Escrow Tips for Buyers

Most first-time home buyers, and some returning home buyers are not familiar with the escrow process when buying a home. At first, the process may seem confusing and frustrating to home buyers. So, we have created an easy-to-understand  buyers escrow checklist that covers many of the documents that you will encounter during a typical closing scenario.

In order to ensure a successful escrow process without any delays, the following documents must be reviewed, completed, signed and returned to your escrow officer. Failure to complete and return the following items in a timely manner could result in a delay in closing your escrow on time.

• Escrow instructions
• Confidential Statement of Information
• Request for insurance information
• Preliminary change of ownership
• Vesting worksheet
• Any other miscellaneous documents that your Escrow Officer has specified

Escrow Instructions : The key to any transaction is to read and understand your escrow instructions. If you do not understand them, you should ask your escrow officer to explain the instructions. Also, please review your escrow instructions to ensure accuracy.

Confidential Statement of Information: In order to expedite the completion of your transaction and ensure the successful transfer of title, the title company requesting that you complete the “Statement of Information” form. If any item on this form does not pertain to you, please indicate by entering 'N/A' (Not Applicable).

Request for insurance information: Your new lender will require proof of hazard insurance before funding your loan if insurance has not already been set up as an impound. Please select an insurance agent or company and provide the contact information to your Escrow Officer as soon as possible.

Preliminary change of ownership: This form must be completed by the buyer prior to a transfer of the subject property and filed with each conveyance in the County Recorder's office for the county where the property is located. Please answer all questions in each section, and sign the certificate before sending it to your Escrow Officer. This information is used by the Tax Assessors Office to determine the tax basis for the property.  Please note that there are penalties assessed by the county for failure to complete this form.

Vesting worksheet: After you have determine the manner in which you wish to hold title, please complete, sign and return this form to your Escrow Officer. Your new lender will need this information before your loan documents are drawn.

Any other miscellaneous documents that your Escrow Officer has specified : In special circumstance, your Escrow Officer will inform you if additional documentation is needed. Please be sure to return all documents as quickly as possible to your Escrow Officer so that your escrow closes smoothly.

The History of Escrow

In the very early days of our country, property was transferred from the seller directly to the buyer. Often the parties knew one another. The seller handed over the deed when the buyer paid the money. This process worked well as long as the seller was sure the buyer’s consideration such as cash or bank check was good, and the buyer knew the seller’s deed was valid. However, as communities grew, more and more strangers arrived until buyer and seller were no longer acquainted. A system was needed to put the trust back into the transaction.

Even before California became a state, buyers began to hire attorneys to search the public records for proof the seller owned the land but there were no ownership guarantees. Sellers began giving buyers a written history of the recorded documents affecting a piece of land, called an Abstract of Title, with an attorney’s legal opinion attached. Abstract companies began to appear close to the courthouse to assist attorneys with their search.

In the 1870’s, abstract companies began issuing a brief summary of the history of the property called a Certificate of Title. However, the courts ruled that abstractors were not liable if the Certificate of Title contained errors or omissions. A guarantee or form of insurance was needed to protect consumers.  In 1886, California Title Insurance and Trust Company was incorporated; they issued their first policy of title insurance on March 17, 1887.

Reasons for Escrow: Escrow practitioners perform a very important function, yet there is no state law requiring all property transfers go through escrow, nor are escrow practitioners licensed by the State of California to perform escrow duties. The law does require certain types of transactions use an escrow, namely probate sales, liquor license transfers, new Dealer manufactured homes and securities or stock sales.

It is recommended that all property transfers use escrow services for the following reasons:

• Escrow serves as a neutral depository for money and documents. The escrow practitioner acts in a fiduciary or trust capacity. The escrow practitioner does not favor any one party and acts impartially towards all.

• An escrow practitioner assures that all conditions are satisfied before the deeds are recorded or other transfer documents filed or distributed.

• Escrow practitioners provide expertise in escrow practices, document preparation and in understanding the title insurance process.

• Escrow provides a clear, concise accounting of all funds involved in the escrow process.

• The escrow practitioner arranges for safe delivery of all funds and documents to their proper recipient.

• The consumer is protected by the secure and impartial nature of the escrow process.

