A Guide To Title And Escrow
Table of contents 1 What is Title Insurance 5 What is Escrow 8
buying a home...
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selling your house...
What is Title Insurance? Title insurance is, by definition, a policy that insures a homebuyer against errors in a title search. The policy is a contract by which the issuing company—typically a title insurance company—agrees to pay the insured—typically the buyer and/or seller—a specified amount for any loss caused by any defects of title. The cost of the policy, usually based on the value of the property, is a one-time fee, and is often paid for by the buyer and/or seller.
Generally, when people think of insurance, they think of something that protects their house or vehicle from unforeseen circumstances, such as an earthquake that damages your home, or the theft of your car. Title insurance is different because the original premium is your only cost as long as you or your heirs own the property; there are no annual payments to keep your Owner’s Title Insurance Policy in effect. Title insurance is also unique because—as opposed to home or auto insurance, which provides coverage for future claims or losses due to an event that hasn’t happened yet—it provides coverage for future claims or future losses due to title defects that are created by any event that happened prior to the acquisition of the property. These risks are far less obvious than those protected against by automobile insurance, but can be just as devastating because any existing rights or claims could, in the future, threaten your title and possession of the property.
How Do I Find Out Wh at Cl aims E xist ? In order to determine the status of title, Ticor Title conducts a thorough search of the public records for those documents associated with the property. Ticor Title then examines those recorded documents to determine if there are any rights or claims that might have an impact upon the title to the property. The title search may reveal the existence of recorded defects, liens, or encumbrances 2
upon the title that could include: unpaid taxes, unsatisfied mortgages, judgments and tax liens against the current or past owners, easements, restrictions, or court actions. These recorded defects, liens, and encumbrances are reported to you prior to your purchase of the property and, once reported, they can be accepted, resolved, or extinguished prior to the closing of the transaction. In addition, you are protected against any recorded defects, liens, or encumbrances upon the title that are unreported to you and which are within the coverage of the particular policy issued in the transaction.
What About U ndiscovered Cl aims ( Hidden Risks)? A “hidden risk” is a matter, right, or claim that is not shown by the public records and, therefore, is not discoverable by a search and examination of those public records. Matters such as forgery, incompetence or incapacity of the parties, fraudulent impersonation, and unknown errors in the records are examples of “hidden risks” which could provide a basis for a claim after you have purchased the property. In order to protect you against this possibility Ticor Title provides insurance coverage for such claims. If a claim is made against your insured title, Ticor Title protects you by: (1) defending your title, in court if necessary, at no cost to you, and (2) bearing the cost of settling the case, if it proves valid, in order to protect your title and maintain your possession of your property.
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Why Do I Need Title Insurance? Title insurance allows you peace of mind in knowing that the investment you’ve made in your home is a safe one. It is important because it protects possibly the most important investment you’ll ever make—the investment in your home. With a title insurance policy, you have a contract that will reimburse you for loss in the event someone asserts a claim against the property that is covered by the policy. Title insurance gives you the assurance that anything discovered from the public records has been called to your attention, and that such defects can be corrected before you buy. Additionally, it insures that any undiscovered claims covered by your policy that threaten your ownership of real estate will be disposed of, or you will be reimbursed exactly as your title insurance policy provides.
How can there be a title defect if the title has been searched? Title insurance is issued after a careful examination of copies of the public records. Unfortunately, despite the knowledge and experience of professional title examiners, even the most thorough search cannot absolutely assure that no title hazards are present.
Steps Involved in the Title Process Initial Request for Title Insurance The Settlement Officer will place an order with the Title Department. A Title Report can be issued based on an examination of the public records in the county where the subject property is located.
Technical Review The skill and expertise of Ticor Title’s staff is the key to providing you with a useful, accurate title report. Once the report is issued the review begins with a technical analysis of the documents of record. An interpretive view of all recorded matters is then made to evaluate their impact on the title to the property.
Inspection/Survey Analysis In anticipation of American Land Title Association (ALTA) coverage, a site inspection or survey is ordered. From this report, the title product is supplemented or amended to show any encroachments or other off-record matters that would ultimately impact the title.
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Documents in the Title Process • Preliminary Report—A document prepared once an escrow is opened, but prior to closing, that provides information about the property essential for the buyer to see before he or she
• The deed or mortgage in the chain of title may be a forgery • A deed or mortgage may be signed by a person under age or of unsound mind
commits to purchasing the property. • Commitment—Shows the condition of title and the requirements necessary for the Title Company to issue a policy. • Pro Forma—Specimen of what the requested policy will look like; underwriting issues are not yet completed and it is not
• A deed or mortgage may be made under a power of attorney after its termination and would therefore be void • A deed or mortgage may be made by a person other than the owner, but with the same name as the owner • A testator of a will might have had a child born after the ex-
binding upon the company. • Policy—Final contract of indemnity between the insured and the company.
