Understanding the terminology of “loan docs”

signing-docsBack in February of 2006 I took the time to type out an outline of everything that happens with a real estate transaction, and color coded it to reflect who does what. I called it Anatomy of a Real Estate Transaction, and I did it backwards from the end to the beginning. Many have found it helpful, but it may be time to re-write it, though I don’t think much has changed since then as to how an escrow starts and ends.

Recently with loan processing becoming a bit more difficult than it was back in 2006, I have noticed a lot of confusion regarding the terminology used by lenders and agents and escrow at the end of the transaction.  In the 2006 post I said:

***This one little line is THE MOST IMPORTANT PART OF ANY REAL ESTATE TRANSACTION INVOLVING FINANCING!  And yet, I purposely put it there as quietly as it happens, no fanfare, no bold lettering, no all caps, to notice to all parties.  “Docs are in” – A quiet little event between the lender and escrow that is clearly THE BE-ALL-END-ALL OF EVERYTHING!*** 

There are actually three things that happen at the end of a real estate transaction where the buyer is using a mortgage to purchase.

1) Docs are ORDERED

2) Docs are SENT

3) Docs are IN

This is the nail biting stage of every real estate transacton. 

Often the confusion regarding the last word in those three stages creates many phone calls back and forth due to a misunderstanding of the terminology.  This happens often enough that I thought it would be helpful to those buying and selling homes to highlight the distinction in a separate blog post.

Often the buyer will say “lender said the loan documents are at escrow” when what the lender really said was the loan documents have been ordered.  Sometimes the lender says the loan documents have been sent, which is not quite the same as their being in escrow.

If you are buying a home you want to make sure your lender is instructed to notify you TWICE. 

You want to be notified when the docs have been ORDERED, as that pretty much means your loan is really fully approved and out of underwriting.  It also tells you that you likely are pretty much “done” and on your way to closing.  It also tells you to start preparing to go and sign your closing documents, as most escrow companies will not sechedule a signing appointment until they receive the loan documents.

You also want to be notified by the lender when the loan documents are SENT, especially if you need a little advance time to clean up your desk, or give your boss a little notice that you will likely be leaving work to go sign your closing papers. The closer the loan documents are ordered to the actual closing date, the less time you will have to give your boss notice that you need a little time off or a longer lunch to sign your closing papers.  These two cues: Docs have been ordered and Docs have been sent, can be pretty important if you can’t just jump up and leave work without notice.

Unlike states that don’t have escrow, where people have 30 days or more notice as to what day they need to take off from work to go and sign their papers, escrow states require that the buyer sign at least a day before closing. In WA and CA, closing is a phone call, often between 4 and 5 p.m., so taking off from work “on closing day” is not usually needed.  In fact, if you do take off on closing day, be prepared to be sitting around staring at the wall waiting for a phone call before you can get the keys and start moving  into the house.

I am currently waiting for “docs” on two closings.  In one “docs have been ordered”, on the other “docs have been sent” on neither have docs made it to escrow.  As the agent, I wait impatiently for docs to be IN so I can review the closing numbers for my clients.  One is a seller, so those numbers are not loan document sensitive and final numbers have already been reviewed and corrected at my end, and the seller has already signed their closing papers. 

On the other, I can’t review the final numbers for my buyer client until the loan docs are IN, as escrow prepares the Buyer Closing Statement after receiving those loan documents.  We are pretty sure what the numbers should be…but given the documents are “late”, I vigilantly watch my email and phone so I can review the numbers immediately.  I don’t want to be part of  the delay on a closing, by not being available to review the final numbers within 15 minutes of receiving them.

“docs have been ordered” is the breathe a little easier cue.  That usually converts IF it will close to WHEN it will close. So asking your lender to notify you when docs have been ordered, is a very good idea.

ING Bank suing under RICO statutes to recover losses by alleged local real estate fraud ring.

Here is the article from the Seattle Times.


In one deal, the bank loaned a borrower $935,000 to buy a Tacoma house for $1.35 million — a house that, according to the real-estate Web site Zillow, is valued higher than 99 percent of homes in its ZIP code. Nationwide Home Lending was paid nearly $30,000 in fees on that loan.

