Buying or selling a home is the largest monetary transaction
most of us experience in our personal lives. Buying or selling
a home or land usually involves the transfer of a large sum of
money. As a buyer or a seller, you want to make sure that all
the conditions of sale have been met before property and money
exchange hands. Through the years, custom has dictated that
money and all related documents be transferred through a neutral
third party. This process is called escrow.
In Florida, escrows are processed by Escrow
Officers. Most of these are employed by title companies. Escrow
Officers are people who have years of hands-on experience in
handling all the types of documents and large sums of money
involved in transferring real property.
The Escrow Officer serves as the neutral "stake holder" and the
communication link to all parties in the transaction. The
Escrow Officer holds all documents and money until all
conditions of the sale are completed, at which time she will
impartially carry out the written instructions given by the
principals in the transaction.
How is a Resale Escrow
Opened?
An escrow is opened with your title company by one of the real
estate agents involved in the transaction. In some counties, it
is traditional for the "listing" agent (the real estate agent
who has the property listed for sale) to open the order. In
other counties it is the agent representing the buyer who will
open the order. Your real estate agent can give you guidance in
this area. Today, many buyers and sellers are very
knowledgeable about the process and both may have a favorite
title company they wish to use. In recent years, we have found
that both our sellers and buyers are more knowledgeable about
the escrow process, and we can see that many buyers are now
asking for the opportunity to direct the escrow to their
favorite title company. However; any question about "which
title company" is always worked out before we get involved!
When an "order" (or "file") is opened, the agent will call the
selected escrow officer. At this time we issue an "escrow
number" which will be used to identify this transaction
throughout the escrow (and, once the file is closed, on into the
storage system used to safeguard these files). When the order
is opened, we will ask the real estate agent to give us all the
information about the property (address, current owner,
prospective buyer, buyer’s lender, outstanding loan information,
sales price etc.). The agent may also send or FAX to us a
written set of instructions which outlines the details of the
transaction, such as commission to the be paid to the agent and
expected closing date. We may also receive this information
verbally.
Our next step is to verify all of the pertinent information with
the buyers agent. We will also find out if a home warranty will
be taken on the new home, when we can expect the termite report
to be completed and other details which will affect the escrow.
We will also make sure that everyone involved in the transaction
has our phone and FAX numbers as well as the escrow number.
How is a Resale Escrow
Closed?
When an escrow file is opened, we actually make a list of all
the items necessary to close the escrow. These may include the
buyers deposit, loan documents, fire and other insurance
policies, home warranty, termite report, terms of the sale and
any seller-assisted financing, title insurance policy and
requests for payment for various services to be paid out of
escrow funds. At that time we also ask all parties when they
hope the escrow will close. Because most people have rent or
lease payments month to month, we find that escrows often close
at the end of the month so the buyer can move into their new
home and avoid paying another month’s rent on the previous
residence.
The Escrow Officer cannot disburse any funds or information
unless she/he is instructed to do so in writing. So, when the
necessary documents and money have been received into the file,
the Escrow Officer will draw up a set of instructions (called
"escrow instructions"), which put all the information in
writing. These escrow instructions will be signed before the end
of escrow. In the Fresno area these escrow instructions are
drawn at the beginning of the process.
What is Title Insurance?
Title insurance, unlike other forms of insurance, such as
automobile or life insurance, involves a one-time premium, paid
when you close the real estate transaction. When you purchase
title insurance, you don’t have to make monthly, quarterly or
yearly payments as you do with car and life insurance. Unlike
medical and casualty insurance premiums, which are paid to
insure against an unpredictable future event, title insurance
guarantees that all events in the past have been cleared. This
is an important distinction. Since a title company has searched
and evaluated the condition of the title to your property, title
insurance guarantees that the title company has not missed any
items which may affect your property.
The goal of title companies is to conduct such a thorough search
and evaluation of public records that no claims will ever
arise. Of course, as humans we are never 100% right! Title
insurance means that you can make a claim in the event that the
conditions of your title is not as we say it is. In fact, title
insurance companies set aside a percentage of their profits to
pay for any claims that arise. In actuality; however, the
number of claims is relatively small. When your escrow closes,
the title company will issue you a policy of insurance. Keep
this with your home records, as a copy of it will come in handy
in the unlikely event that a problem does arise. Title companies
keep records that go back decades, so we will always be ready to
back up our policy.
