Now You're in Escrow...So What Does That Mean?
This entry was written by Paula Siegel, Escrow Officer with Fidelity National Title. She can be reached at firstname.lastname@example.org.
You’ve done all the hard work – if you are the buyer, that means weekend drive bys, selecting a realtor and negotiating the financing. The sellers will also have selected a realtor, decided on the asking price and spent time preparing the property for sale. Suddenly your offer is accepted and you are in escrow! Congratulations! So what does that mean?
You can think of escrow as the Switzerland of the transaction: a neutral party who takes in the buyer’s money and distributes the seller’s money at the end. Escrow works equally for the buyer and seller, hence it’s neutral status. Of course it is not quite as simple as that. The escrow period typically takes about 30 days. The first few weeks concentrate on the sellers side. For starters, we verify the seller is the rightful owner and has the legal right to sell the property. Maybe you the seller put your sister on title when you bought the property because she had better credit at the time. But you have lived in the property, been making all the payments and she hasn’t contributed one dime. Guess what, your sister is still a legal seller and must sign off on paperwork allowing the sale to go through, even if you aren’t speaking and she lives in Iceland. We prepare and facilitate getting her signature so you can sell the property. Another aspect of the seller’s side is getting the documentation to remove any liens recorded
on the property so the buyer won’t inherit those liens along with the house. We work with banks & government agencies, county municipal departments, private companies, and a whole host of individuals to clear liens of record. And not only do liens need to be cleared from the property, they need to be cleared from the individual seller. Remember that year you didn’t pay your state taxes in full? You had a conversation with a Ms. Somebody at the tax collectors office and thought the matter resolved, right? Guess what, it wasn’t resolved and the state put a lien on you, yes, you personally. While we can’t make your tax bill go away, escrow does know how to get the paperwork to pay the balance due and clear that lien off you. Without this, you can’t sell your property.
About midway through the escrow period the buyer’s side starts to perk up. We begin to get inquiries from your mortgage broker and your lending bank. This alerts the escrow officer know that loan documents are pending and the buyer needs to have several items in place. Firstly is hazard insurance. If you are buying a house you need to select an insurance company and determine a hazard or fire insurance policy. Your lender won’t send any money until they are sure their investment, meaning your house, is protected from fire. By shopping early for bids you can make a calm rational choice for coverage. The one year premium is typically collected through escrow so the bank can see it is paid and in place. Again, it is crucial that you have your insurance ready to go by the day the bank funds your loan. If you are buying a condominium you can usually skip this step because the fire insurance is covered in your homeowner association dues. For your own peace of mind you may want to consider purchasing a content coverage policy for the contents of your condo as these are not covered the by the HOA master policy. However content coverage is not required by your lender to close escrow.
Another early decision is how you are going to hold title. Vesting, the true name for how you hold title, is important in two instances; when you sell the property, and when you die. Because how you hold title has tax consequences upon those two instances you will want to consult with your tax advisor and/or legal counsel to be sure you are selecting the appropriate vesting. The reason to think ahead about vesting is because your vesting appears on the face of the Grant Deed, the document recorded at the close of escrow to transfer the property. You don’t want to discover your favorite accountant has left to go trekking in Nepal the day before you close escrow. The good news is that you can change how you hold title at any time in the future with the help of an attorney so what you choose today isn’t binding forever.
So what happens to finally wrap up this escrow saga? Well about five days before you contract says you are to close, you will get a call from your escrow officer saying “Stop what you are doing!!! Your loan docs are here!!! You need to sign today!!!” Of course that will be said in a professional and calm tone of voice. There are several real reasons for the urgency to sign. Most importantly, you have a signed contract and must perform per contract. Your lender will want a few days to review your signed paperwork so this must be factored into the overall timing. It is also possible that the rate at which you locked in your loan will expire soon. Unlike your dear realtor who works 24/7 for you, escrow office hours are standard business hours M thru F 8-5. If you can’t make it into the office during business hours escrow can usually arrange for a mobile notary to go to you, at an additional cost collected to pay the notary thru escrow.
You sellers are bit like the bridegroom at this point, all the drama is now on the bride/buyer. Sellers also need to sign paperwork with the escrow officer, give wire instructions for proceeds and then sit back and wait. You can even sign the Grant Deed transferring the property before the buyer signs their paperwork. Since we work for you equally, you are safe in the knowledge that it won’t get recorded and transfer your property until after the buyer’s money and loan funds are in escrow. That is the beauty of escrow - a neutral partner protecting you equally. Once both buyers and sellers sign, the escrow officer prepares and ships the documents back to the bank. The bank reviews the signed papers, sends a laundry list of do-items ( like seeing evidence of your hazard insurance!) and then funds the loan. The buyer will have wired their personal funds to close into escrow by now.
Once all the money is in escrow we release the Grant Deed to record at the county recorder’s office the following morning. And Voila, your escrow transaction is complete, the property has changed hands and all that is left is for the escrow officer to balance the file and send out the money appropriately. The sellers can expect to get their net proceeds same day and the buyers get the keys to a new home.
A last word of advice, escrow is a fluid state. It can be a very stressful time. As new information comes in, revisions are needed and situations come up that are out your control. Your escrow officer is there to hold all the strings together like a spider in the center of the web. The best thing you can do is to remain flexible, communicate with your escrow officer and together we will smooth out any bumps that come up. Don’t forget to breathe either, that always helps.
Best Practices or tips and tricks for buyers and sellers
Buyers-Select your hazard/fire insurance carrier and policy early on.- Ask your tax advisor and/or attorney about the best way to hold title (vesting) at the time of close.- Transfer your personal funds to close into an account from which you can wire or purchase a cashier check. Ask your bank about their wire process so you know how long it takes to send one.
Sellers-locate your mortgage & equity loan information: bank’s name & loan numbers, social security numbers for all owners. - determine where the proceeds are to be sent and how they are to be divided if more than one seller. Set up trust accounts if necessary.
Both sides- Don’t travel during your escrow if you can help it! Don’t worry, we can arrange for a notary and paperwork to get to you just about anywhere if you have to be away during your escrow. But you will need to allow extra time for shipping and the inconvenience and extra costs involved.