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For Sale by Owner Guide

Guide for Sellers

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Escrow Account Details

Note

This information is essential if you are selling by owner, but it is also very helpful if you are working with a real estate agent.

Opening an escrow provides protection and convenience to both the buyer and seller, bringing an impartial third party into the transaction. In a sense, the escrow holder represents both parties. The escrow holder holds legal documents and funds on behalf of both, ensuring each is satisfied before the purchase is finalized. For example, the seller can instruct the escrow holder to retain possession of the deed until the purchase price is received; at the same time, the buyer can instruct the escrow holder not to distribute funds until certain requirements are met.

Below are two informative articles to help you get a firm grasp of this important step in the home selling process: "Choose an Escrow Officer" and "Escrow Procedure."

Choose an Escrow Officer

Choosing the right escrow officer or title attorney to handle your sale can mean the difference between a smooth and rapid closing or a complicated, delayed closing, fraught with anguish. Most often either the buyer or seller may choose the closing agent, depending on your local custom, but whoever it is, there are several important criteria which should be considered.

Selecting an escrow closing agent, whether it be an escrow officer in an independent escrow office or a real estate attorney in a law firm or title company, is a choice which should be made carefully. This choice will be one of the most important steps in your escrow and closing process as you will be working closely with this person, often daily, throughout the entire 30 or 60 day period of your real estate sale or purchase. Whoever you choose, that person will become your personal secretary, complying with the terms and conditions of your instructions, and they will keep your funds safely deposited in an escrow account. They will strive to be as confidential as possible, answer your questions, and clear up any title problems which may arise.

Let's look at four important criteria to consider when choosing an escrow officer or title attorney. The first criteria is the reputation of the company in the community. The first place to begin your search is to ask your friends and acquaintances who have had recent experience with real estate transactions to recommend a company or an individual they have been pleased with, one who met all their expectations. Inquire among friends as to the reputation of the individual officer or title company in your local community. Ask your friends if the escrow agent they recommend returns phone calls promptly, explains details in everyday, understandable language, inspires confidence, and is knowledgeable and acts in a professional, courteous manner.

The second criteria to look at is the managerial experience of the escrow agent you are choosing. Look at the professionalism in the escrow agent or title company you are considering. Your escrow agent should be knowledgeable, efficient, friendly, and confidential. Above all else, ask lots of questions when interviewing your potential escrow closing agent. Ask about their previous experience. Have they handled many owner transactions? Do they have a good working relationship with lenders and are they experienced in handling loan documents? Do they have experience in handling possible title problems that may be found in the title report?

The next criteria which we will consider is the location of the office of the closing or escrow agent. Since you will have to visit the escrow agent's office in person at least once and perhaps several times to prove your identity, sign numerous papers, and deliver or pick up a check, try to select an agent with an office conveniently located near your home or work so you can reach it during normal business hours in just a few minutes.

The final criteria to consider is the fees that your escrow or closing agent is going to charge. Fees charged by escrow agents and closing attorneys do vary, and the decision on who pays which fees will also vary from state to state. The seller may be paying for the title insurance, as in Florida, for example, or the buyer may be paying the escrow fees, as in California. Whoever is responsible for paying for each individual fee should be determined well ahead of the closing, and before you choose your escrow or title agent. You will want to try to select the most reputable and professional escrow or closing agent you can find, combined with the one who also charges the most reasonable fees. Several fees, such as recording fees, transfer tax fees, are non-negotiable and will be the same statewide. Title insurance fees and escrow fees can vary from company to company.

You can expect your escrow officer or closing agent to do several specific things for you. Included in the cost of the escrow and title fee will be the following: ordering of the preliminary title report, securing payoff demands/and or beneficiary statements from existing lenders and requesting full reconveyances of any deed of trust or mortgages to be paid off in escrow, obtaining instructions and loan documents from the new lender, obtaining documents to clear any outstanding liens against the property, issuing receipts for deposits of documents and holding funds in a separate account, prorating taxes, interest, rents, etc., preparing buyers and seller's escrow instructions and seeing that all documents are properly executed, determining when everything is going to be completed so the transaction can close, obtaining title insurance for the buyer and or the lender, arranging timely transfer of the fire insurance policy or seeing that the buyer secures a new policy, recording the necessary documents, such as grant deeds, deeds of trust, powers of attorney, substitutions of liability, and reconveyances, when all the conditions of the transaction have been met, and finally, disbursing all funds to the proper parties, delivering documents and preparing the final closing statements.