Types of Policies
There are basically two types of title insurance policies --
one for property owners and one for lenders. Policies for
both owners and lenders are written according to guidelines set
down by the
American Land Title Association (ALTA). All title companies in
Florida can issue these types of policies. The standard in
Florida is ALTA policy is for lenders. However; some people do request the
additional residential coverage provided by the ALTA RESIDENTIAL
policy, which usually requires a physical inspection and covers
some items not covered in the ALTA owner’s policy. Here is a
summary of the types of policies and what they cover:
ALTA POLICIES
ALTA HOMEOWNER'S POLICY:
This is a new and enhanced policy which is now the standard
in residential policies. The ALTA Homeowner's Policy (or, as
we call it, the Eagle Policy) insures:
- Ownership of the property
- That there is access if the property abuts upon an open,
public, dedicated street
- That there are no forgeries or failed conveyances in the
chain of title
- That the insured has a marketable interest in the real
property
In addition, the Eagle Policy offers some expanded features
not available in other policies:
- Coverage for building permit vio9lations incurred by
previous owner
- Protection against forgeries which may occur in the future
to cloud title
- Protection in the event a structure encroaches into the
insured property
- Enhanced right of access coverage, including vehicular and
pedestrian access
- Several other features including Subdivision Map Act
coverage, Restrictive Covenant Violations coverage, Structural
Damage from Mineral Extraction coverage, Map Inconsistencies
coverage and Post Policy Increase in Value to 125%.
ALTA OWNERS INSURANCE:
This is the most common type of owners’ insurance available for
any commercial property, residential real property and vacant
land. The ALTA policy insures:
- Ownership of the property
- That there is access if the property abuts upon an open,
public, dedicated street
- That there are no forgeries or failed conveyances in the
chain of title
- That the insured has a marketable interest in the real
property
The ALTA Owners Policy insures all recorded matters affecting
title to the property in order of their priority. In other
words, it will show the lender of the first mortgage before the
lender on the second mortgage because the first lender has
priority.
The ALTA policy may also be ordered by lenders, normally on
second deeds of trust by individuals and non-banking or savings
and loan lenders. When the ALTA policy is ordered for lenders,
it insures all types of property, normally on second deeds of
trust by individuals and non-banking or savings and loan
lenders. The ALTA policy does not
cover:
- Matters which a correct survey would show
- Unrecorded matters
- Matters which a physical inspection of the property would
disclose
- Rights of parties in possession
- Unpatented water and mineral rights
- Matters known, created or assumed by the insured
ALTA POLICIES
ALTA RESIDENTIAL POLICY
The ALTA Residential Policy is an owner’s policy insuring owners
of 1-4 family residential lots or condominium units. In
addition to the basic coverage provided by the ALTA policy, the
ALTA residential policy protects the insured against losses
caused by:
- Mechanic Liens (labor and material liens) arising out of
work done on the property which the insured did not agree to
or agree to pay for
- Major encroachments – The insured is protected against
forced removal of an existing structure (other than a boundary
wall or fence) because it extends onto adjoining land or onto
an easement
- Unrecorded interest arising from off record leases,
contracts or option
- Zoning Compliance (as long as property in question and
zoning are both residential) CC&Rs compliance
Most title companies will insure a seller carryback deed of
trust under an ALTA residential policy by endorsement (an
addendum to a title policy with a small additional cost). This
is the only type of deed of trust that may be insured under this
policy.
ALTA LENDERS POLICY
The ALTA Lenders Policy is for institutional lenders only (such
as banks and savings and loans). It insures lender priority and
the fact that it is marketable. It covers both recorded matters
as well as unrecorded matters such as:
- Encroachments
- Unrecorded easements
- Access
- Loss of priority
- Unrecorded liens and encumbrances.
The coverage on this policy is quite broad. A survey or
inspection is often required before a policy is issued This
policy can be issued on all types of real property.
ALTA OWNERS POLICY
Do not confuse this with an ALTA residential owners policy. This
is the broadest form of insurance given in Florida. This
policy requires an ALTA survey to be provided to the title
company. In addition to the coverage given by a ALTA policy, it
insures:
- Encroachments
- Access
- Rights of parties in possession
- Unrecorded liens and encumbrances
- Taxes
- Matters which correct survey would show
An ALTA OWNER'S POLICY DOES NOT COVER MATTERS KNOWN CREATED
OR ASSUMED BY OUR INSURED.
When this policy is requested, we may require:
- An ALTA survey (usually at a cost of between $250 and
$350)
- A field inspection by our chief title officer
- A check with all utilities to make sure they have no
unrecorded easements
- Copies of all leases and or tenant lists