I’ve just dropped an entire commentary I wrote within this post regarding the fantasy idea some people believe that our local area is somewhat insulated from the garbage and degenerates destroying our markets and economy due to greed and fraud.

In essence, my post can be wrapped up in these questions:

  1. Ethically, is this industry too far gone to recover any resemblance of credibility, trust and moral foundation?
  2. How will the real estate brokers weed out the bad actors? We know DFI is going after loan officers and others.

Fortunately, I know and work with quite a few agents and loan officers who genuinely try to do their very best for their customers. Unfortunately, many of them and others who work in real estate are caught in the enormous wake of the problems the fraudsters have created.

How to stop escrow madness in an instant

The most wonderful, beautiful and innocent thing stopped the frenzy,  processes and insanity of end of month escrow transactions in an instant.  That thing was the glow of a sharply dressed very elderly woman who happened to find her way to our office and came to our front reception counter and said,

“Hi, can you help me, I’m lost and I can’t find my way home.”

In the midst of all the domestic and world issues, real estate problems, war conflicts, economic woes, layoffs, stock market crashes, corruptness of Bank and Investment CEO’s, politicians and everything else that batters our minds;  for me, it all became meaningless and subordinate to this gracious lady and her memory ailment. At that point I didn’t care about anything but her and helping her find her way home, which I did.

Escrow.  You just never know what each day will bring.

Fidelity Title Calls Off the LandAmerica Merger

Update: Since I wrote this post, Fidelity is back on with the LandAmerica merger (11/26/2008).

LandAmerica has released a statement to the public regarding this recent debacle which has many wondering what will happen to this large title insurance underwriter.   As I write this post, their stock is sitting at $0.54 a share.  LandAm’s 52 week high is $53. 

From Inman News:

The deal was announced on a Friday. The following Monday, LandAmerica detailed record third-quarter losses and said the company was in violation of financial debt covenants of its note-purchase agreement and credit agreement (see story).

LandAmerica said it was in discussion with creditors to obtain waivers. If not waived, the covenant violations “constitute an event of default under the agreements, giving the lenders the right to declare all principal and accrued interest payable immediately,” LandAmerica said at the time.

LandAmerica’s public statement, which is in a question and answer format clearly states that their ability to pay claims is adequately covered by the reserves.   Locally, LandAmerica has joint ventures with Commonwealth of the Puget Sound  (Windermere), Rainier Title (John L. Scott and Coldwell Bank Bain) and Northpoint Title.   From the statement:

What about other LandAmerica entities?

LandAmerica is comprised of many separate legal subsidiaries with separate profit and loss statements.  Some entities are performing well and others are not performing well.  We are working closely with the Nebraska Department of Insurance, which is where major underwriters are domiciled, to resolve our situation in a way that benefits our policyholders.”

This leaves a bigger question of what percentage of ownership does LandAmerica have in these joint ventures and what will happen to these ownership shares?

What is the financial viabililty of LandAmerican underwriters?

The LandAmerica underwriters, Lawyers Title and Commonwealth have over $300 million in combined statutory surplus.  And we have some of the industry’s most stringent requirements for reserves in place to protect our policyholders.  The LandAmerica underwriters’ claims reserves are backed by over $1.1 billion in cash and investments.”

Reserves are mandetory…what about operating expenses?

Seller financing options

As a bit of a follow up to Ardell’s post below about lease purchase options, another option may be seller financing or a seller carryback.  But, if you choose to go this route how will you handle payments?  One of the best ways to make this less of a burden for the seller is to bring in a third party to handle all of the details associated with servicing the loan terms.

Most traditional transactions with conventional bank financing use an escrow service for handling things such as taxes and insurance.  This is similar but the escrow firm is also handling the servicing of payments, calculating interest and principal payments and such.

An example of a company that provides such a service is Contract Servicing.

Always do your due diligence for any company you will hire, but this might be a good place to learn a bit and find that these services exist for a variety of property contract sales and the myriad ways in which they are negotiated.

