A Guide to Title and Escrow
Table of Contents What is Title Insurance....... 1 What is Escrow.................... 5 Buying a Home… ............... 8 Selling Your House….........11
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.
enerally, when people think of insur-
can be accepted, resolved, or extinguished prior to the
ance, they think of something that pro-
closing of the transaction. In addition, you are protected
tects their house or vehicle from un-
against any recorded defects, liens, or encumbrances
foreseen circumstances, such as an
upon the title that are unreported to you and which are
earthquake that damages your home, or the theft of
within the coverage of the particular policy issued in
your car. Title insurance is different because the origi-
nal 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 2
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 What Claims Exist? In order to determine the status of title, Chicago Title conducts a thorough search of the public records
What About Undiscovered Claims (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 Chicago Title provides insurance coverage for such claims. If a claim is made against your insured title, Chicago 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.
for those documents associated with the property. Chicago 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 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
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.
A g u i d e t o tit l e a n d esc r o w
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.
amended to show any encroachments or other off-record matters that would ultimately impact the title.
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 commits to purchasing the property.
How Can There Be a Title Defect if the Title Has Been Searched?
• Commitment—Shows the condition of title and the requirements necessary for the Title Company to
Title insurance is issued after a careful examination
issue a policy.
of copies of the public records. Unfortunately, despite the
• Pro Forma—Specimen of what the requested poli-
knowledge and experience of professional title examin-
cy will look like; underwriting issues are not yet
ers, even the most thorough search cannot absolutely as-
completed and it is not binding upon the company.
sure that no title hazards are present.
• Policy—Final contract of indemnity between the
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.
insured and the company.
Reasons for Title Insurance • 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 • A deed or mortgage may be made under a power
of attorney after its termination and would there-
The skill and expertise of Chicago Title’s staff is the
fore be void
key to providing you with a useful, accurate title report.
• A deed or mortgage may be made by a person
Once the report is issued the review begins with a techni-
other than the owner, but with the same name
cal analysis of the documents of record. An interpretive view of all recorded matters is then made to evaluate
as the owner • A testator of a will might have had a child born after
their impact on the title to the property.
the execution of the will—a fact that would entitle
the child to claim his or her share of the property
In anticipation of American Land Title Association (ALTA) coverage, a site inspection or survey is ordered.
• A deed or mortgage may be procured by fraud or duress
From this report, the title product is supplemented or chicag o tit l e
• 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 • 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” 4
A g u i d e t o tit l e a n d esc r o w
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.
eople 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 sellerâ€™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. Chicago 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. 6
A g u i d e t o tit l e a n d esc r o w
What Each Party Does in Escrow The Seller: • Deposits the executed deed to the buyer with the settlement agent • Deposits evidence of pest inspection and any required repair work, if applicable • Deposits other required documents such as tax receipts, addresses of mortgage holders, any state or federally required documentation, etc. For more information on the seller’s responsibilities, please refer to the Seller section of this guide.
The Settlement Agent: • Acts as the impartial “stake-holder,” or depository of documents and funds • Processes and coordinates the flow of documents and funds • Keeps all parties informed of progress on the escrow • Responds to the lender’s requirements • Opens the order for title insurance • Obtains approvals from involved parties on the Preliminary Report/Title Commitment, as well as pest and other inspections
The Buyer: • 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 • Arranges for any borrowed funds to be delivered to the settlement agent • Deposits any deed of trust or mortgages necessary to 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
• Prorates and adjusts insurance, taxes, rents, etc. • Records deed and loan documents and delivers the deed to the buyer, the loan documents to the lender, and the funds to the seller, thus closing the escrow • Maintains security and accountability of monies owed and owing • Receives funds from the buyer and/or any lender • Disburses funds for title insurance, recording fees, real estate commissions, lien clearance, etc. • Prepares an estimated statement or HUD settlement statement, as required, for each party, indicating amounts to be disbursed for services as well as any further amounts necessary to close
• Fulfills any other conditions specified in the
• Issues final closing statement/HUD settlement
instructions For more information on the buyer’s responsibilities, please refer to the
statement and forwards to buyer, seller, and lender
Buyer section of this guide.
