What is Title & Escrow?

services-contract2At Pacific Title Company, we strive to make the process of buying and selling real estate as easy as possible for our clients. Obtaining title insurance and using the escrow process in closing your real estate transactions are important steps in securing the purchase of your home. To get a better understanding of the title and escrow process and why you need it, read through this list of frequently asked questions:

Why do you need Title Insurance?
What sort of things does Title Insurance protect against?
What is Escrow?
Who usually pays for what?
What is the timeline for this process?

Why do you need Title Insurance?

Title insurance protects the most important investment you may ever make — the investment in your home. A lender goes to great lengths to minimize the risk of lending you the money you need to buy a home. First, your credit is checked as an indication of your ability to pay back the loan. Then, your lender goes a step further and makes sure that the quality of the title to the property you are about to buy, and which you will pledge as security for the loan, is satisfactory. The lender does this by obtaining a lender’s policy of title insurance. The lender’s policy doesn’t protect you. That’s why you need an owner’s policy, which can be issued at the same time as the lender’s policy for a nominal one-time fee.

Title insurance will pay for defending against lawsuits attacking your title as insured, and will either clear up title problems or pay the insured’s losses. For a one-time premium, an owner’s title policy remains in effect as long as you, or your heirs, retain an interest in the property. Owner’s residential title insurance, issued simultaneously with a lender’s policy is the best title insurance value you can get. Title insurance gives you the peace of mind in knowing the investment you’ve made in your home is a safe one.

What sort of things does Title Insurance protect against?

Here are a few situations in which Title Insurance can protect you:

  • False impersonation of the true owner
  • Forged deeds, releases or wills
  • Undisclosed or missing heirs
  • Instruments executed under invalid or expired power of attorney
  • Mistakes in recording illegal documents
  • Misinterpretations of wills
  • Deeds by persons of unsound minds
  • Deeds by minors
  • Deeds by persons supposedly single, but in fact married
  • Liens for unpaid estate, inheritance, income or gift taxes
  • Fraud

What is Escrow?

Escrow is a method of closing a real estate transaction in which all the required documents and funds are placed with a third party for processing and disbursement. It is the job of the escrow officer to conform to the laws of the state and act as a non-biased third party in order to close the transaction fairly and legally.

Who usually pays for what?

While every transaction can have individual conditions, there are certain things which the buyer and seller have traditionally paid for.

The seller can generally expect to pay for:

  • Owner’s title insurance premiums
  • Real Estate Commission
  • Half of the escrow fee (except for VA Loans, where entire fee is paid by the seller)
  • Any loan fees required by the buyer’s lender, per their contract
  • Payoff of all loans on property (unless loan balance being assumed by buyer)
  • Interest accrued to lender being paid off, statement fees, reconveyance fees and any prepayment penalties
  • Termite inspection (according to contract)
  • Termite work (according to contract)
  • Home warranty (according to contract)
  • Any judgments or tax liens against the seller
  • Recording charges to clear all documents of record against the seller
  • Prorated taxes (for any taxes unpaid at time of transfer of title
  • Any unpaid Homeowner’s Association dues
  • Any bonds or assessments (according to contract)
  • Any and all delinquent taxes

The buyer can generally expect to pay for:

  • Lender’s title policy premiums
  • Half of the escrow fee (except for VA Loans, where entire fee is paid by the seller)
  • Document preparation (if applicable)
  • Notary fees (if applicable)
  • Recording charges for all documents in the buyer’s name
  • Homeowner’s Association Transfer Fee
  • All new loan charges (except those required by lender for sellers to pay)
  • Interest on new loan from date of funding to 30 days prior to first payment date
  • Assumption/change of records fees for takeover of existing loan
  • Home warranty (according to contract)
  • Fire insurance premium for first year
  • All pre-paids

What is the timeline for this process?

A real estate closing transaction is entirely at the mercy of the various parties to the transaction, but at Pacific Title Company, we make every effort to ensure an expedient closing.