5 Steps You Can’t Skip During Escrow
The escrow process, which is also known as closing or settlement, is the endgame of thehome-buying process. It is when the buyer, seller and other necessary parties get together to seal the deal.
While your real estate agent and lender may assist you during the process, you should prepare yourself by knowing what to expect once you are in the thick of it.
To do so, brush up on these five prominent hurdles you’ll face during the escrow process.
Escrow Steps for Success
1. Have a Solid Contract
The sales contract or purchase agreement is the blueprint for the escrow process. The real estate agent or attorney typically writes the contract. It should clearly state the terms of the deal and what must occur before escrow closes and the property changes hands. It should not contain blank spaces.
The contract will include details about these specifics:
§ What happens if the agreement fails
§ What personal property is included in the deal
§ The closing date
§ What happens if escrow is delayed
§ Who pays what cost
§ Financing arrangements
§ Occupancy date
2. Clear Contingencies
Contingencies are contractual conditions that must be met before the contract becomes official. Inspection, appraisal, and financing are common examples, although contingencies can be written for any event or issue. Contingencies come with a time limit to complete the task.
Once each contingency is completed, the buyer and seller should sign a document removing the contingency from the contract.
3. Review Title Reports
Typically, there are two title reports: a preliminary report and a final report with title insurance. Review the preliminary report to verify the legal description of the property and to learn about any liens, encumbrances or other items affecting the property’s title.
Later, with the final title report, make sure the title is clear and the title or escrow agent knows how you want to take title to the property. Common titles are as follows:
§ Joint tenancy
§ Tenants by entirety
§ Community property
§ Sole property
4. Track Transaction Costs
In the end, title and escrow costs are combined with mortgage and other transaction costs on federally mandated closing documents. Obtain a Good Faith Estimate to gauge what these costs may be. Then compare them to the HUD-1 Settlement Statement, which is the final line-by-line list of all mortgage and closing costs.
If there are significant discrepancies between the GFE and the HUD-1 Settlement Statement, ask about them, as they may be open for dispute.
5. Be Prepared on Closing Day
On closing day, come to the table only after reading and fully understanding your HUD-1. Bring a pen and paper for taking notes, an attitude of good faith, plenty of time and the willingness to back out if the deal doesn’t follow contractual guidelines. Parties present at closing include these particulars:
§ Seller’s real estate agent
§ Closing agent
§ Attorneys for you, the lender or both
The buyer will deposit any escrow payments and sign necessary documents. The seller signs over the deed and closing statements and receives any money due.
After signing, the deed and mortgage documents are delivered to the county courthouse or other government repository for recording as public records.
Updated from an earlier version by Broderick Perkins.