What is an escrow?
An escrow is a neutral, independent account created to process a transaction such as a sale or loan.
It protects the interests of all parties involved and favors neither the buyer nor seller. An escrow is created after the Purchase Contract is executed and becomes the depository for all monies, instructions and documents pertaining to the transaction.
Opening an escrow
Either real estate agent may open escrow as soon as the Purchase Contract is executed by placing the initial deposit (earnest money) in an escrow account at the Title Company.
Information you need to provide
You will be asked to complete a Statement of Identity for the Title Company. This is a confidential tool used to correctly identify all parties involved in the transaction.
Title companies and escrow officers
Title companies in Arizona offer escrow services. An escrow officer is employed by the title company to handle the escrow transaction. Your escrow officer is a “neutral third party” and follows instructions based on the written terms of your Purchase Contract and the lender’s requirements for closing. Her/his job is to gather all the documents and information from all involved parties to prepare for the transfer of the property. The escrow officer secures the satisfaction of all requirements of the title commitment. Escrow cannot be completed until all terms and conditions have been met. The buyer should be aware of and willing to help with any portions of this closing process where assistance is needed. The duties of the escrow officer are as follows:
- Accept executed contract and issue earnest money receipt
- Request a commitment for title insurance (shows requirements for issuance of a title policy)
- Obtain payoffs to clear title
- Prorate taxes and insurance upon instruction from the seller and buyer
- Accept hazard insurance policy, inspection reports, and relevant bills
- Compute settlement figures
- Assist the buyer and seller when signing documents
- Record the appropriate documents with the county recorder
- Disburse final documents and money on the basis of mutual instructions
Listed below are the items you need to obtain and bring to your escrow appointment.
Note: Make sure all of your lender’s requirements have been met before your appointment.
In order to notarize your signature you must bring picture I.D. (current driver’s license, military I.D., or passport)
Funds to close escrow
Wired funds or a cashier’s check made out to the title company (your title company will let you know which) are acceptable methods of payment since out of town and personal checks can cause a delay in the processing. Your escrow officer will tell you the amount you will need to provide.
Review your options and decide how you wish to take title to your new home.
Fire and Hazard Insurance
Be sure to contact your insurance agent to order coverage before you appointment. Have your agent contact your escrow officer with premium information & for property verification.
Close of Escrow
The escrow officer schedules the closing and recording time and handles all financial and technical details. Signing the loan documents and escrow instructions is not the closing day. After the documents are signed by buyers and sellers, the escrow officer must package and return them to the lender for their review. Lenders take 24 to 72 hours to review and fund. The day after the lender deposits funds to escrow, escrow presents the original documents (deed, deed of trust) to the County Recorder for recordation. The recordation day is the “Close of Escrow”.
NOTE: It will take several weeks for the Recorder’s Office to send you your Deed.
Power of Attorney
If any one of the buyers will not be available to sign the escrow instructions and the loan documents, notify your real estate agent immediately. Your real estate agent will notify your loan broker or bank and the title company. Most banks will accept a power of attorney signature if the document is prepared by the title company. A power of attorney must always be approved by the lender.
HOLDING TITLE IN ARIZONA
Arizona is a community property state. There is a presumption that all property acquired by husband and wife is community property. Community property is a method of co-ownership for married persons only. Upon death of one of the spouses, the deceased spouse’s interest will pass by either a will or intestate succession.
Joint Tenancy with Right of Survivorship
Joint tenancy is a method of co-ownership that gives title to the real property to the last survivor. Title to real property can be acquired by 2 or more individuals. If a married couple acquires title as joint tenants with the right of survivorship, they must specifically accept the joint tenancy to avoid the presumption of community property.
Community Property with the Right of Survivorship
Community property with the right of survivorship is a method of co-ownership between married parties which provides for the survivor to retain the ownership without probate and purports to be an advantage for estate tax valuation after the death of one of the parties. They must specifically accept the community property with the right of survivorship to avoid the presumption of community property only.
Tenancy in Common
A method of co-ownership where parties do not have survivorship rights and each owns a specific undivided interest in the entire title.
Sole and Separate
Real property owned by a spouse before marriage or any acquired after marriage by gift devise, decent or specific intent. If a married person acquires title as sole and separate property, his/her spouse must execute a disclaimer deed.
Title may be taken in the name of a corporation provided the corporation is duly formed and in good standing in the state of its incorporation.
Title may be taken in the name of a general partnership duly formed under the laws of the state of the formation of the partnership. A partnership is defined as a voluntary association of two or more persons as co-owners in business for profit.
Limited Liability Partnership
A partnership formed by two or more persons under the laws of Arizona or another state and having one or more general partners and one or more limited partners. A certificate of limited partnership must be filed in the Office of the Secretary of State.
