What are the kinds of encumbrances on title to assets? How Does escrow Work?
Assets are encumbered at the state and the county level. Depending on the type of asset to be encumbered, UCC filings can be filed with the Secretary of State or the County. There are judicial liens. Judicial liens are the product of judgments entered by a court of law against a person or property which can and do encumber business assets. There are tax liens which result from unpaid ad velorem taxes, business personal property taxes and unpaid sales tax. There are deeds of trust and other encumbrances which affect title to assets.
The principals to the escrow – buyer, seller, lender, borrower – cause escrow instructions, most usually in writing, to be created, signed and delivered to the escrow officer. If a broker is involved, he will normally provide the escrow officer with the information necessary for the preparation of your escrow instructions and documents. The escrow officer will process the escrow, in accordance with the escrow instructions, and when all conditions required in the escrow can be met or achieved, the escrow will be "closed." Each escrow, although following a similar pattern, will be different in some respects, as it deals with your property and the transaction at hand. The duties of an escrow holder include; following the instructions given by the principals and parties to the transaction in a timely manner; handling the funds and/or documents in accordance with the instruction; paying all bills as authorized; responding to authorized requests from the principals; closing the escrow only when all terms funds in accordance with instructions and provide an accounting for same – the Closing or Settlement Statement.
"Why Do I Need an Escrow?"
Whether you are the buyer, seller, lender or borrower, you want the assurance that no funds or property will change hands until ALL of the instructions in the transaction have been followed. The escrow holder has the obligation to safeguard the funds and/or documents while they are in the possession of the escrow holder, and to disburse funds and/or convey title only when all provisions of the escrow have been complied with. The Escrow Closer Opens the order for title insurance. Obtains approvals from the buyer on title insurance report, pest and other inspections. Receives funds from the buyer and/or any lender. Prorates insurance, taxes, rents, etc. Disburses funds for title insurance, recordation fees, real estate commissions, lien clearance, etc. Prepares a final statement for each party, indicating amounts to be disbursed for services and any further amounts necessary to close escrow. Records deed and loan documents, delivers the deed to the buyer, loan documents to the lender and funds to the seller, closing the escrow. Closing The Escrow Once all terms and conditions for the instructions of both parties have been fulfilled, and all closing conditions satisfied, the escrow is closed and the same and accurate transfer of property and money has been accomplished. Division of Charges The method of dividing the charges for the services performed through escrow or as a result of escrow varies from place to place. The fees and service charges to be divided might include, for example, the title insurance policy premium, escrow fee, any transfer taxes, recordation fees, and cost in connection with any loan being obtained. Unless there is some special agreement between the buyer and seller as to how these charges are to be paid, local custom will generally be followed in drafting the instructions to the escrow closer as to how they are to be divided. It's Not Always That Simple The examples and explanations given here are designed to acquaint you with the escrow process and are based on relatively simple escrow. Every escrow is unique and most are Who Chooses the Escrow? The selection of the escrow holder is normally done by agreement between the principals. If a real estate broker is involved in the transaction, the broker may recommend an escrow holder. However, it is the right of the principals to use an escrow holder who is competent and who is experienced in handling the type of escrow at hand. There are laws that prohibit the payment of referral fees; this affords the consumer the best possible escrow services without any compromise caused by a person receiving a referral fee.
Escrow: What is a Closing Statement?
A closing statement is an accounting, in writing, prepared at the close of escrow which sets forth the charges and credits of your account. The items shown on the statement will reflect the purchase price, the funds deposited or credited to your account, payoffs on existing encumbrances and/or liens, the costs for all services and a determination of the funds you are entitled to at the close of the escrow. When you receive your closing papers, review the closing statement; it is extremely logical and reflects the financial aspects of your transaction. If anything does not make sense to you, you should ask your escrow officer for an explanation. When going through your closing papers, examine all of them; there may even be a refund check hiding in there. Cash the check quickly, please. Be sure to have the check properly endorsed. All payees must endorse the check. This will eliminate the check being returned unpaid due to irregular or missing endorsements. Your closing statement and all other escrow papers should be kept virtually forever for income tax purposes. Your accountant will need the information about the sale or purchase of the property. IRS and other agencies may require you to prove your costs and/or profit on the sale of any property. The closing statement will assist in this task. Do not rely on your escrow holder retaining the escrow file so that you can "always call and get copies of the closing statement." Most escrow holders will be destroying the files after the statutory retention period, usually five years. Maintaining and storing the closed escrow files is a costly endeavor to the escrow holder. Therefore, a nominal fee may be charged by your escrow holder for the retrieval of a file from storage, photocopying the requested documents and returning the file to storage.
What Fees and Costs will be Charged?
