What you need to know about escrow
Here’s a quick guide for understanding the purpose of title insurance and escrow, and why they are important.
What is title insurance?
Title insurance is a two-part transaction.
1) First, a title company searches property records to ensure that there haven’t been any clerical errors, mistakes in examining records, undisclosed heirs, omissions in deeds, unknown liens or fraud involving the deed. It verifies that the seller really owns the property and is free to sell it.
2) Next, the entity doing the search contracts with an underwriting company to issue an insurance policy that will pay to defend you in court if anyone challenges your title and to compensate you for your equity if you lose. Homebuyers typically need two policies: an owner’s policy, which protects them, and a lender’s policy, which safeguards the lender. When you buy a piece of land, you don’t get handed the piece of land – you are given title. Title is the owner’s right to possess and use the property.
What is escrow?
An escrow is a deposit of funds, a deed or other instrument by a party for the delivery to another party upon completion of a specific condition or event. It is an independent neutral account by which the interests of all parties to the transaction are protected. When opening an escrow, the buyer and seller of a piece of property establish terms and conditions for the transfer of ownership. The escrow is a “storehouse” for all monies, instructions and documents necessary for the sale of the home.
Why do I need an escrow?
An escrow will provide you with a guarantee that no funds or property will change hands until ALL terms and conditions have been met. The escrow holder has the responsibility to hold funds and/or documents and then pay out the funds and/or transfer title only when all requirements of the escrow have been met.
How does the escrow process work?
The buyer, seller lender and/or borrower cause escrow instructions to be created, signed and delivered to the escrow officer. The escrow officer will then process the escrow, in accordance with the escrow instructions. When all conditions required in the escrow are met, and the buyer has deposited funds, then closing occurs. This means escrow is in a position to give the buyer clear title, thereby recording the deed and a policy of title insurance will be prepared and delivered to the lender.
Why is an experienced escrow officer so important?
Not only does the escrow holder act for both parties and protects the interest of each within the power of escrow instructions, but escrow cannot be completed until instructions have been fully satisfied and all parties have signed escrow instructions. The escrow holder takes instructions based on the terms of the contract and the lender’s requirements. One might think this as a “cookie cuter” process. On the contrary, an experienced escrow officer recognizes the complexities of different situations of the parties involved. Has there been a death? A divorce? Is this a short sale?
Buying or selling a home is one of life’s biggest events – an experienced escrow officer will obtain the “story,” if you will, with each individual party – and “handle” that party accordingly. Closing an escrow is the moment of truth – a buyer writing maybe the largest check of their life; a seller leaving a home after several years – it is an emotional process, indeed. An experienced escrow officer will appreciate the complex scenarios, and is a huge reason why certain real estate agents prefer to use specific escrow officers.
Why do title insurance premiums cost ‘so much?’
Like the rates for other forms of insurance, rates for title insurance are regulated by state governments to ensure that premiums are not excessive, inadequate or unfairly discriminatory to the public. Premiums are based on the sales price and buyers/borrowers loan amounts.
Suzanne Abbott Silverman from Capital Title brings more than three decades of experience to her clients in northern Nevada.
Heather Ashbridge, who started with Nevada State Development Corporation in 2008, previously served in several roles with the organization, including assistant vice president and loan officer. She is based in NSDC’s Reno office.