After looking at the reputation of the escrow or title company in the community, the managerial experience of the office, the location of the office and the fees charged, choose the closing or escrow agent that you would feel most comfortable working with, asking questions, going over documents and discussing all aspects of your closing process with in detail. Your choice of escrow or closing agent may be one of the most important decisions you make to arrive at your final goal of a timely real estate sale or purchase.

Sandy Gadow is the author of All About Escrows and Real Estate Closings published by Escrow Publishing Company. A prominent authority on title and escrow, Sandy is also a licensed mortgage broker and member of the California Escrow Association and American Escrow.

The information is designed to provide accurate and authoritative information in regard to the subject matter covered. It is printed with the understanding that the author is not engaged in rendering legal or accounting service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.

Set Up Your Escrow

Setting up or "opening escrow" involves simply visiting the office of the escrow or title company which you have selected and handing over the deposit monies and giving instructions for the transaction. That is all there is to opening escrow. It is something anyone who's involved in the transaction may do - the buyer, the seller, the lender, or the real estate agent. It doesn't matter who opens the escrow just so long as those involved in the transaction have designated someone to do it when they sign the final purchase agreement. If there is no real estate agent involved, the seller will typically be the one to start the escrow process, as he/she will be holding a deposit or good faith check from the buyer, together with the signed purchase agreement. In for-sale-by-owner transactions, the buyer and the seller may both open escrow.

To open escrow, you will need to provide the escrow or closing agent with the following information:

  • Purchase price, address and description of the property (this will all be contained in the purchase agreement)
  • Seller's name and address
  • Buyer's name and address
  • Parties to whom the preliminary title report or the abstract of title are to be sent (generally they are the buyer, seller and lender).
  • Termite report information (who will do the inspection)
  • Amount of deposit to be held in escrow
  • Insurance agent for the buyer
  • Financing information
  • Any personal property involved in the sale
  • Rent, if any
  • Projected closing date

Your escrow officer or title attorney must have all of this information available to him/her to prepare your escrow instructions properly. If all the information is not available at the time you open escrow, you can provide it to her/him as soon as possible. The better informed she/he is, the faster she/he can process your purchase or sale.

Once she/he has your information at hand, your escrow agent will assign your file an escrow number. It is a good idea to try to always refer to this number when calling for information or status reports. Your escrow agent will deposit the earnest money into a separate escrow account and order the title search to be made. Both buyer and seller will receive a copy of this report. If there is a lender involved in the transaction, she/he will see to it that the lender also receives a copy of the title report. She/he will work hand-in-hand with the lender, incorporating any loan fees, prepaid and pro-rata interest into the escrow instructions. The buyer will normally sign his loan documents together/his with his escrow instructions and the seller will normally sign the grant or warranty deed together with his escrow instructions. The lender and your escrow or closing agent will coordinate the simultaneous exchange of loan funds with the closing date of escrow, together with the disbursement of the sale proceeds to the seller.

Sandy Gadow is the author of All About Escrows and Real Estate Closings published by Escrow Publishing Company. A prominent authority on title and escrow, Sandy is also a licensed mortgage broker and member of the California Escrow Association and American Escrow.

The information is designed to provide accurate and authoritative information in regard to the subject matter covered. It is printed with the understanding that the author is not engaged in rendering legal or accounting service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.

Working with an Escrow Officer

Once your escrow has been opened, you will receive a copy the Preliminary Title Report or Abstract of Title, which will list certain facts about the property that you are selling or buying. This report will reveal, among other things, any liens, encumbrances or judgments against the owner of record and/ or against the property itself. Certain things, such as easements or property taxes, legal descriptions and survey maps are things which will be included in the preliminary report, but which don't normally cause any reason for concern. Other factors, such as an unknown right-of-way, a utility easement, an unknown "lis pendens" (notice that a lawsuit is pending) or judgment against the seller, could delay or slow down your closing and jeopardize the sale, so these items need to be resolved well before the projected closing date.

Depending upon the number of documents the examiner must review, a title search may take anywhere from one hour to two weeks to complete. The report compiled from the title examiner's findings, the first of many escrow documents you will receive, provides information to show the condition of title as of a specific date. It will show the vested owner's name as disclosed in the public records, the current real estate property taxes, including whether they are paid or unpaid, the outstanding liens, restrictions, easements or other types of encumbrances, the property's legal description of record, the conditions under which the title company will issue title insurance, and the plat or survey map, showing the location and dimensions of the property as found in the recorded documents. For your escrow officer, this report is the key which that unlocks the door to completing escrow. This information indicates what items, if any, must be cleared up in order for title to be conveyed from the seller to the buyer.