Reasons for Title Insurance
ecution of the will—a fact that would entitle the child to claim his or her share of the property • A deed or mortgage may be procured by fraud or duress • Title transferred by an heir may be subject to a federal estate tax lien • An heir or other person presumed dead may appear and recover the property or an interest therein
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• A judgment or levy upon which the title is dependent may be void on account of some defect in the proceeding • Title insurance covers attorney fees and court costs • Title insurance helps speed negotiations when you’re ready to sell or obtain a loan • By insuring the title, you can eliminate delays and technicalities when passing your title on to someone else • Title insurance reimburses you for the amount of your covered losses • A deed or mortgage may be void because it was signed while the grantor was in bankruptcy • There may be a defect in the recording of a document upon which your title is dependent • Claims constantly arise due to marital status and validity of divorces and only title insurance protects against these claims made by non-existent or divorced “wives” or “husbands”
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What is escrow? Escrow is an arrangement in which a disinterested third party—called an escrow holder or settlement agent—holds legal documents and funds on behalf of a buyer and seller, and distributes them according to the buyer’s and seller’s instructions.
People buying and selling real estate often open a sale transaction with the settlement agent for their protection and convenience. The buyer can then instruct the settlement agent to disburse the purchase price only upon the satisfaction of certain prerequisites and conditions. At the same time, the seller can instruct the settlement agent to retain possession of the deed to the buyer until the seller’s requirements, including receipt of the purchase price, are met. Both rely on the settlement agent to carry out faithfully their mutually consistent instructions relating to the transaction and to let them know if any of their instructions are not mutually consistent and/or cannot be carried out. Ticor Title provides professional escrow settlement services that are convenient for the buyer and seller because both can move forward separately and simultaneously in providing inspections, reports, loan commitments and funds, deeds, and many other items, using settlement as the central depositing point. If the instructions from all parties to the transaction are clearly drafted, fully detailed, and mutually consistent, the settlement agent can take many actions on their behalf without further consultation. This saves time while also facilitating the closing of the transaction.
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A gu id e to t i t l e a n d escrow
What each party does in escrow
The Settlement Agent:
The Seller:
• Processes and coordinates the flow of documents and funds
• Deposits the executed deed to the buyer with the
• Keeps all parties informed of progress on the escrow
• Acts as the impartial “stake-holder,” or depository of documents and funds
• Responds to the lender’s requirements
settlement agent
• Opens the order for title insurance
• Deposits evidence of pest inspection and any required
• Obtains approvals from involved parties on the Preliminary
repair work, if applicable
Report/Title Commitment, as well as pest and other
• Deposits other required documents such as tax receipts,
inspections
addresses of mortgage holders, any state or federally required documentation, etc.
• Prorates and adjusts insurance, taxes, rents, etc.
For more information on the seller’s responsibilities, please refer to the
• Records deed and loan documents and delivers the deed to the buyer, the loan documents to the lender, and the funds to
Seller section of this guide.
the seller, thus closing the escrow
The Buyer:
• Maintains security and accountability of monies owed
• Deposits the funds required, in addition to any borrowed funds, to pay the purchase price with the settlement agent • Deposits funds sufficient for home and title insurance
and owing • Receives funds from the buyer and/or any lender • Disburses funds for title insurance, recording fees, real estate
• Arranges for any borrowed funds to be delivered to the
commissions, lien clearance, etc.
settlement agent
• Prepares an estimated statement or HUD settlement state-
• Deposits any deed of trust or mortgages necessary to
ment, as required, for each party, indicating amounts to be
secure loans • Approves any inspection reports or surveys, the Preliminary Report or Commitment for title insurance, etc., called for by the purchase and sale agreements
disbursed for services as well as any further amounts necessary to close • Issues final closing statement/HUD settlement statement and forwards to buyer, seller, and lender
• Fulfills any other conditions specified in the instructions For more information on the buyer’s responsibilities, please refer to the Buyer
Questions? If you have questions about the escrow process, please call
section of this guide.
your local Ticor Title office.
The Lender (if applicable): • Prepares loan document package for buyer/borrower • Deposits proceeds of the loan with the settlement agent • Directs the settlement agent on the conditions under which the loan funds may be used
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BUYING A HOME… For most, buying a home is the single biggest purchase of their lives. The enormity of the financial transaction aside, finding the right home to fit particular needs and wants is no easy undertaking. Just as you wouldn’t buy a car, computer, or camcorder without doing some research into various models and prices, you shouldn’t consider purchasing a home without some expert advice and guidance—and though some people may think of using the services of a real estate agent only when selling their homes, a real estate agent can be invaluable when buying one as well.