The Lender (if applicable):
If you have questions about the escrow process,
• Prepares an document package for buyer/borrower
please call your local Chicago Title office.
• Deposits proceeds of the loan with the settlement agent • Directs the settlement agent on the conditions under which the loan funds may be used
chicag o tit l e
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.
real estate agent is important to the buy-
1. Initial Meeting
ing process because he or she can help
• Select real estate agent
you determine how much home you can
• Determine needs and wants
afford based on your financial situation,
• Determine financial eligibility
has the tools to help you get prequalified for a loan, and
2. Loan Qualification
is even able to inform you about available financing op-
• Discuss finances
tions. Additionally, a real estate agent is an expert on the
• Obtain prequalification
neighborhood and can provide detailed information
3. Find a Home
about schools, transportation, local taxes, and other com-
• Select an affordable property that fits your needs
munity characteristics. Using a real estate agent also
• Discuss offer with agent
means gaining access to homes listed in the Multiple
• Buyer reviews contract with agent
Listing Service (MLS), an important marketing tool used by real estate agents to inform other real estate agents
• Agent presents offer to selling side 4. Present and Negotiate Offer
about available properties. That means they can give you
• Buyer provides “earnest money” deposit
information about a wide range of available homes from
(typically, 1%-3% of purchase price)
which to choose. When it comes to finding out if you’re
• Seller accepts offer (seller can accept your of-
paying too much, a real estate agent can also provide you
fer, counter your offer, or reject your offer)
with market analyses comparing asking and selling pric-
5. Open Escrow with Settlement Office (assuming
es of homes in the neighborhood—and a real estate agent
seller accepts your offer)
can serve as the liaison between you and the seller, bring-
• Deposit “earnest money” into escrow
ing to the table negotiating expertise and knowledge
• Settlement Officer will order a Title Report
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.
(Preliminary Report or a Commitment depending on region) 6. Submit Loan Application Contingency Period • Conduct physical inspection of property by a qualified inspector • Approve seller’s Transfer Disclosure Statement • Approve Title Report • Conduct property appraisal • Obtain loan approval from lender • Perform termite inspection and certification 7. Obtain Homeowner’s Insurance • Select insurance company and coverage • Insurance will be in effect at close of escrow
chicag o tit l e
8. Obtain Home Warranty Insurance; Sign Documents (if applicable) • Chicago Title receives signed documents 9. Down Payment • Provide cashier’s check or money transfer prior to closing date
There are various costs and fees involved in purchasing a home. The following list depicts examples of the costs you may be responsible for. Always keep in mind that responsibility for some of these charges can be negotiable and the responsible party may vary from
10. Closing Escrow • Deposit down payment and closing costs to escrow • Lender sends balance of purchase price to Chicago Title • Deed is recorded with County Recorder’s office • Get your keys and move in!
Buyer’s Financial Responsibilities
area to area. Contact your real estate agent for further information about applicable costs in your area. • Title insurance premium (according to contract) • Escrow fees (according to contract) • Document preparation (if applicable) • Notary fees • Recording charges for all documents in buyer’s name(s) • Termite inspection (according to contract) • Tax prorating (from date of acquisition)
• Homeowner’s Association transfer fee • All new loan charges (except those required by lender for seller 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 (if applicable) • 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
A g u i d e t o tit l e a n d esc r o w
Selling Your Houseâ€Ś 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 todayâ€™s market as licensed real estate agents and brokers.
icensed agents and brokers undergo thorough training and examination to help
pects that no individual can match. National refer-
make them experts in the real estate mar-
ral networks and Multiple Listing Services also
ket. Several states even require continu-
help to reach buyers from out of town or out of
ing education in real estate for license renewal and
state. Many corporate relocation clients may be
these specialists are compensated on their ability to
working with a broker before a move is even made.
