Title and Escrow
Although it’s not the most talked-about aspect of buying a home, escrow is nonetheless a vital component of a successful transaction.
Your real estate Broker and Escrow Officer can answer your questions about escrow and help you through the process. Here’s a brief overview on what escrow is, and how it works in the overall scheme of things.
What is Escrow?
Escrow is an arrangement in which a neutral third party holds onto funds and key documents involved in a home sale, and then distributes them according to the agreement between the buyers and sellers. The escrow period begins when a seller accepts a buyer’s offer, and ends at the closing table.
Purchasing a house isn’t like every day purchases; there’s a lot of money involved, a lot of steps to manage, and a lot at stake. So the buyers and sellers don’t exchange money and documents directly with one another. They do it through the escrow account.
Escrow ensures accountability. Buyers want to be sure all contingencies are met (inspection, title report, secured mortgage, etc.) before the sellers cash any checks. Sellers want to make sure they receive funds before they hand over the deed.
What happens during escrow?
An escrow account opens up when buyers put down earnest money to show the sellers that they’re serious about buying the home. An escrow officer – usually someone within a title company – is assigned to the account.
An escrow officer, or settlement agent, does the following:
Escrow closes when all the tasks, documents, and funds are performed or secured by the escrow officer.
What’s My Role in Escrow?
Both buyers and sellers have responsibilities during the escrow process and must do their respective parts to keep the transaction moving
As the Seller:
As the Buyer:
What is Title Insurance?
Title insurance is a policy that protects against financial loss stemming from problems found in a property’s title, or legal ownership.
Think of it this way: As the buyer, how do you know the seller really owns the property? How can you be sure there are no liens, such as from unpaid taxes and lawsuits, or undisclosed heirs who might claim ownership? The answer lies in the title search.
A good title search generally turns up these types of issues and a good title insurance policy will protect you should they arise during your ownership.
We can help answer your questions on title insurance and direct you to a title company, but at the same time, it’s good to understand some of the basics.
There are two types of title insurance policies – one protects the lender, and the other protects the homeowner:
Title Insurance FAQs
What time frame does title insurance cover?
It’s important to understand that insurance covers the buyer and lender only for events that occurred before the purchase date. It does not cover future events or any clouds or defects that arise after the purchase date.
In other words: If the buyer does something that causes a lien to be put on the house, the title policy will not cover the loss.
What types of claims are covered?
Standard policies differ by provider, but most cover:
What should I look for in the preliminary title report?
Generally, keep an eye out for the following:
How do I address problems that arise in the title report?
Your Real Estate Broker or Escrow Officer can help. Some issues, like easements, can be worked out, while others may be enough reason to walk away. The key is in understanding the issues and talking them through with your real estate Broker.
An easement isn’t always cause for alarm, but if you discover one, be sure to investigate it with the professionals on your team.
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