A real estate agent is important to the buying process because he or she can help you determine how much home you can afford based on your financial situation, has the tools to help you get prequalified for a loan, and is even able to inform you about available financing options. Additionally, a real estate agent is an expert on the neighborhood and can provide detailed information about schools, transportation, local taxes, and other community characteristics. Using a real estate agent also means gaining access to homes listed in the Multiple Listing Service (MLS), an important marketing tool used by real estate agents to inform other real estate agents about available properties. That means they can give you information about a wide range of available homes from which to choose. When it comes to finding out if you’re paying too much, a real estate agent can also provide you with market analyses comparing asking and selling prices of homes in the neighborhood—and a real estate agent can serve as the liaison between you and the seller, bringing to the table negotiating expertise and knowledge about required disclosures and the housing market.
What To Expect In A Residential Transaction Buying a home involves several stages. Below is a list of the more common steps taken during a residential transaction. Though your situation may—and probably will—vary, these steps are provided as a basic guideline. It is best to contact your real estate agent for more information as you become more serious about buying a home. 1. Initial Meeting • Select real estate agent • Determine needs and wants • Determine financial eligibility 2. Loan Qualification • Discuss finances • Obtain prequalification 3. Find a Home • Select an affordable property that fits your needs • Discuss offer with agent • Buyer reviews contract with agent • Agent presents offer to selling side 4. Present and Negotiate Offer • Buyer provides “earnest money” deposit (typically, 1%-3% of purchase price) • Seller accepts offer (seller can accept your offer, counter your offer, or reject your offer)
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Buyer’s financial responsibilities
5. Open Escrow with Settlement Office (assuming seller accepts your offer) • Deposit “earnest money” into escrow • Settlement Officer will order a Title Report (Preliminary Report or a Commitment depending on region) 6. Submit Loan Application Contingency Period
responsible for. Always keep in mind that responsibility for some
• Conduct physical inspection of property by a
of these charges can be negotiable and the responsible party may
qualified inspector
vary from area to area. Contact your real estate agent for further
• Approve seller’s Transfer Disclosure Statement • Approve Title Report
• Escrow fees (according to contract)
• Obtain loan approval from lender
• Document preparation (if applicable)
• Perform termite inspection and certification
• Notary fees
7. Obtain Homeowner’s Insurance
• Recording charges for all documents in buyer’s name(s)
• Select insurance company and coverage
• Termite inspection (according to contract)
• Insurance will be in effect at close of escrow
• Tax prorating (from date of acquisition)
8. Obtain Home Warranty Insurance; Sign Documents (if applicable)
• Homeowner’s Association transfer fee • All new loan charges (except those required by lender for
• Ticor Title receives signed documents
seller to pay)
9. Down Payment
• Interest on new loan from date of funding to 30 days prior
• Provide cashier’s check or money transfer prior to closing date
to first payment date • Assumption/change of records fees for takeover of existing
10. Closing Escrow
loan (if applicable)
• Deposit down payment and closing costs to escrow • Lender sends balance of purchase price to Ticor Title • Deed is recorded with County Recorder’s office • Get your keys and move in!
information about applicable costs in your area. • Title insurance premium (according to contract)
• Conduct property appraisal
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There are various costs and fees involved in purchasing a home. The following list depicts examples of the costs you may be
• Beneficiary statement fee for assumption of existing loan • Inspection fees (roofing, property inspection, geological, etc.) • Home warranty (according to contract) • City transfer/conveyance tax (according to contract) • Fire insurance premium for first year
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SELLING YOUR HOUSE‌ Structuring transactions, arranging financing, and finding the right buyers are some of the keys to success in the real estate market, and there are few entities that know as much about the trends in today’s market as licensed real estate agents and brokers.
Licensed agents and brokers undergo thorough training and examination to help make them experts in the real estate market. Several states even require continuing education in real estate for license renewal and these specialists are compensated on their ability to sell properties quickly and cost-efficiently—and their expert abilities are chargeable only when a transaction is complete.
Why it pays to use a professional • When you use an agent, you’ll get the benefit of professional experience from the moment you consider selling your house. Your agent will help you establish a fair market value from his or her daily dealings in your neighborhood, and arrange financing terms that make it easier to obtain a quick sale in today’s market—helping you receive the equity in your home. • If you wish to participate in financing the purchase of your property, your agent or broker can structure a workable plan that helps reduce risk from unusual terms, and give you an estimate of the anticipated yield from carrying a property-secured financing plan. • Real estate agents are professionals at marketing properties so they know how to choose the right media and message to bring interested prospects to your home. They’ll interview and 12
qualify buyers for you while using their sales skills and negotiating techniques to help you receive the best possible return on your sale. • Every brokerage office has a steady stream of prospects that no individual can match. National referral networks and Multiple Listing Services also help to reach buyers from out of town or out of state. Many corporate relocation clients may be working with a broker before a move is even made. • When you work with an agent or broker, they will follow up with other agents who have shown your property and share their constructive comments on cosmetic repairs, financing arrangements, or reevaluating your list price. • An agreement between buyer and seller is just the beginning of a final transaction. From that point on your agent or broker can handle the details and paperwork necessary to make it complete—from building and termite reports to fire insurance and closing arrangements with the escrow company, title company, or closing attorney. • As an expert in real estate, your agent or broker will give you advance estimates of your closing costs and net proceeds from the sale while keeping you informed of the details to assure a smooth and timely closing.