Escrow fees are not regulated by the State. Escrow holder, like any other businesses, will charge fees that are commensurate with the costs of producing the service, the liability undertaken, and the overhead expenses which include a profit factor. Therefore, the fees will vary between companies and from county to county. Normally, the escrow holder will follow its minimum fee schedule, which will provide for extra charges based upon the differing elements of your escrow. On occasions, an additional fee will be charged for unusual expenditures of time on a given transaction. The escrow holder has no control over the costs of other services that are obtained, such as the title insurance policy, the lender’s charges, insurance, recording charges, etc. We will provide you with an estimate of the escrow fees and costs as well as fees charged by others, provided such information is available. In Summary the escrow closer accomplishes the following: Acts as the impartial "stakeholder", or deposits documents and funds, processing and coordinating the flow of documents and funds, keeping all parties informed of progress on the escrow, responding to the lender's requirements, securing a title insurance policy, obtaining approvals of reports and documents from the parties as required, prorating and adjusting insurance, taxes, rents, etc., recording the deed and loan documents, and maintaining security and accountability
Escrow – What is it?
Very simply defined, an escrow is a deposit of funds, a deed or other instrument by one party for the delivery to another party upon completion of a particular condition or event. An escrow is an arrangement in which a disinterested or neutral third party, called an escrow closer, holds legal documents and funds on behalf of a buyer and seller, and distributes them according to the buyer's and seller's instructions. People buying and selling real estate often open an escrow for their protection and convenience. The buyer can instruct the escrow closer to disburse the purchase price only upon the satisfaction or completion of certain prerequisites and conditions. The seller can instruct the escrow closer to retain possession of the deed to the buyer until the seller's requirements, including receipt of the purchase price, are met. Both rely on the escrow closer to carry out faithfully their mutually consistent instructions relating to the transaction and to advise them if any of their instructions are not mutually consistent or cannot be carried out. An escrow is convenient for the buyer and seller because both can move forward separately but simultaneously in providing inspections, reports, loan commitments and funds, deeds, and many other items, using the escrow closer as the central contact point. If the instructions from all parties to an escrow are clearly drafted, fully detailed and mutually consistent, the escrow closer can take many actions on their behalf without further consultation. This saves much time and facilitates the closing of the transaction.
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. With RGS Legal your escrow officer is an attorney and can practice law; althoughth attorney will be able to "fix" legal problems that arise the you should consult your own lawyer for legal advice. The escrow officer must be impartial Do not expect your escrow officer to advise you as to whether or not you have a "good deal" or are doing things the right way. The escrow officer is there to follow the instructions given by the principals in the escrow. Impartiality An escrow closer must remain completely impartial throughout the entire escrow process. He or she will normally adopt a courteous manner when dealing with parties to the escrow, keeping conversation to the matters at hand in the escrow. This formal behavior is meant for the benefit of all concerned, since the escrow closer must follow the instructions of both parties without bias. In order to expedite the closing of the escrow, you should check with your escrow officer as to what specific items you could do to assist. Ask the question – "What can I do to expedite the closing of this escrow?" 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. Lender's requirements 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 days, possibly even a week or more. 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 cashier’s check on the day of closing, you should communicate that need to the escrow officer early in the processing of the escrow. Escrow and Your New Loan f you are obtaining a new loan, your escrow officer will be in touch with the lender who will need copies of the escrow instructions, the preliminary title report and any other documents escrow could supply. In the processing and the closing of the escrow, the escrow holder is obligated to comply with the lender’s instructions. It has become a practice of some lenders to forward their loan documents to escrow for signing. You should be aware that these papers are lender’s documents and cannot be explained or interpreted by the escrow officer. You have the option of requesting a representative from the lender’s office to be present for explanation, or arrange to meet with your lender to sign the documents in their office. Escrow Instructions Escrow instructions are written documents, which direct the escrow closer in the specific steps to be completed, so the escrow can be closed. Typical instructions would include the following: The method by which the escrow closer is to receive and hold the purchase price to be paid by the buyer. The conditions under which a lapse of time or breach of purchase contract provision will terminate the escrow without a closing. The instruction and authorization to the escrow holder to disburse funds for recording fees, title insurance policy, real estate commissions, and any other closing costs incurred through escrow. Instructions as the to the pro-ration of insurance and taxes. Instructions to the escrow closer on the payment of prior liens and charges against the property and distribution of the net sale proceeds. Since the escrow closer can only follow the instructions as stated, and may not exceed them, it is extremely important that the instructions be stated clearly and be complete in details. What each party may do in the escrow process: The Seller Deposits the executed deed to the buyer with the escrow closer. Deposits evidence of pest inspection and any required repair work. Deposits other required documents such as tax receipts, addresses of mortgage holders, insurance policies, equipment warranties or home warranty contracts, etc. The Lender (if applicable) Deposits proceeds of the purchaser's loan. Directs the escrow closer on the conditions under which the loan funds may be used.
TexEscrow
13101 Preston Road, Suite 501
Dallas, Texas 75248
(972) 392-2700
FAX (972) 392-2707
email: lballard@texescrow.com
