Whether you are purchasing your first or tenth home, or have entered into the realm of investment or commercial property purchase, this can be a nerve-racking time for you, the Buyer. You have just come off of the roller coaster of making an Offer to purchase the property, waiting anxiously for the Seller’s response - and then decision time. It is time for you to further counter to the Seller’s response, continue looking for other property to purchase, or to accept the Seller’s Offer. At last! You and the Seller have come to an agreement.
The next thing that happens is that your Realtor asks you to make a check payable to a title/escrow company. “What is a title/escrow company?” you say to yourself, and why do I have to give them a check? Well, the check is your earnest money deposit, which you agreed to deposit into escrow when the Offer (now referred to as the Purchase Agreement) was accepted. The earnest money deposit is held in trust for you at the title/escrow company and will apply toward your down payment at the closing of escrow. Having deposited the earnest money deposit into escrow gives the Seller a sense that you are serious about purchasing the property. Under most circumstances, this earnest money deposit is refundable to the Buyer during the Buyer’s inspection period of the property, if the Buyer determines that the purchase of the property is not right for them because of issues that were uncovered during their inspection of the property, or other matters. It is also typical that the earnest money deposit is refundable to the Buyer in the event the Buyer is unable to secure the financing that is provided for in the Purchase Agreement.
In answer to your question about “What is a title/escrow company?”, the answer is actually two-pronged. A title company, also known as a title insurance company, insures your ownership in the property, much like the home and automobile insurance you purchased to insurance your home and automobile. In the event you get in an automobile accident, you call your automobile insurance company to have them work with you to repair your car. If your hot water heater dies right after you have left for work and you arrive home to a flooded house, you call your homeowners insurance company. They will work with you to repair your home. When you purchase real estate, it is typical for a Buyer to purchase a policy of title insurance. This policy fee is paid only once, when you purchase the property and is good for the entire time you own the property. You would only contact your title insurance company in the event someone is claiming an interest in your property, such as an adjacent property owner claiming that they own the back half of your property, or if someone sends you a letter or knocks on your door demanding money for payment of a lien or taxes that the former owner owed, or other such claims against your ownership of the property. The chances of you needing to make a claim against your title insurance policy are very small.
An escrow company is typically related to a title insurance company, but is radically different in what they do. An escrow company obtains a copy of the signed Purchase Agreement between the Buyer and Seller, then proceeds to prepare the Escrow Instructions that the Buyer and Seller will sign. The Escrow Instructions are the final agreements between the parties and contains matters which may not have been mentioned in the Purchase Agreement, such as any last minute adjustments to the purchase price because of matters which may have been discovered by the Buyer during their investigation of the property. The escrow company will have all of the Parties sign the documents and collects from the Buyer their funds to close escrow. The escrow company has the Seller sign the Grant Deed, which (when recorded) will convey ownership of the property to the Buyer. At the closing of escrow, the escrow company will have the title insurance company record the Grant Deed. From the Seller’s funds, the escrow company will deduct any amounts to pay off any loans or liens which encumber the property, including property taxes, loans, liens and/or judgments, as well as commissions due the realtors. It is the title insurance company’s and escrow company’s jobs to make sure that when the Grant Deed is recorded, there are no liens or loans recorded against the property that the Buyer has not previously approved of.
These processes sound simple enough, but in reality they are very complicated and technical. It is always very important to use a title and escrow company when buying or selling real estate. Failure to do so can cause a lot of trouble for the Buyer and Seller on down the road.
About Suzanne Tikker
Suzanne Tikker joined Haedrich & Co., Inc. with 33 years of experience as an escrow officer and 2 years as a residential lender. Her background in escrow and lending has proved to be invaluable in overseeing the complex contracts, purchase agreements, leases, and escrow transactions of the office. Suzanne is also a licensed real estate salesperson. This experience, along with her expertise and professionalism make Suzanne a valuable asset to the company and the commercial real estate clientele we serve. Suzanne is also very involved in the North State Escrow Association, as well as the Exchange Club of Redding.