event prior to the acquisition of the property.) These risks are far less obvious than those protected against by automobile insurance, but can be just as devastating. The following information will answer some commonly asked questions about title insurance. Will You Get Clear Title? It is of utmost importance that you receive clear title to the property when you purchase real estate. In order to do so, you must first be informed of any existing rights or claims that may, in the future, threaten your title and possession to the property. Title insurance provides you with this twofold protection. How Do You Find Out What Claims Exist? In order to determine the status of title, Chicago Title conducts a diligent search of the public records for those documents associated with the property. Chicago Title then examines those recorded documents in order to determine if there are any rights or claims that may have an impact upon the title to the property. The title search may reveal the existence of recorded defects, liens or encumbrances upon the title such as unpaid taxes, unsatisfied mortgages, judgments and tax liens against the current or past owners, easements, restrictions and court actions. These recorded defects, liens and encumbrances are reported to you prior to your purchase of the property. Once reported, these matters can be accepted, resolved or extinguished prior to the closing of the transaction. In addition, you are protected against any recorded defects, liens or encumbrances upon the title that are unreported to you and which are within the coverage of the particular policy issued in the transaction. This is the first benefit you receive from title insurance. What About Undiscovered Claims? The title to the property that you have purchased could be seriously threatened or lost completely by hazards which are considered "hidden risks." "Hidden Risks" are those matters, rights or claims that are not shown by the public records and, therefore, are not discoverable by a search and examination of those public records. Matters such as forgery, incompetency or incapacity of the parties, fraudulent impersonation, and unknown errors in the records are examples of "hidden risks" which could provide a basis for a claim after you have purchased the property. In order to protect you against this possibility, Chicago Title provides insurance coverage for such claims. This is the second benefit you receive from title insurance. How Does a Title Insurance Policy Protect Against All These Claims? If a claim is made against your insured title, Chicago Title Insurance Company protects you by: (1) Defending your title, in court if necessary, at no cost to you, and (2) Bearing the cost of settling the case, if it proves valid, in order to protect your title and maintain your possession of your property. Title Insurance Protects Your Asset Title insurance gives you the assurance that possible clouds on title to the property you are purchasing - which can be discovered from the public records - have been called to your attention that such defects can be corrected before you buy. Additionally, it is insurance that if any undiscovered claims covered by your policy arises out of the past to threaten your ownership of real estate, it will be disposed of, or you will be reimbursed exactly as your title insurance policy provides. Only One Premium Unlike other forms of insurance, the original premium is your only cost as long as you or your heirs own the property. There are no annual payments to keep your Owner's Title Insurance Policy in force. Adobe PDF document of this information is available here. |
WHY DO YOU NEED TITLE INSURANCE?
To protect possibly the most important investment you'll ever make - the investment in your home. With a title insurance policy, you as owner, have an indemnity contract that will reimburse you for loss in the event someone asserts a claim against your property that is covered by the policy. How can there be a title defect if the title has been searched? Title insurance is issued after a careful examination of copies of the public records. But even the most thorough search cannot absolutely assure that no title hazards are present, despite the knowledge and experience of professional title examiners. In addition to matters shown by public records, other title problems may exist that cannot be disclosed in a search. What title insurance protects against Here are just a few of the most common hidden risks that can cause a loss of title or create an encumbrance on title: False impersonation of the true owner of the property Forged deed, releases or wills, Instruments executed under invalid or expired power of attorney; Undisclosed or missing heirs; Mistakes in recording legal documents Misinterpretations of wills Deeds by persons of unsound mind Deeds by minors Deeds by persons supposedly single, but in fact married Fraud Liens for unpaid estate, inheritance, income or gift taxes What protection does title insurance provide against defects and hidden risks? Title insurance will pay for defending against any lawsuit attacking your title as insured, and will either clear up title problems or pay the insured's losses. For a one-time premium, an owner's title insurance policy remains in effect as long as you, or your heirs, retain an interest in the property. What this means to you The peace of mind in knowing that the investment you've made in your home is a safe one. Call Chicago Title If you have any questions concerning title insurance coverage, please call a Chicago Title office, or any of our policy issuing agents. We are here to assist you. Adobe PDF document of this information is available here. |
STEPS IN THE TITLE PROCESS
Initial Request for Title Insurance
An order for title insurance is opened with a title officer who produces the initial response promptly within 24 to 48 hours. A preliminary report can be issued with the minimum of information; without even identifying the buyer or the terms of the sale. It shows the record title as it presently exists and is only an offer to provide insurance. To order a preliminary report contact your local Chicago Title representative or office. On-Site Searching and Examining