sell properties quickly and cost-efficiently—and their
• When you work with an agent or broker, they will
expert abilities are chargeable only when a transaction
follow up with other agents who have shown your
property and share their constructive comments on
Why It Pays to Use a Professional • When you use an agent, you’ll get the benefit of
• Every brokerage office has a steady stream of pros-
cosmetic repairs, financing arrangements, or reevaluating your list price. • An agreement between buyer and seller is just the
professional experience from the moment you con-
beginning of a final transaction. From that point on
sider selling your house. Your agent will help you
your agent or broker can handle the details and pa-
establish a fair market value from his or her daily
perwork necessary to make it complete—from
dealings in your neighborhood, and arrange financ-
building and termite reports to fire insurance and
ing terms that make it easier to obtain a quick sale
closing arrangements with the escrow company, ti-
in today’s market—helping you receive the equity
tle company or closing attorney. • As an expert in real estate, your agent or broker
in your home. • If you wish to participate in financing the pur-
will give you advance estimates of your closing
chase of your property, your agent or broker can
costs and net proceeds from the sale while keeping
structure a workable plan that helps reduce risk
you informed of the details to assure a smooth and
from unusual terms, and give you an estimate of
the anticipated yield from carrying a property-secured financing plan.
Working with a Real Estate Agent is an Integral Part of Selling Your Home
• Real estate agents are professionals at marketing
For one thing, your real estate agent can list your
properties so they know how to choose the right
property in the Multiple Listing Service (MLS), provid-
media and message to bring interested prospects to
ing your home with incomparable exposure and ensur-
your home. They’ll interview and qualify buyers
ing you have as many real estate agents as possible
for you while using their sales skills and negotiat-
helping to find a buyer. But that’s not all a real estate
ing techniques to help you receive the best possible
agent does to market your home. He or she knows how
return on your sale.
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 g u i d e t o tit l e a n d esc r o w
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 pro-
What to Expect When Selling Your Home You should select a professional real estate agent to
represent your needs. Once you establish a working rela-
What Does a Real Estate Agent Do for You Besides Find Buyers?
tionship with your agent, your home is put on the market
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.
and marketed to potential buyers. Once a buyer makes an offer on your home you have three options: accept the offer, counter the offer, or reject the offer. If you decide to accept the offer, here’s what happens next: 1. Escrow is opened and buyer deposits “earnest money” into escrow. 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. 3. Seller approves and signs the escrow instructions,
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
grant deed, or other related documents required to complete the transaction. 4. Seller orders inspections, receives clearances, and
from friends or acquaintances that have bought or sold
approves final reports and/or repairs to the property
homes recently. Ask for references and check each
as required by the terms of the purchase and sale
agent thoroughly, and interview several real estate
agreement (responsibility for inspection procedures
agents before you decide on one.
may vary). 5. Buyer and seller fulfill any remaining conditions
When You Make the Sale 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 Chicago Title so your title insurance policy— and your investment—is backed up by the resources of FNF, the strongest title insurance family in the in-
specified in the contract and/or escrow instructions, and approve the payoff demands and/or beneficiary’s statements. 6. Buyer and seller approve any final changes by signing amendments to the escrow instructions or contract. Note: The above is general information only. Your situation may differ. Please consult your real estate professional for details about your specific situation.
dustry. Your Chicago Title Account Manager is an integral part of your agent’s or broker’s closing team.
chicag o tit l e
Seller’s Financial Responsibilities The process of selling your home involves several costs and fees. The following information is very general, and many of these items can be negotiated with the buyer. Consult your real estate professional for more information. • Real estate commission • Document preparation fee for deed • Document transfer tax • City transfer/conveyance tax (according to contract) • 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, reconveyance fees, and any 14
prepayment penalties. • Termite inspection (according to contract) • Termite work (according to contract) • Home warranty (according to contract) • Judgments, tax liens, etc., against the seller • Tax proration (for any taxes unpaid at time of transfer of title) • Unpaid Homeowner’s Association dues • Recording charges to clear all documents of record against seller • Bonds or assessments (according to contract) • Any and all delinquent taxes • Notary fees • Escrow fees (according to contract) • Title insurance premium (according to contract)
A g u i d e t o tit l e a n d esc r o w
For More Information Please Visit Chicago.Title.com
Copyright ÂŠ 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 20100607c