Stewart Title in Everett on fire

I just received a call from Mark Perez who works at Stewart Title in King County telling me that Northwest Cable News is showing film footage of a fire in progress at Stewart Title’s Snohomish County main office in Everett. 

If you recall it was less than a year ago that Stewart Title Everett received a two million dollar fine by the state Insurance Commissioner for violating provisions of state law governing title insurance companies.

Update: Here are some links to follow up stories on the fire:

The Everett Herald

Seattle PI 911 Police Blog

Seattle Times says ATF is investigating

KIRO TV reports that ATF says the fire does not look suspicious.  video

Title and Escrow – Who Chooses?

In this post I will address the topic from a practical standpoint, in chronological order, based on “Common Practice”.  This post is written from the standpoint of “common practice” in the Seattle area, where Title and Escrow are two separate functions, and not combined as they are in “settlement” vs. “escrow” areas.  Areas that have “a settlement or ‘event’ closing”, operate differently.  After reading this, you will likely feel that something should change.  So posting on this topic is a great way to influence change, a side benefit to blogging in “transparent” fashion.

Nothing changes until its weaknesses are illuminated by discussion…so here goes.

1) The first thing an owner does (or the listing agent does on behalf of the owner) is contact a Title Company.  Most often, this is done BEFORE the property is listed for sale.

Most Title companies offer three levels of information/service:

a ) a “listing packet”

b) “Preliminary Title”

c) A full Title Insurance Policy

Often an agent will order a “listing packet” upon first getting a request to visit an owner at their home to discuss the property being listed for sale.  This level of information provides a basic legal description, a plat map, and some basic and general info regarding the property.  Some companies provide sale comps, but most experienced agents don’t rely on the Title Company for “comps” and do their own.  Personally I tell a Title Company not to waste their time or the paper producing comps for me.  I never find them to be useful, or as useful as the ones I do myself.

While in theory “the seller” orders Title as “common practice”, and By Law the Buyer is supposed to choose the Title Company (see RESPA below),  most often the agent has already been in contact with a Title Company before they even meet the seller. 

2) “Preliminary Title” is usually ordered by the agent as soon as they know that “they have the listing”.  Sometimes I do this as a first step, if I know the owners well enough to know that I will be listing the property before I go to the first meeting to discuss getting the property ready for market.  That gives me more info up front than the “listing packet” and saves the Title Company some time, and possibly a few trees, if we get “hard copies” or print out the info.

When an agent lists a property, part of the intitial input into the mls system is a field question that asks “Has Preliminary Title been ordered?”  Then there is a drop down box where you enter “Yes” or “No”.  The presumption is that the answer should be “YES” and often the Title Order # is included in the Agent Remarks section “Title Company is X order #X”.  To comply with RESPA, the buyer is supposed to choose the Title company.  So possibly this provision in the mls listing input should be eliminated.  You be the judge.  For now, that’s how it is.

In order to write an offer on a property, the agent for the buyer needs to access the legal description.  As soon as there is “mutual acceptance” of the contract, the lender needs to access the Title Order by company and Title Order #.  So without regard to the Insurance aspects of Title Insurance, the process of involving a specific Title Company happens long before there is a need to actually insure the property with regard to Title Issues.  At time of offer, the buyer has the option to choose Title and Escrow as part of the offer and is NOT obligated by law or contract to use the one who provided the owner and listing agent with services to date.  Still common practice does not follow that thinking…or at least hasn’t do date.  Maybe the people reading ths post will change that in the future.

3) Title Insurance Policy – Now we get into who pays and who chooses.  Up to this point, no one pays.  If the property never gets “signed around” and escrow is never opened, the Title Company has provided all of the services for free.  The title Company up to this point, provided these FREE services to the listing agent.  The balance is that the agent most often uses the same Title Company all of the time or most of the time, and so there is an offset of paid for services against the free services.  If owners ordered and paid for the services up to this point (vs. the agent), there would likely be a cost for the first stages that are currently offered free of charge if the house never sells.

