A few weeks ago, we discussed the case of a veteran Realtor who canceled a much-awaited kayak trip because an out-of-state buyer was arriving with a reported all-cash offer for one of her listings. Because such buyers were scarce, she wanted to be sure she was in town to personally handle the transaction.
Buyers, sellers and refinancers also should plan to be around to handle their real estate deals. Are you about to deliver a youngster to college this fall or schedule another lengthy business trip? If so, be sure you give the same thought to pending escrow and real estate closing arrangements that you give to arrangements for the family dog, mail and newspapers — especially if you are heading out of fax range.
According to escrow agents and real estate attorneys, it’s best to schedule closing at least 10 days before you depart, or wait until you return from your trip.
Closings often get delayed, especially now that mortgages are under the microscope. Delays happen most often because of increased lender requirements and the double-checking of assets, credit and title. Stuff simply happens, especially at a busy time like month end. Factoring in some flexibility could save a lot of stress.
For example, a couple refinancing their loan were recently asked to search for a previous loan payoff from 1992 because the title company did not have a record that the loan had been satisfied. Curiously, the couple had refinanced twice since the loan in question with no request to produce the 1992 loan reconveyance. In addition, a new credit claim had been made on one spouse, jeopardizing the couple’s credit score. It took two weeks to sort everything out because the couple had left for a camping trip and was unavailable.
A typical residential deal usually is closed at an escrow office. An escrow agent may be a bank, some other financial institution, a title insurance company, an independent escrow firm, a mortgage broker or an attorney.
Let’s go back to the basics of escrow. "Escrow" is an arrangement in which money and/or documents are held by a third party on behalf of the buyer and seller. The purpose of escrow is to ensure that all parties to the deal are satisfied. It sees that the seller receives the purchase price, the buyer receives clear title to the property, and the lender gets the proper security interest in the property.
Escrow also enables the parties to avoid face-to-face contact during the deal. This is often a highly emotional time when all parties don’t necessarily agree on all conditions — things such as work orders, loan charges and condition of property.
Escrow may be "opened" by either buyer or seller and typically occurs when the real estate agent delivers a copy of the purchase and sale agreement to the escrow agent. Escrow can technically open when the lender delivers a copy of the loan commitment to the escrow agent.
According to real estate attorney Alan Tonnon, six factors are required for a valid escrow:
- A written deed: Real estate cannot be transferred orally.
- An enforceable contract: This is typically a purchase-and-sale agreement, commonly known as an earnest-money agreement.
- Delivery: This normally occurs when deposits are placed with the escrow agent.
- Escrow agent: agreed on by both parties; often chosen by the real estate agent handling the sale.
- Instructions: details on when deposits are to be made/returned, and when closing is to occur.
- Conditions: describes what must be met before title and cash passes to respective parties.
The escrow agent orders title insurance and works to clear any defects or encumbrances from the title, reviews the purchase-and-sale agreement and loan commitment, collects the funds necessary to close and prepares settlement or closing documents.
The escrow fee is one of the closing costs. It is often split between buyer and seller, but the payment can be negotiated and spelled out in the purchase-and-sale agreement. The higher the sales price, the higher the escrow fee.
Closing is the consummation of the transaction — the seller delivers title to the buyer in exchange for the purchase price. The term "closing date" refers to the legal closing date, when the documents transferring title from seller to the buyer are delivered and recorded.
It feels like "it’s all over" once you’ve signed your closing documents, but it’s technically not over. The documents have to be reviewed and approved by the lender and then sent to the title company for review and recording. Once that is done, the lender issues a check or wires funds to the escrow officer. The escrow officer verifies that the funds are good and that the amount is correct and enough to pay all obligations. Then, it’s really over.
Wait until it’s really over — then make that trip.
To get even more valuable advice from Tom, visit his Second Home Center.
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