Buying or selling a home can be a lengthy and complex process. Whether you are the buyer or seller of the home, you are expected to follow the required steps explicitly including going through escrow and securing title insurance. You can get through the home buying or selling process as quickly as possible by allowing us at West USA Realty to educate you about escrow and title insurance.
What is Escrow?
Buying or selling a house typically does not involve a simple exchange of money between the owner and buyer. In fact, most transactions require the use of escrow, which is an arrangement that involves a neutral third-party facilitating the transaction between the owner and buyer of the house.
Specifically, an escrow agent, who is typically someone employed by or associated with the title insurance agency, will maintain funds and important documents involved with the sale of the house. He or she will distribute the funds and documents in a manner that is outlined by the agreement reached between the person selling the home and the person who is buying it.
The escrow arrangement begins when the seller accepts the offer of the buyer for the home. At that point, an escrow account is opened, and an escrow agent is assigned to the account. During the escrow arrangement, the agent collects the earnest money that the buyer puts down for the home. The earnest money demonstrates to the seller that the buyer is serious about purchasing the house. Escrow ends when all of the deeds, money, and other tasks outlined in the arrangement are performed or secured by the escrow agent and the transaction is formally closed.
To be more specific, the role of the escrow agent involves:
- holding onto documents and funds involved with buying the house
- processing and facilitating the flow of funds and documents
- informing all parties about the progress of the transaction
- responding to the requirements of the lender
- securing a title insurance policy
- obtaining report and documents approval from all parties
- prorating and adjusting fees for insurance, rents, taxes, and other costs recording loan documents and deeds
- keeping track of money that is owed and deposited during the transaction
Once these tasks are executed, the house can be closed on, and the escrow arrangement can come to an end.
The escrow agent is not the only person who has responsibilities during the escrow process. Both the seller and the buyer are expected to carry out certain duties as well.
The seller, for example, is expected to carry out all of the escrow instructions and provide a deed to the house to the escrow officer. The seller also should submit all required paperwork outlined in the Purchase and Sale agreement. This paperwork can include insurance policies, home warranties, and tax receipts for the home.
The buyer also has duties that include following all escrow instructions, putting down an earnest down payment, and paying all required fees outlined in the Purchase and Sale agreement. The buyer should also approve the inspection and preliminary title reports and execute a Deed of Trust to secure the loan for the house.
Even with all of this information, you might wonder why the escrow process is really necessary. While we at West USA Realty try to make buying or selling a home as straightforward and simple as possible, the transaction can be lengthy and challenging. The escrow arrangement ensures the accountability of you as the buyer or seller as well as the other party involved in the transaction.
If you are the buyer, the escrow arrangement ensures that all of the factors involved with buying a house are addressed before the sale is closed. For instance, you will be assured that the house has been inspected and that the title report and mortgage have been secured. If you are the seller, you will be assured of receiving all of the funds before you hand over the deed to the home.
Escrow is an important part of buying or selling a home. We at West USA Realty are happy to guide you through the arrangement and explain more about it if necessary.
Another important part of buying a home involves securing title insurance prior to closing the sale. Tile insurance is a policy that protects the buyer against monetary losses that arise from issues with the title of the house or the legal ownership of the home itself.
Many issues are found and resolved during and after a title search. However, no search is perfect, and problems can arise a title search has been conducted. Some of the challenges that could prevent you from closing on the home include unpaid taxes or liens.
A lien is a legal claim of ownership to the house and typically is the mortgage or loan holder until the lien is paid off in full. However, it can also be unpaid contractors who performed work on the house or tax authorities. These individuals can lay claim to the house to collect on money that is owed to them.
Their lien or claim of ownership will prevent you from being able to buy the house. Your title insurance will prevent you from losing money because of unresolved liens.
Another issue can involve an encroachment, which is something that crosses the neighboring property line. An example would be a fence that has been placed over the property line onto the property belonging to the neighbor. An encroachment could complicate your ability to buy the house.
Similarly, an easement can complicate purchasing a home. An easement is the legal right to use the property of another person's land for a specific purpose like running a sewer line. It does not entitle you to ownership but instead access to the land.
An easement does not mean you cannot buy the property. However, you will want to investigate the easement thoroughly before closing on the sale. Our real estate agents at West USA Realty are experienced in investigating easements and making sure they are not reason enough to back out of a sale.
We can also recommend what type of title insurance to select. Most buyers follow the advice of their real estate agents in buying title insurance. In fact, we can help you find both kinds of title insurance, which are lender's and owner's insurance.
Lender's title insurance is required at the time of closing and protects the lender. The lender is technically the owner of the home until the mortgage is paid off in full. When you buy lender's title insurance, you will pay a one-time premium, which typically protects the lender for the full amount of the house for as long as you have the mortgage.
You will also need a new lender's policy if you refinance the home's mortgage. The lender will want to guard against new issues that may have come up since you purchased the house.
Owner's insurance may not necessarily be required at the time of closing, and you may not even be asked if you want to invest in it. However, we at West USA Realty advise you to purchase owner's title insurance to protect you against financial losses prior to buying the house.
For example, even after the title search is conducted, an undisclosed heir could still lay claim to the property. Without this insurance, you would lose all of the money you have invested in the transaction up to that point.
Likewise, you could lose money if issues like back taxes or lawsuits against the property arise prior to buying the house. It also protects against:
- undisclosed prior mortgages
- improperly recorded deeds
- undisclosed easements
- errors in legal paperwork
You should also remember that you can always back out of the transaction if these types of issues come up after the title search. You will want to make sure that these terms are included in your Purchase and Sale agreement, however.
The best way to deal with any issues that arise with the title to the home would be to work with an experienced real estate agent like us at West USA Realty. We can advise you about whether or not those issues can be worked out or if they will prevent you from buying the home.
Some issues can be worked out and may not be worth walking away from the transaction. Our real estate agents at West USA Realty are ready to investigate and discuss title issues with you today.