What do I have to do while in Escrow?
The key to any transaction as important as your sale, purchase or loan is to read and understand your escrow instructions. If you do not understand them, you should ask your escrow officer to explain the instructions.
Your escrow officer is not an attorney and cannot practice law; you should consult your lawyer for legal advice. Your escrow officer cannot give you tax advise. The escrow officer is there to follow the instructions given by the principals in the escrow.
In order to expedite the closing of the escrow, you should check with your escrow officer as to what specific items you will need to provide to keep your escrow on track. Complete all requested documentation quickly, completely and honestly. Incomplete documents will result in a delay and possibly additional fees that could be your responsibility.
Respond quickly to correspondence. This will assist in the timely closing of the transaction.
If you are required to deliver funds into the escrow, make sure that you provide "good" funds in the form required by the escrow officer. Funds should be delivered as Wire Transfer or Cashier's Check into the escrow company's Trust Account. Company procedures differ in this regard, and there are many ways you can help at the time of closing; check with your escrow officer. Do not give the escrow officer a personal check and expect the escrow to close immediately; the escrow can only close on cleared funds, and the processing of a personal check can take 10-14 days, possible longer.
When the escrow officer closes the escrow, some of you may want the closing papers, checks, title policies, statements, etc. made available immediately. There are many aspects to the closing of the escrow, and some of these cannot be processed on the day of the closing; they may take several days. If you have a special need, for example, a proceeds check on the day of closing, you should communicate that need to the escrow officer early in the processing of the escrow.
What Is An Escrow?
An escrow is an arrangement on which a neutral third party, called an escrow holder, holds legal documentation and funds on behalf of a buyer and seller. The escrow agent works closely with you, your realtor and lender to assure that the sale conditions are complied within the time period called for in the Residential Purchase Agreement and Joint Escrow Instructions.
After all parties have executed these documents, escrow prepares Escrow Instructions and estimated closing statements. Escrow then distributes them according to the buyers and sellers instructions. Both the buyer and the seller rely on the escrow holder to carry out faithfully their mutually consistent instructions relating to the transaction. Escrow holder is bound by law to notify both parties if the instructions given are not mutually consistent or cannot be carried out. These instructions are drawn by the Escrow Officer, and signed by the buyer and seller.
Who needs title insurance?
Buyers and lenders in real estate transactions need title insurance. Both want to know that the property they are involved with is insured against certain title defects. Title companies provide this needed insurance coverage subject to the terms of the policy. The seller, buyer and lender all benefit from the insurance provided by title companies.
What does title insurance insure?
Title insurance offers protection against claims resulting from various defects (as set out in the policy) which may exist in the title to a specific parcel of real property, effective on the issue date of the policy. For example, a person might claim to have a deed or lease giving them ownership or the right to possess your property. Another person could claim to hold an easement giving them a right of access across your land. Yet another person may claim that they have a lien on your property securing the repayment of a debt. That property may be an empty lot or it may hold a 50-story office tower. Title companies work with all types of real property.
What types of policies are available?
Title companies routinely issue two types of policies: An "owner's" policy which insures you, the homebuyer for as long as you and your heirs own the home; and a "lender's" policy which insures the priority of the lender's security interest over the claims that others may have in the property.
What protection am I obtaining with my title policy?
A title insurance policy contains provisions for the payment of the legal fees in defense of a claim against your property which is covered under your policy. It also contains provisions for indemnification against losses which result from a covered claim. A premium is paid at the close of a transaction. There are no continuing premiums due, as there are with other types of insurance.
What are my chances of ever using my title policy?
In essence, by acquiring your policy, you derive the important knowledge that recorded matters have been searched and examined so that title insurance covering your property can be issued. Because we are risk eliminators, the probability of exercising your right to make a claim is very low. However, claims against your property may not be valid, making the continuous protection of the policy all the more important. When a title company provides a legal defense against claims covered by your title insurance policy, the savings to you for that legal defense alone will greatly exceed the one-time premium.
What if I am buying property from someone I know?
You may not know the owner as well as you think you do. People undergo changes in their personal lives that may affect title to their property. People get divorced, change their wills, engage in transactions that limit the use of the property and have liens and judgments placed against them personally for various reasons.
There may also be matters affecting the property that are not obvious or known, even by the existing owner, which a title search and examination seeks to uncover as part of the process leading up to the issuance of the title insurance policy.
Just as you wouldn't make an investment based on a phone call, you shouldn't buy real property without assurances as to your title. Title insurance provides these assurances.
The process of risk identification and elimination performed by the title companies, prior to the issuance of a title policy, benefits all parties in the property transaction. It minimizes the chances that adverse claims might be raised, and by doing so reduces the number of claims that need to be defended or satisfied. This process keeps costs and expenses down for the title company and maintains the traditional low cost of title insurance.
What is a 1031 Exchange?
A Tax-Deferred Exchange was first introduced in 1921 allowing owners of investment property to defer the payment of capital gains associated with the sale of those properties. In the summer of 1990, this procedure was finally outlined under the Internal Revenue Code section 1031, and involves a series of rules and regulations that must be met in order to take full advantage of this tax benefit.
These new rules allowed owners of certain types of like kind Real and Personal property to sell their property and other like kind property without paying the Capital Gains Tax. The rule also required that the "Exchanger" use a safe harbor to hold the proceeds while the exchange was in progress, and spelled out what the safe harbors were. The only safe harbor for most "Exchangers" is a "Qualified Intermediary." A Qualified Intermediary has a complete understanding of everything that is involved in utilizing this section of the code and will walk you through this process. Check with your attorney or tax advisor and they can refer you to a qualified intermediary.
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