Real Estate 101: What is Title and Escrow?

Buying a home is a momentous occasion. It’s easy to get caught in the excitement of it all. Understanding the key components of a real estate transaction, such as title and escrow, is necessary to have a successful sale. 

 

What is Title and Escrow?

Title is a term that represents your rights to a particular property. The title gets transferred from the seller to the buyer when the home sale is complete. There are three basic components:

• Rights and interests in public records (deeds, leases, mortgages, etc.)
• Rights and interests that are unrecorded but exist (laws and statutes)
• Rights and interests that are unknown or purposefully hidden (unknown heirs or marriages, forgeries, etc.)

Escrow is a term that represents the funds and documents related to the real estate transaction. A third party, typically a title company, handles comprehensive activities related to escrow needs during the home purchase.

 

What Do Title and Escrow Companies Do?

Title and escrow companies perform a thorough title search to make sure the title is clear of any issues that would interfere with the buyer’s rights or interests of the property. A title company also provides title insurance to protect the homeowner’s rights and financial interests. 

National title companies provide owner policies that cover hidden issues such as:

• Forgeries — including wills, deeds, or releases
• Undisclosed or missing heirs — including spouses, children or other relatives
• Errors in the recording of legal documentation
• Unpaid taxes or other liens
• Deeds by minors or persons of unsound mind
• Deeds executed under an expired or invalid power of attorney

If one of the above issues occurred in the past, and becomes known to the insured at any time after the closing, the insurance will cover the costs of resolving it.

 

What are the Steps in the Escrow Process?

Title and escrow companies have specific processes that make real estate transactions as streamlined and efficient as possible while ensuring each step is performed correctly. Some variation occurs across different states, but the primary responsibilities are similar. 

After the purchase agreement for the property is signed, the title and escrow company will hold funds and documents until all terms of the agreement are met. The information often includes loan documents, terms of sale, insurance policies, financial statements, and tax documents. 

Often, homebuyers will get a home inspection to make sure the house is worth the money and doesn’t have issues that they are unwilling to accept. It is not uncommon to negotiate parameters of the purchase after the home inspection. 

The underwriting process also begins, which includes a review of the loan documents to ensure the buyer meets the parameters of the lending institution. Typically, there is also an appraisal of the home, giving the lending institution the confidence that the house is worth the purchase price. Occasionally, there may be a significant discrepancy between the appraisal and the purchase price due to market conditions or an error by an inexperienced appraiser, but that doesn’t happen often. A second appraisal may be able to be requested by the buyer if the lending institution approves it.

The usual time frame to complete the steps needed for the title and escrow process is around 30 days. A good title company will communicate well with buyers and sellers to make sure they are doing their necessary parts (such as providing the necessary documentation) to get through the process in a timely manner. 

After the parameters of the escrow process are met, it is time for closing.

 

 

What Should I Expect at Closing?

A good title and escrow company will assist you each step of the way until you have that new key in your hand. With all of the hard work completed by the time it comes to closing day, it should be a smooth experience.

On closing day, all necessary documentation will be thoroughly reviewed and signed. The transaction for any appropriate funds will also be completed. Closings and their necessary documentation can vary, but the title company will communicate with you on your responsibilities such as identification and payment information. Once everything is agreed upon and signed, that key to your new home will be yours. 

From title and escrow to closing day, understanding the key components of a real estate transaction will give you the confidence you need for a successful home purchase. Before you know it, it will be moving day.