Your title officer performs three searches: Property, Name, and Tax searches. From that information, a preliminary report is created. Our on-site customer service center expedites the process of obtaining hard copies of recorded documents. Imaging helps to expedite searches with the ability to obtain documents on-line. Technical Review
The skill and expertise of our title officer is the key to providing you with a useful, accurate title report. Once the report is issued the review begins by making a technical analysis of the documents of record. An interpretive view of all recorded matters is made to evaluate their impact on the title to the property. Among the questions the examiner asks are: Would any of the recorded matters prevent the buyer from using the property for its intended purpose? Can antiquated leases be eliminated from the policy per a review of the current leases? Inspection Analysis
In anticipation of ALTA coverage, a site inspection is ordered. From the inspection report, the initial title product is supplemented to show any encroachments or other off-record matters which would ultimately impact the title. Co-Insurance, Re-Insurance, Other Details
If co-insurance or re-insurance is needed for a transaction, we expedite the confirmation of approval. You, the customer, are never bogged down or delayed by the action on the part of our title unit. To the contrary, as a resource and as a facilitator of the transaction, we assume the responsibility for as many details as possible and are able to direct you to other resources where necessary (such as for a lost instrument bond). We Earn Your Respect with our Skills, Service and Solutions
We try not to point out impediments to the close of a transaction without also offering assistance and solutions. By understanding the sometimes delicate balance of the interests of the parties to a transaction, and by professionally and courteously handling issues as they arise, we can capably guide a transaction to a successful conclusion. Documents in the Title Process
- Preliminary Report
- Commitment - Shows the condition of title in the way we are willing to issue it.
- Pro Forma - Specimen of what the requested policy, as requested, will look like. Underwriting issues not completed. Not binding upon the company.
- Policy - Final product. Contract of indemnity between named insureds and the company.
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21 REASONS FOR TITLE INSURANCE
Buying Property Is A Numbers Business- A fire destroys only the house and improvements. The ground is left. A defective title may take away not only the house but also the land on which it stands. Title insurance protects you (as specified in the policy) against such loss.
- A deed or mortgage in the chain of title may be a forgery.
- A deed or a mortgage may have been signed by a person under age.
- A deed or a mortgage may have been made by an insane person or one otherwise incompetent.
- A deed or a mortgage may have been made under a power of attorney after its termination and would, therefore, be void.
- A deed or a mortgage may have been made by a person other than the owner, but with the same name as the owner.
- The testator of a will might have had a child born after the execution of the will, a fact that would entitle the child to claim his or her share of the property.
- A deed or mortgage may have been procured by fraud or duress.
- Title transferred by an heir may be subject to a federal estate tax lien.
- An heir or other person presumed dead may appear and recover the property or an interest therein.
- A judgement or levy upon which the title is dependent may be void or voidable on account of some defect in the proceeding.
- Title insurance covers attorneys’ fees and court costs.
- Title insurance helps speed negotiations when you’re ready to sell or obtain a loan.
- By insuring the title, you can eliminate delays and technicalities when passing your title on to someone else.
- Title insurance reimburses you for the amount of your covered losses.
- A deed or mortgage may be voidable because it was signed while the grantor was in bankruptcy.
- Each title insurance policy we write is paid up, in full, by the first premium for as long as you or your heirs own the property.
- There may be a defect in the recording of a document upon which your title is dependent.
- Claims constantly arise due to marital status and validity of divorces. Only title insurance protects against claims made by non-existent or divorced "wives" or "husbands."
- Many lawyers, in giving an opinion on a title, protect their clients as well as themselves, by procuring title insurance.
- Over the last 24 years, claims have risen dramatically.
We Hope You Never Have A Title Claim Americans have the future in mind when they buy a house, and they purchase homeowner’s insurance to help protect that future. But with home ownership comes the need to protect the property against the past, as well as the future. Title insurance protects a policyholder against challenges to rightful ownership of real property, challenges that arise from circumstances of past ownerships. Each successive owner brings the possibility of title challenges to the property. When you purchase real property, rely on Chicago Title to protect your interests. You’ll be insured by a company backed by more than 150 years of successful title operations. Rely On Chicago Title To Protect Your Investment Every owner, purchaser and beneficiary, whether by a deed or contract, should have an insured title. The entire investment depends upon the quality of title. If you are buying real estate mortgages, you are paying for a good title and you should see that you have one. If either fire insurance or title insurance is omitted, your security is not complete. Our title policy protects you against unforeseen defects in title that an abstract or the public records do not show and cannot show…nor any attorney’s opinion includes. Whether this is your first or fiftieth real estate investment, ask your real estate agent or broker to specify Chicago Title during your transaction. |
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Stephen Wong - Mortgage Broker Loan Agent