One common issue which may occur, is that the title report may reveal that the seller actually owns the property with someone else and that other party is out of town and he must be located and arrangements made for him to sign the closing documents. This can be solved by obtaining a power-of-attorney for the absent party. Sometimes the title shows up as being held by a trust, or it might be in probate pending final disposition. Either situation would delay the close of escrow. The proper parties named in the trust must be located and a final probate settlement must be obtained. These are situations, that if taken care of in ample time, can be solved without postponing the closing.

Delinquent taxes, assessment bonds or tax liens, and judgments, all can become a problem to delay the close of escrow. Judgments filed in a county other than the county where the property is located will also show up on the title report. These outstanding judgments will have to be paid at closing. Easements and rights-of-way need to be located to be certain that they aren't located right in the path of your proposed swimming pool or other alteration you may be planning to make on the property. Take the time to inspect the property, personally, with the title report in hand, and ask questions about it when you do. Don't assume that a fence, a row of trees, or a hedge makes the actual boundaries. Planning ahead and taking care of these potential problems will assure that your closing goes smoothly.

One type of judgment that is not uncommon, is a judgment against a person with a similar name to yours. Most title and escrow companies will accept an affidavit from the affected party that states he is not the party named in the judgment. Oftentimes a judgment from a creditor, say a major department store, will show up and that judgment is also against a person with a similar name. Your escrow officer or title attorney will contact the department store or creditor in question, and resolve this issue. It may be that a judgment shows up that you weren't aware existed, but which is in fact your obligation. These will have to be satisfied or paid off before escrow can close. Often if money is owed, the creditor will agree to a release just as long as the monies owing are paid at the close of escrow.

There are other things you might check that affect title to real property, things which normally do not appear in the public records. They include zoning restrictions, renters' unrecorded leases or month-to-month rights, water rights, persons with a right to title by adverse possession, and work being done on the property that could possibly lead to the filing of a mechanic's lien after you buy the property. Zoning could be a potential problem if you plan to construct, for example, a rental apartment on the property and the zoning only allows for a single family residence.

Other defects such as liens and encumbrances or Covenants, Conditions, and Restrictions, need to be looked at carefully as soon as your receive your title report. Covenants, conditions, and restrictions, or CC&R's for short, are limitations placed upon the use of the land by its owner. They are usually included in the deed and specify what uses will be permitted or prohibited on the land. They are created in appropriate deed clauses, in special agreements, or in a general plan affecting the entire subdivision. Read these conditions carefully, as you will be obliged to abide by their terms. Covenants, conditions and restrictions could prohibit you, for example, from certain plantings on your property, putting up fences, operating a business, use of certain roads, pet restrictions, and other limitations. Be sure you can agree to all the conditions relative to your property.

Problems can occur in the tax description of your parcel of land. A small discrepancy between the tax description and the survey is normal, but a significant difference can become a problem. If the tax description is too small, for example, portions of the parcel may be part of another tax block and lot and you could loose that land due to failure to pay land and realty taxes. A tax description that describes only a portion of your parcel needs to be corrected. Your escrow officer or title attorney can see that this issue is resolved before closing.

Another issue that may arise relative to the title report is a "lis pendens" or a notice that a lawsuit is pending may show up. Such a notice warns anyone with an interest in a property that there's a dispute in progress over the title or possession and that any later buyers, lenders, or tenants will be bound by the final resolution. Most title companies will refuse to insure the title of a "lis pendens" property. One example of a situation where a lis pendens could be filed is when a seller is trying to back out of a sale and a buyer is trying to preserve his right to purchase, so the buyer records a lis pendens to assure that nobody else will be able to buy the property until the dispute is settled.

Working closely with your escrow or closing agent on resolving any title issues which may occur will assure that the escrow closes as scheduled. The key point is to stay in contact with your closing agent at every step of the escrow process, particularly in regard to issues found in the preliminary title report or abstract of title.

Sandy Gadow is the author of All About Escrows and Real Estate Closings published by Escrow Publishing Company. A prominent authority on title and escrow, Sandy is also a licensed mortgage broker and member of the California Escrow Association and American Escrow.

The information is designed to provide accurate and authoritative information in regard to the subject matter covered. It is printed with the understanding that the author is not engaged in rendering legal or accounting service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.

© Copyright Sandy Gadow. All Rights Reserved.

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