A Step-by-Step Guide to the REO Escrow Process

• Upon agreement to sale, Asset Manager and/or Listing Agent provides completely executed Purchase Agreement and any Addendums/Counter Offers (including copy of signed Residential Listing Agreement from Listing Agent), as well as contact information for all parties to Escrow Holder.   • Escrow Holder contacts Selling Agent to obtain Buyer’s Deposit and verify contact information (Purchase Agreement usually requires that said deposit be made within 3 days of acceptance).   • Escrow Holder requests new Lender(s) information and/or Pre-Qualification letter from Selling Agent.   • Escrow Holder opens title order, requesting Preliminary Report and CC&R’S from Title Company.   • Escrow Holder prepares Escrow Instructions and supporting documents, distributing same to all parties.   • Upon receipt of Preliminary Report, Escrow Holder orders all applicable documents, including HOA disclosures, to ensure that clear title can be granted at Close of Escrow.   • Upon receipt, Escrow Holder distributes Preliminary Report, CC&R’s and other applicable disclosures (including Termite Report) for approval.   • Escrow Holder contacts new Lender(s) for status of Loan(s), including receipt of Credit Report, Appraisal and other required documentation. If loan(s) is/are approved, Escrow Holder verifies when loan documents will be ordered.   • Escrow Holder contacts applicable parties if any documents are still outstanding (ie; Receipts for Reports, Buyer’s Insurance, Statement of Information, etc.).   • If the Seller has authorized any repairs, Escrow Holder verifies if they have been completed, and how they will be paid (either outside of escrow or through escrow).   • Escrow Holder confirms receipt of Home Protection Plan or requests that the applicable Realtor order same if it has yet to be received.   • Loan Documents are received by Escrow Holder and prepared for prompt closing.   • Escrow Holder forwards Seller’s Estimated Closing Statement to Asset Manager for review and approval.   • Escrow Holder makes appointment with Buyer to sign Loan Documents, advising Buyer of the amount of money to bring to Escrow.

To Probate or Not to Probate, That is the Question

The big question is WHY someone would need to “probate” a property once someone passes away. In order to sell a Decedent’s property, the heirs, if there are any, must hire an attorney that specializes in probate in order to set up the Decedent’s estate. If someone passes away with a will, it is obviously much easier on the appointed Executor or Executrix to handle that individual’s final affairs in accordance with their wishes. However, many, many people die without creating a will. In that event, the individual passes away “intestate,” or without a will and the Probate Attorney must set up the estate to have an Administrator appointed to handle the final affairs of the Decedent. The probate that the attorney establishes for the Decedent can address many issues in addition to real property, including assets such as stock, personal property, cash in banks, etc. If one dies intestate or without a will, then all legal heirs are located by “heir hunters” (if necessary) and the total assets of the estate are divided amongst the legal heirs, whether or not that was the intention of the Decedent. A common misconception is that if one doesn’t have children, it is not necessary to make out a will. However, once real property and large dollar amounts are involved, it is critical that one creates a will or a trust. Although the probate process can be timely and involved, and truly this is dependent on the heirs and who stands to inherit what, the attorney fees are absolutely statutory and are pre-established in accordance with the probate code, based on the size of the individual estate. There are many arguments and issues, both pro and con, in going through the probate process or setting up and establishing a trust. The main issue to remember with regard to the probate process is that it is highly regulated and scrutinized by the Court in order to keep the individual representing the estate honest and that all matters are handled according to the last wishes of the Decedent. In a situation where the Decedent has transferred all of their assets into a trust, all of the heirs are relying on the honesty and integrity of the successors trustee(s) to comply with the terms of the Decedent’s trust agreement.

Why Does My Escrow Agent Insist the Final Deposit be Wired?

When preparing to close escrow, clients will regularly ask if it is acceptable to bring closing funds via personal check. When posed with this question, Escrow Agents should always respond that we’re unable to accept a personal check for closing, as GOOD FUNDS are required. One of the core functions of an Escrow company includes being a depository for funds required to comply with the instructions from the principals of the escrow. Thus, it is critical to obtain GOOD FUNDS. Good funds means that the check has been paid by the bank on which it is drawn and the funds are actually available for use as payment for closing costs, commissions and proceeds to the seller.

In California, the various laws specifically regulating Escrow Agents do not define holding or clearing times for various types of instruments. There are reasons why a deposit, including by Cashier’s Checks and ACH, may not actually pay within the timelines listed in the Federal Regulations. Escrow Agents are also occasionally the victims of fraudulent, forged or stop paid cashier’s checks.

Since Bank privacy policies in place today make it difficult to confirm a check has been paid; wired funds are the best source of ensuring you have GOOD FUNDS for closing because the funds are immediately clear. Wires are not without drawbacks, but until a better system comes along, an Escrow Agent and its clients are safest with a Wire Transfer for any final closing funds. By failing to follow these procedures, an escrow company is likely to have to advance funds for any dishonored deposit if the escrow has already closed; or face regulatory action, civil action, or both.