Limited Liability Company
Must be formed with the Corporation Commission and must be a voluntary association of two or more persons as members. Provides less personal liability than partnerships and corporations.
Limited Liability Partnership
Must be formed with the Corporation Commission and must be a voluntary association of two or more persons as members. Provides no personal liability for acts of other members on behalf of the partnership.
The evidence one has of right to possession of land.
Title Insurance Policy
An insurance policy that protects the investment or equity of the buyer, lender or owner in their real property interest.
TYPES OF POLICIES:
It is important for the buyer to know there are two kinds of title insurance.
- Lender’s title insurance protects the interest of the mortgage lender; this is often referred to as the ALTA Policy. The lender’s policy protects the lender against loss due to unknown title defects at the time of the sale and in the future.
- Owner’s title insurance protects the equity of the buyer. It assures owners that they are acquiring marketable title. Title insurance is designed to eliminate risk or loss caused by defects in title from the past.
The Preliminary Report
The commitment for title insurance (often called a prelim) indicates all the items or situations that pertain to the subject property. It is a detailed report of findings from a title company search. It sets forth the current status of the property ownership, matters affecting title that will appear as exceptions or exclusions to the policy, and requirements for issuing a policy.
The Escrow Process
Offers to Purchase
Whether the offer is presented in person or by fax, if it doesn’t result in an immediate acceptance, we will counsel you on an appropriate response. We take pride in our abilities to negotiate the best possible deal on your behalf.
Upon acceptance of the offer, we will oversee the transaction ensuring that all mortgage and inspection contingencies are met and that your property successfully reaches close of escrow.
We will provide you with an estimate of the general closing costs and net equity proceeds that you can expect from the sale of your home. The proceeds will vary according to the actual sales price and other negotiable terms of the sale.
We suggest that you review the Purchase Contract well in advance of receiving any offers. When you receive an offer, the last thing that you want is to slow down the negotiation process because of confusion about some portion of the contract. Also, if there is anything very important to you that you want included in the agreement, we must be in a position to explain that to the potential client up front.
The Closing Process
We will be in continuous contact with your buyers and their representatives to ensure that the process goes smoothly. If necessary, we can provide a list of trades people who can do small repairs quickly and at reasonable cost. We will also do a pre-audit of your HUD-1 Settlement Statement to assure that all monies are distributed to the appropriate party.
After Sale Service
We won’t forget you after you move! We will contact you to take care of any remaining details or service needs. Customer satisfaction is our highest priority. In part, this is because the two primary sources of our business are repeat customers and their referrals and we are fully aware that neither of these opportunities will occur unless our clients are pleased with our service. Feel free to contact us at any time about any question you might have.
Presenting the Offer
- We will contact you immediately as soon as we are notified of an offer on your home.
- When we call you to arrange for the presentation, we may not be aware of the terms of the offer.
- Accept the offer exactly as it is presented and your home is sold!
- Reject the offer as it is presented because its terms are unacceptable to you.
- Make counter proposals until both parties are agreeable.
Delivery of the Contract
A copy of the finalized Purchase Contract and the Sellers Disclosure Statement will be delivered to the buyer and their real estate agent. A copy of the purchase contract, along with any other necessary documents, and the buyer’s earnest money will be given to the escrow company. This is called “opening escrow.”
When an offer is received, it will most likely be on the Residential Resale Real Estate Purchase Contract. This 9 page document is the standard form used here in the valley. It is important that you review this document prior to accepting an offer so that we can clarify any questions that you may have. The main elements of the contract are as follows:
- Receipt of Deposit
This is where the amount of earnest money is indicated and it also shows where the deposit will be held.
- The Offer
The amount the buyer will be offering is usually, but not always, the starting point in negotiations. This section will also specify items included and excluded in the sale, any additional deposit monies, the mortgage amount and the closing date.
- Financing : Loan Status Report
The LSR (Loan Status Report) details information regarding the mortgage, including the amount to be financed and the type of mortgage to be obtained. This LSR must accompany the offer.
- Title and Escrow
This is where the buyer states what method of title the property will be held in and which Escrow Company will be handling the closing. It also states that pro-rations will be calculated as of the closing date and that all outstanding assessments or liens will be paid by the seller.
- Disclosures, Inspections and Warranties
In this section, the buyer is acknowledging receipt of the Seller’s Property Disclosure Statement, the Swimming Pool Barrier Regulations and Lead-Based Paint Disclosure, which is required for homes built prior to 1978.
- HOA Addendum (If Applicable)
The Home Owners Association dues are indicated on this document. It should be noted that the seller must furnish a written notice of a pending sale to the association within 5 days (assuming there are more than 50 units). Association transfer fees are usually negotiable unless otherwise indicated.
We have a standard addendum that we include with the counter offer, if necessary, which covers items that are not on the preprinted contract.