23 Jan The Escrow Process
What Is Escrow?
The sale of real property involves transferring large sums of money and signing important documents by you, the Seller and your lender. Escrow is the process in which an impartial third party acts as a stakeholder and facilitator for both you and the Seller. Typically this entity is the Title Company. It carries out both parties’ instructions and handles the paperwork, distribution of funds, title insurance, and the transfer and recordation of the title deed. Escrow is normally opened within one business day of acceptance of the purchase agreement and at this time your initial deposit as specified in the contract is deposited into the escrow account. The duration of the escrow period—from offer acceptance to recordation of the transfer of ownership—is usually 21 to 45 days, though all-cash purchases will sometimes close more quickly.
Property Inspections. Professional inspections probably constitute the most important part of your due diligence on the property, and are typically conducted within 7 to 15 days of offer acceptance. Please review the “Buyer’s Inspection Advisory” carefully. Inspection fees are usually paid by you, but the costs of issues that surface in the course of inspections are normally negotiable between you and the Seller (as specified in the purchase contract). It is vital you attend all inspections so you can see for yourself any problems that surface, ask pertinent questions of the inspector, and gain first-hand knowledge about property conditions and maintenance. You do not want to purchase a property unless you are confident you know what exactly its condition really is – and appearances can be deceiving.
Structural Pest Control Inspection. A licensed structural pest inspector will examine the home for evidence of termites, dry rot, earth to wood contact, water intrusion and beetle infestation, and then provide a written report and bid for corrective work.
Contractor Inspection. This inspection covers general condition and major systems such as plumbing, heating and electrical; structural elements; roof; safety features and building code compliance.
Other Inspections. Inspections by other professionals may be warranted based upon the specific property and disclosures provided by the Seller. These include inspections by structural engineers as well as by qualified contractors doing more detailed inspections of roofs, fireplaces, sewer lines, electrical and plumbing, underground storage tanks and environmental hazards. You might also have a professional review the permit history of the property.
Review Disclosures. Sellers of residential properties and the real estate agents involved are required by law to disclose any material information known regarding the condition and circumstances of the property, and a number of statutorily required reports and disclosures will be supplied for your careful review (real estate transfer disclosure statement, natural hazards disclosure, lead-based paint, etc.). Sellers of probates and foreclosures are exempted from a number of these requirements.
Finalize Financing. Ideally, you’ve already been pre-approved by the lender of your choice prior to making your offer to buy, During the escrow process, the lender will have the property appraised, and review the purchase contract, preliminary title report and other documents it deems necessary prior to giving final loan commitment. This process usually takes two to four weeks. Before funding the loan, it will typically confirm that your financial situation has not changed.
Home Warranty. Home warranties are designed to protect you against unknown defects and failures in certain systems and appliances in your new home, and are well worth your consideration. Your agent can provide information and referrals, outlining procedures, costs and coverage. Either Buyer or Seller may purchase a home warranty.
Remove Contingencies. Once you have completed your inspections and reviewed the reports and disclosures to your satisfaction, and your lender has completed its appraisal and underwriting process, you will either remove your contingencies of sale as specified in the purchase contract and proceed with the deal, attempt to re-negotiate the deal if you fell that new material issues came up during due diligence, or cancel the transaction if what you learned during due diligence changed your mind about the purchase. If the transaction proceeds, you may be increasing your deposit in escrow – it depends on how the accepted contract was written.
Review & Sign Loan & Closing Documents. Your agent should accompany you to the title company to sign documents. Before going to the title company to sign escrow papers, make sure to do the following:
Obtain hazard/fire insurance and provide your escrow officer with the insurance agent’s name and telephone number. You must have the policy in place before the lender will fund your loan.
Decide how you will hold title to your new home. It is recommended that you consult a lawyer, tax consultant or other qualified professional in making this decision.
Review the estimated closing statement of costs and disbursements prepared by the escrow agent, and the loan documents prepared by your lender.
Bring your valid driver’s license or passport to the signing appointment.
Deliver the Balance of Funds (down payment and closing costs) needed to close escrow to your title company at least two business days prior to closing in the form of a cashier’s check or wire transfer.
Receive your closing documents from Paragon and the title company.
After both buyer and seller have completed their contractual obligations, and closing documents have been signed, your lender will wire the loan funds into the escrow account. Your title company will then record the title deed and loan deed of trust at the Recorder’s Office. You are now the proud owner of your new home and the keys will be personally delivered to you. Occasionally, Sellers may request the right to rent back the property after the close of escrow for a short period of time. If you agree to a Seller rent-back, the terms are negotiated as part of the purchase contract.
What to Keep from Your Closing
The Real Estate Settlement Procedures Act (RESPA) statement. This form, sometimes called a HUD 1 statement, itemizes all the costs associated with the closing. You’ll need this for income tax purposes and when you sell the home.
The loan documents and the Truth-in-Lending Statement.
The title deed of the property.
Home insurance policy.
Copies of all documents pertaining to the home purchase: contract, addenda, reports, disclosures and any other documents received during the process. Some of these will be useful when you decide to sell the home you just purchased.