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Working with a real estate agent is an integral part of selling your home For one thing, your real estate agent can list your property in the Multiple Listing Service (MLS), providing your home with incomparable exposure and ensuring you have as many real estate agents as possible helping to find a buyer. But that’s not all a real estate agent does to market your home. He or she knows how to specifically target advertising to reach buyers for your home, and uses all the marketing tools available to ensure that your home is sold expeditiously. Additionally, a real estate agent conducts a variety of other marketing efforts on your behalf—from holding open houses and handling phone inquiries to showing your home to prospective buyers.
What does a real estate agent do for you besides find buyers? Plenty. A real estate agent provides information on local market conditions to help you price your property realistically and fairly, and keeps you abreast of changes in the market that may affect your property. And let’s face it, buying or selling a home means lots of paperwork. When it comes to closing escrow, a real estate agent can be invaluable, leading you through the paper trail with a steady hand, while familiarizing you with escrow, insurance, property disclosures, and inspection procedures.
So, where do you find a real estate agent? Like finding any good professional, the best way to locate a real estate agent is through recommendations from friends or acquaintances that have bought or sold homes recently. Ask for references and check each agent thoroughly, and interview several real estate agents before you decide on one.
When You Make the Sa le A vital part of any sale is title insurance. Lenders usually require a loan policy to protect their interests, and buyers need an owner’s policy to protect their equity. Be sure to ask your agent or broker for protection from Ticor Title so your title insurance policy—and your investment—is backed up by the resources of FNF, the strongest title insurance family in the industry. Your Ticor Title Account Manager is an integral part of your agent’s or broker’s closing team.
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What to expect when selling your home You should select a professional real estate agent to represent
The process of selling your home involves several costs and
your needs. Once you establish a working relationship with your
fees. The following information is very general, and many of these
agent, your home is put on the market and marketed to potential
items can be negotiated with the buyer. Consult your real estate
buyers. Once a buyer makes an offer on your home you have three
professional for more information.
options: accept the offer, counter the offer, or reject the offer. If
• Real estate commission
you decide to accept the offer, here’s what happens next:
• Document preparation fee for deed
1. Escrow is opened and buyer deposits “earnest money”
• Document transfer tax
into escrow.
• City transfer/conveyance tax (according to contract)
2. Seller submits documents and information to escrow holder, such as: addresses of lien holders, tax receipts, equipment warranties, home warranty contracts (if any), and any leases or rental agreements.
• Loan fees required by buyer’s lender • Payoff of all loans in seller’s name (or existing loan balance if being assumed by buyer) • Interest accrued to lender being paid off, statement fees,
3. Seller approves and signs the escrow instructions, grant 14
Seller’s financial responsibilities
reconveyance fees, and any prepayment penalties.
deed, or other related documents required to complete
• Termite inspection (according to contract)
the transaction.
• Termite work (according to contract)
4. Seller orders inspections, receives clearances, and approves
• Home warranty (according to contract)
final reports and/or repairs to the property as required by
• Judgments, tax liens, etc., against the seller
the terms of the purchase and sale agreement
• Tax proration (for any taxes unpaid at time of transfer
(responsibility for inspection procedures may vary). 5. Buyer and seller fulfill any remaining conditions specified in the contract and/or escrow instructions; approve the payoff demands and/or beneficiary’s statements. 6. Buyer and seller approve any final changes by signing
of title) • Unpaid Homeowner’s Association dues • Recording charges to clear all documents of record against seller • Bonds or assessments (according to contract)
amendments to the escrow instructions or contract.
• Any and all delinquent taxes
Note: The above is general information only. Your situation may differ. Please con-
• Notary fees
sult your real estate professional for details about your specific situation.
• Escrow fees (according to contract) • Title insurance premium (according to contract)
A gu id e to t i t l e a n d escrow
For more information please visit Ticor.Title.com
Copyright Š 2007 Fidelity National Financial All rights reserved. Printed in the United States of America. No part of this publication may be reproduced in any manner whatsoever without written permission. First Edition, June 2007 50100607c