Here in the Seattle Area we have OWNER’S Title and LENDER’S Title.  Owner’s Title Insurance is the manner in which an owner conveys “clear title” to the buyer.  The cost is based on the Sale Price and is paid for by the seller.  Lender’s Title is all about the buyer.  If it is a cash buyer, there is no Lender’s Title.  If the purchase is financed, then the buyer pays for that portion of the Title Insurance that insures the Lender and is based on the loan amount vs. the Sale Price.

RESPA – Basically RESPA provides that “the owner” gets to choose Title.  In this post I refer to “the owner” as the person who owns the property prior to closing.  Common pactice here is that the owner at time of listing the property “orders title”, at least Preliminary Title.  RESPA (Real Estate Settlement and Procedures Act) “entitles the homeowner to choose a title insurance company when purchasing or refinancing…”  and gives that right to the BUYER as “owner” and not the seller as owner.  In fact any seller who mandates the Title Company to the buyer is subject to a penalty of 3 times the cost of the Title Insurance.  This makes perfect sense in settlement States, but is a bit odd in in escrow States.   But it is what it is.  Back to common practice.

It would seem that the seller should CHOOSE and pay for Owner’s Title and the Buyer should CHOOSE and pay for Lender’s Title, simply due to the fact that the owner and listing agent need to review title information long before the buyer is a known entity.  Practical application and the law do not seem to be in sync here.  Most often the ACTUAL title policy is an automatic via the company that offered Preliminary Title.  To “perfect” the system, there should be a separate administrative charge for the Listing Packet and Preliminary Title that is paid by the seller, and a Buyer Election to choose the Title Insuror, without regard to who provided the a) and b) services.  My opinion, of course.

Up to this point, the agent needs to find the things the owner doesn’t often know about the property.  Or the agent needs to prove that what the owner BELIEVES is so, is accurate, which is not often the case.  We as listing agents are using Title Companies to ascertain liens, easements, encroachments, etc..  We don’t want to find out that the owner is incorrect AFTER the property is in escrow.  Often the owner thinks they own the driveway, when they do not.  By being in contact with the Title Company in advance of listing the property, we often find out that both owners own the driveway.  Sometimes and often four feet each.  In my most recent study of a soon to be listed property, the ownership of the driveway is 4 1/2 feet vs. 3 1/2 feet…odd but true.  Most owners do not know these things, or worse yet are WRONG about these things.  So in my book, misrepresenting the property (IMNSHO) is worse than worrying about waiting for the buyer to be a known factor, before consulting with a Title company. 

Still it is the buyer’s right, under RESPA to choose a different Title  Company later in the process, so the common practice of Preliminary Title moving straight to an ACTUAL POLICY, should not happen as it does, without the buyer’s direct election of Title Company.  From my standpoint this is MORE important in areas where the Title Company is also the Closing Agent…so let’s move on to “choosing escrow”, so you can see why I feel this way.

4) CHOOSING AN ESCROW COMPANY/CLOSING AGENT.  While the Listing Agent may have in the agent remarks field “Title Company X Order # X and Escrow TO BE X or Y”, the escrow company is not utilized or chosen (most times) in advance of the buyer’s offer.  Only Title services are needed prior to offer (with some exceptions).

Most reasonable people agree with me 🙂 that Title should be ordered by the Seller and Escrow should be chosen by the Buyer.

This post is probably going to open a big can of worms, but in the interest of Transparency, the resultant fallout is of value.  Most buyers and sellers get “whooshed” through the whole and very important process of Title and Escrow services.  So talking about it is important, even if we all don’t agree.

It is important to note that NEVER in the 18 years I’ve been in this business have I seen anyone choosing title and escrow services based on cost (or home inspection, or anything important to the process).  Given the relatively minor differences in cost, the small amount you save is not worth the anguish you might later face by having chosen based on cost vs. competency.

