July 6, 2000

Vacation is no time for worrying about escrow

By TOM KELLY
The Real Estate Advisor

Are you about to go on vacation? Be sure you give the same thought and preparation to pending escrow and real-estate closing arrangements that you give to arrangements for the family dog, mail and newspapers.

According to escrow agents and real-estate attorneys, it's best to schedule closing at least 10 days before you depart, or wait until you return from vacation.

"Closings get delayed," says Chicago Title’s Jodi Schimke. "It happens most often because of lender requirements. Delays do happen, especially at a busy time like month end. Factoring in some flexibility could save a lot of stress."

Escrow is an arrangement in which money and/or a third party on behalf of the buyer and seller holds documents. The purpose of escrow is to ensure that all parties to the deal are satisfied. It sees that the seller receives the purchase price, the buyer receives clear title to the property, and the lender gets the proper security interest in the property.

Most escrow agents say that they only work off the numbers given to them in writing by the lender. Good escrow agents do not take verbal figures. If the escrow actually paid the wrong amount, it would most likely be up to the escrow agent to resolve the problem. Escrow also enables the parties to avoid face-to-face contact during the deal. This is often a highly emotional time when all parties don't necessarily agree on all conditions -- things such as work orders, loan charges, condition of property.

Escrow may be "opened" by either buyer or seller and typically occurs when the real-estate agent delivers a copy of the purchase and sale agreement to the escrow agent. Escrow can technically open when the lender delivers a copy of the loan commitment to the escrow agent.

An escrow agent may be a bank, some other financial institution, a title insurance company, an independent escrow firm, a mortgage broker or an attorney.

While requirements in certain states may differ, here are the common ingredients most often required for a successful escrow:

• A written deed. Real estate cannot be transferred orally.
  
  
• An enforceable contract. This is typically a purchase and sale agreement, commonly known as an earnest-money agreement.
  
  
• Delivery. This normally occurs when deposits are placed with the escrow agent.
  
  
• Escrow agent. Agreed on by both parties; often chosen by the real-estate agent handling the sale.
  
  
• Instructions. Details on when deposits are to be made/returned and when closing is to occur.
  
  
• Conditions. Describes what must be met before title and cash passes to respective parties.

The escrow agent orders title insurance and works to clear any defects or encumbrances from the title, reviews the purchase-and-sale agreement and loan commitment, collects the funds necessary to close and prepares settlement or closing documents.

The escrow fee is one of the closing costs. It is often split between buyer and seller, but the payment can be negotiated and spelled out in the purchase-and-sale agreement. For example, the escrow fee on a $150,000 home sale could be approximately $800 (commonly split $400 apiece between buyer and seller), plus tax. The higher the sales price, the higher the escrow fee.

Closing is the consummation of the transaction -- the seller delivers title to the buyer in exchange for the purchase price. The term "closing date" refers to the legal closing date, when the documents transferring title from seller to the buyer are delivered and recorded.

"It feels like `it's all over' once you've signed your closing documents," said Dennis Helmick, real estate attorney and a property exchange facilitator. "It's not all over. The documents have to be reviewed and approved by the lender and then sent to the title company for review and recording. Once that is done, the lender issues a check or wires funds to the escrow officer. The escrow officer verifies that the funds are good and that the amount is correct and enough to pay all obligations. Then, it's really over."

Don't expect all that to happen in one day. Or when you're on vacation.

Previous columns:

• AIRD will mean big changes for appraisers, 06-29-2000
• Rules vary on renting your cabin, 06-22-2000
• Credit: You really are just a number, 06-15-2000
• Reverse mortgages have come full circle, 06-08-2000
• Virtual home tours are a big hit, 06-01-2000
• HUD forced to police its own programs, 05-25-2000
• New factors in local housing market, 05-18-2000
• HomeSeekers building a name for itself, 05-11-2000