Jim Wold & Bob Wold
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Understanding Title and Escrow
Title
When a Purchase & Sale Agreement is "signed around", the appointed title insurance company opens title to examine the title history to the property and issues a preliminary title insurance commitment that reflects the title current status. This commitment displays who owns the property, any taxes and assessments due, unpaid mortgages, liens, easements, covenants, and any other matters that may indicate someone other than the owner has rights to all or part of the real estate under search. A Buyer has the option of cancelling the sale if he finds something objectionable.
When a Purchase & Sale Agreement is "signed around", the appointed title insurance company opens title to examine the title history to the property and issues a preliminary title insurance commitment that reflects the title current status. This commitment displays who owns the property, any taxes and assessments due, unpaid mortgages, liens, easements, covenants, and any other matters that may indicate someone other than the owner has rights to all or part of the real estate under search. A Buyer has the option of cancelling the sale if he finds something objectionable.
Unlike automobile or life insurance, title insurance is a one-time fee paid at closing of the transaction. Typically there two title insurance policies purchased in each real estate transaction. The seller purchases the buyers title insurance policy. The buyer pays for a policy of title insurance for the lender (if any). When a commitment is issued, the Seller and Buyer (or Lender) agree upon which items can remain on the title and which should be eliminated. Once title is acceptable to the purchaser and/or lender, the transaction is closed and a title policy is issued at the time of closing.
Escrow
Escrow is an impartial third party in which documents and funds are deposited by buyers, sellers and lenders to facilitate the closing for a real estate transaction. As a fiduciary player in the transaction, escrow is required to follow mutual written instructions from all parties. Escrow companies coordinate with the buyer, seller and lender to obtain required signatures on all documents, work closely with the title officer to clear liens and encumbrances against the property, and record the documents with the county. Once all of the conditions to the sale are satisfied, escrow releases funds, and title is transferred to the buyer. Escrow fees are split equally between Buyer and Seller. Other "Closing Costs" are as follows:
Buyer pays
- Utility deposits held by gas, electric, cable, telephone and other companies
- Prorated portion of pre-paid property taxes
- Prorated mortgage interest from payments made during the current month
- Fuel rebate for oil or propane remaining in storage tank
- Net proceeds after seller's share of expenses is paid
Seller Pays
- Brokerage commission (the sum or percentage of the sale price previously agreed upon by the seller and real estate agent)
- One-half of escrow or legal fees paid to the attorney or escrow company for preparing the closing
- Document preparation fees
- Recording and notary fees
- Title search and title insurance (paid by either the seller or the buyer)
- Local transfer taxes, if any
- Excise tax equal to 1.78% of sale price
- Repairs or inspections seller has agreed to pay for