When there are five offers on a property, well making a big deal of buyer choosing escrow may not be appropriate.  No one wants to lose the house fighting over who is handling the escrow.  But often, even in multiple offer situations, the listing agent will understand that the buyr should chooses escrow, and Title Company too if they want to.  The problem with the RESPA rule is that if the buyer makes a big stink over  who chooses the Title Company in a multiple offer situation at time of offer, they may not get the house.  No one can prove that they didn’t get the house because of the battle over Title Company.  So for all practical purposes, seller chooses “all services” when there are multiple offers often wins, because of market conditions.

But with the market changing, it is important to highlight that common practice over who chooses should CHANGE when there is only one buyer in the room, and the “common practice” of a strong Seller’s Market should not continue into a balanced or buyer’s market.  That is one of the reasons I am writing this post at this time.  My biggest criticism of “common practice” is that agents do not make enough effort to swing it back and forth to match “market conditions”. 

Common Practice should reflect the actual needs of the buyer and the seller and change as market conditions dictate, and not simply be “the way we have always done it”.

Buyer's question at signing

A recent buyer asked us at signing (a day or two prior to closing):

“I’ve noticed that the fees charged by my loan officer are about $1,600 more than my Good Faith Estimate. I recall only being charged 1% loan origination. Is there any explanation for this?”

What are the re-disclosure laws (both state and/or Federal)? Obviously, this buyer was a bit under pressure and did not want to create waves to delay the purchase.

Does it matter who you list with, who you close with or who your loan officer is?


Being in the escrow business is really fascinating. You see lots of things. You hear lots of things. You get to observe what is efficient and what slows down transactions.

Escrow can be confusing too. We really serve two masters: those that are our clients (the principals such as the seller or buyer or borrower) and those that are our customers: agents and loan officers who suggest and refer work to us or any other service provider. It’s also something to experience such a large transaction “quality control” chasm between different agents working for different brokerages even within a major brokerage franchise network.

But this post really is about how agents and consumers decide what you decide.

1) For example, an interesting thing occured. In the mail, I received a post card from Greg Perry of John L Scott marketing a home not far from my place. It’s not strange that I receive things in the mail from Realtors, but that the owner of the home is a broker from another company—why did they hire another agent to list the house? I know this owner because our kids play together and we’ve closed transactions for him. It is a fascinating move.

2) We have had several transactions with repeat clients who have used a different service provider (agent or loan officer) the second or third time around. Why are they doing this?

3) In escrow we work in high collaboration with just about every title company. Obviously, we do not have primary contact with the sales staff (title reps) but rather the attorneys, title officers and back office staff that are largely the engine under the title insurance hood.

One of the things that I have always wondered and one question that my wife actually raised while we discussed business matters is the following: how do agents choose one title company over another since the perception of agents in the market is that title insurance companies (heck, even escrow firms) all do the same thing and the end result of issuing a title policy or a closed transaction is the same result? In other words, agents have a tendency to say they receive good service, but what is that service they receive? Agents have very little if no contact with the title company other than the with the title rep. How are the title companies differentiating themselves especially when many are using just another name plate but are in fact a subsidiary of a large national title company.

Consumers have no idea how to differentiate Pacific Northwest Title (First American) from First American Title. Or, comparing Land America Title from Commonwealth or Rainier Title (Land America companies). It is kind of like comparing the Nissan Quest with the Mercury Villager. Both are virtually the same vehicle. Consumers rely upon their agent to differentiate for them. How do the agents differentiate between service providers for their customer?

4) Along those same lines, competition is cut-throat between service providers such as escrow and title, especially in a market where sales volumes are significantly lower than over the past four years. Agents are very fierce in fighting for their respetive loan officer or title or escrow company if involved in a sale. Tradition has it’s place, but what is the compelling proposition of one service provider or closing agent over another?

5) What is more important to an agent when suggesting a loan officer: closing the transaction, lowest rates and fees for their customer or client, or a combination? For example, one of the loan officers we work with does average volume but gives phenominal service to the client, loan docs are usually ready days in advance and nothing has ever not closed due to a problem created by this LO. On the other hand, we work with LO’s that due boat loads of loans and there are the occasional problems with service to their clients or other issues.