Buying or selling a home usually involves the transfer of large sums of money. It is imperative the transfer of these funds and related documents from one party to another be handled in a neutral, secure and knowledgeable manner. Thus, the escrow process was developed for the protection of the buyer, seller and lender. What is Escrow? You will hear the word “escrow” used often throughout your homebuying process. The basic meaning of escrow is that it is money held by an independent third party during the course of a transaction. Where is the money held? In the case of a real estate transaction, the escrow agent or escrow holder has a depository account to deposit the monies for the deal, including your down payment on the property, the funds you provide to cover the closing costs and your lender’s disbursement of the mortgage monies. These monies are held in the account while the transaction is being finalized. From that account, the escrow agent eventually disburses the money to all parties to the deal. What kind of payments are made out of the escrow funds? The escrow agent receives detailed instructions from the lender, concerning what must be paid at the time of closing. These payments could include: Payoff of all existing mortgages Payoff of all existing judgments or liens Payment of the balance of the sales price, after mortgages are paid, to the former owner Real estate broker fees and commissions Mortgage fees and commissions Closing costs Title, homeowners and mortgage insurance Taxes Recording fees What are the other duties of an escrow or closing agent? In addition to handling the money for the transaction, an escrow or closing agent is often in charge of working with you and your real estate agent, the seller and his or her real estate agent, and your lender to assure all of the documentation needed for the closing package has been submitted and is complete. The agent often oversees the closing process, explaining each of the documents to you and presenting them to you for your signature. After all documents have been signed and the transaction is complete, the closing agent provides you with copies of those documents, and returns a completed mortgage package containing them to the lender.
In addition, the agent records all pertinent documents with the county recorder’s office, prepares a statement for all parties detailing the disbursement of funds, and requests the issuance of the title policy.
What is title insurance? Our homes our our biggest asset. With title insurance you can protect your ownership rights. Title insurance protects your interests if a claim is made against your property. The Lender will require you to purchase Lender's Title Insurance to protect the Lender's investment in your mortgage. Owner's Title Insurance protects your ownership for as long as you own your home. Title insurance protects gainst claims resulting from various defects that may exist in the title real property. This coverage takes affect upon recording of the transfer of sale and the issue date of the policy. How is coverage determined? Title companies work in advance of issuing the policy to identify and eliminate potential risks, and therefore prevent losses caused by title defects that may have been created in the past.
Who is title insurance for? Buyers and lenders in real estate transactions need title insurance. Both want to know that the property they are invested in is insured against defects in title. Title companies provide coverage subject to the terms of the policy. The seller, buyer and lender all benefit from the insurance provided by title companies. What does title insurance insure? Title insurance offers protection from various defects. A defect can include a prior claim of ownership from someone other than the person selling the property, a former partner or a co-inheritor. It could also include a claim for encroachment, for instance if a shed, pool or garage was incorrectly built partially on a neighbor's property. Another claim could result from a judgment against a previous owner that resulted in a lien being placed on the property. What types of policies are available? Title companies routinely issue two main kinds of policies, owners title insurance and lenders title insurance. Owners Title Insurance insures the buyer for as long as the buyer and his/her heirs own the property. Lender's Title Insurance or a Loan Policy insures the priority of the lender’s security interest over the claims that others may have in the property. How can a title policy protect you? A premium is paid for the policy at the close of a transaction and there are no continuing premiums due. A title insurance policy contains provisions for the payment of the legal fees in defense of a claim against the property for a covered item. It also contains provisions for indemnification against losses that result from a covered claim. What are the chances of ever making a claim against the policy? In acquiring a policy, the policyholder is assured that items of record have been searched and examined so title insurance covering the property can be issued. Because title insurance companies eliminate risk the probability of exercising the right to make a claim is very low. However, demands made against the property may not be valid, making the continuous protection of the policy all the more important. When a title company provides a legal defense against claims covered by the title insurance policy, the savings for that legal defense alone will greatly exceed the premium paid. The process of risk identification and elimination performed by the title companies, prior to the issuance of a title policy, benefits all parties in a transaction. It minimizes the chances of adverse claims, and reduces the number of claims that to be satisfied.
