TITLE AND ESCROW AGENTS

 

Purpose
Role
Examination
Money disbursements
Abstract
Steps
Summary

 

PURPOSE - Title and Escrow Agents play a very important function in a real estate transaction.  Depending on the state you reside, this may be one agency or two different agencies.  One would handle the Title work while the other Escrow.  The main purpose of a Title Agent is to convey a clear title from one party to another while the Escrow Agent conveys the money for the transaction.  

If you are purchasing a home, Earnest Money (Deposit) may be required to show your good faith and it will be held as collateral.  Often this money is held by an Escrow or Title agent for your safekeeping.

ROLE – To begin, we need to separate the two functions even though it may be handled in the same office.

Role of the Title Agent
The title agent examines the title of the property to ensure that the purchaser receives a title that is free and clear of all liens and encumbrances.  A lien is usually placed on title when you receive a mortgage.  Additionally a search of the Public Records in the county is checked to see if any individual or business entity has placed a lien for work done on the property.  This is called a mechanic’s lien.  The Title Agent wants to make sure all these liens and encumbrances are cleared before a new Title is issued.

The Title Agent also performs a detailed examination of the historical records of the property and makes sure the seller has the right to sell the property.  Often there may be numerous people who hold claim to the title on a property.  If one tries to sell without the others being notified, then this leads to title being “clouded” and not a clear Title to the new owner.  Their job is to assure this doesn’t happen.

When the process is completed, the Title Company is required to give a Title Policy to the lender for security.  This means the lender is insured for a clear title to protect their interest in the property.  The title company will offer the Buyer what is called a Simultaneous Title Policy for their protection as well.  We highly recommend that this policy be taken as a precaution in the event there are any prior undiscovered liens that may not have been revealed in the title search.  When you refinance your property, your prior title will continue protect to you so a Simultaneous Title Policy will not be required.  This Policy assures both parties that if any issues come up after you take possession of the property, the Insurance would pay all recovering costs needed to guarantee you a clear title.

Role of the Escrow Agent
It is necessary that, while the transaction is in progress the documents and funds are handled by a responsible third party.   Because your money is involved, you want to be assured the funds are properly controlled until all conditions of the purchase contract are satisfied.  This means, you wouldn’t want to give a deposit check to the Seller.

An Escrow Agent is a neutral third party that keeps the funds as part of a contract until it is ready to be disbursed at closing.  Lenders need to have this third party, an Escrow Agent, so that funds are distributed as per their instructions.  So this means the Escrow Agent holding the deposit money must adhere to the stipulations in the contract.

 

EXAMINATION:  The title search examines the historical records on the property.  This includes deeds, tax records, civil and probate court records, or any liens from mortgage companies.  If a prior Title Policy is presented, then the Title Company will only have to look for clear title from the current owner’s Title Policy onward because that insurance will bind any prior title claims.

The title agent may also request and examine the survey of the property.  A survey is a diagram that shows the property, what’s on the property, and all possible rights to your property (in the form of Easements).  It will also show any possible infringements on your property.  For example, someone may be illegally using your property without permission like a neighbor placing a fence on your property.  This means you would not have the full use of your land.

 

MONEY DISBURSEMENTS:  When the loan is scheduled to close, an Escrow Agent (in most parts of the country) develops the closing statement (HUD-1).  They ensure the deposit collected upfront, as well as the funds from the bank or lender, are credited to the buyer correctly on the closing statement.  Other closing costs like insurances, title costs, bank costs, and government fees and so on, must also show it as being paid.  This is completely detailed on the HUD-1 statement.  If for any reason the transaction is not completed, the escrow funds are disbursed in accordance with the terms of the purchase contract. 

 

ABSTRACT – In some cases, the title search representative will prepare an abstract of the property.  This abstract is a condensed legal history of all the transactions affecting the property.  As property gets transferred, the abstract becomes longer.  Continuous Up-to-date recording of the abstract will accelerate the process in writing a clear title policy.

 

STEPS – We will review the main steps of this function.  There are numerous steps that are taken that you will not be aware of during the search and examination of the title review process.  Ultimately, you only wish to have a clear title issued into your name and an insurance policy to back up all claims on the property.

On the Title part of the process:

1. A title search is ordered by the lender or Mortgage Broker.
2. The Title Agent does a detailed search on the property for claims, errors, assessments, debts or other burdens or restrictions on the property.
3. Verify the seller has the right to transfer ownership.
4. An Insurance policy is ordered covering any possible hidden risks on the property.
5. Record any transfer of ownership to the clerk of the court in the County/Parish.

On the Escrow part of the process:

1. Secure funds from the buyer or Real Estate Company for the purchase money deposit.
2. Develop a HUD-1 statement to be accepted by the lender.  Often this step includes the Mortgage Broker and Realtor to review it prior to it being sent to the lender for approval.
3. Have all documents signed as required for the lender.
4. Receive and disburse funds as determined by the HUD-1 statement.  This should also concur with the contract for purchase.
5. If it is a refinance, then step 4 is delayed 3 days because there is a 3 day right of rescission on all homesteaded properties.

 

SUMMARY - As you may now realize, the Title and Escrow agents have a great deal to do with securing your property.  When purchasing a property, a clear title is what you are looking for and a Title Insurance policy will guarantee that for your protection.  We recommend you take the offer of a simultaneous policy for your security.

They are also in charge of receiving the funds and disbursements of funds for any property.  The HUD-1 will be the accounting of all these funds and a copy will be given to you at closing.

Also, in many states, the Title and Escrow agent may very well be the same person.  In other states, it is required to be separated.  Ask one of your professionals what is required in your state.