Category Archives: Title and Escrow

Life in escrow: When we compete with American Idol.

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There is only so much escrow can do when escrow receives loan docs at 5pm and the borrower must sign because an interest rate lock is about to expire and the rescission period puts their back against the wall, forcing them to sign the very same day (evening). Then the borrower (s), strangely unaware of the urgency, indicates:

1. Can you come to our house between 7:00-7:30 because American Idol is on at 8pm (like tonight, cough-cough) and we can’t miss it. Or, how about after the program is over?

or,

2. I drop Billy off at Basketball at 6:30 and pick him up at 7:30, so I won’t be home until 8:15 pm. Will 8:30 pm work for you? Oh, my spouse needs to sign as well? He does not get off his shift until midnight. Is that a problem?

Will these transactions close on time? If you do what Ardell suggests in Step #2, it is a sure thing..

I’m beginning to muster up the courage to ask management for new business hours: M-F 8-5pm; quick hour break for a run to Panda Express, sprint any last minute disbursed loan Payoff’s to the UPS terminal blocks from our office to make it on an airplane to wherever, do banking before the bank closes at 6pm; hustle back to the office, quickly re-check e-mail for more “last minute” loan docs promised days earlier, and then re-open from 6pm until midnight for signings from Bellingham to Olympia to Ephrata. Sat. and Sun. leave wide open for signings too.

Escrow Signings: your place or ours.

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Escrow Signing

This place, while “very rough”, was not the worst. We’ve been to some very remote and isolated areas. While escrow firms go way out of their way to assist agents and loan officers in closing their transcations for our mutual clients, you can see why courtesy signings outside of normal business hours or far distances are not free.

We’ve signed clients from one extreme to the other: in jail at 9pm at night a couple days before Christmas when no one should be working, to the Columbia Basin dust bowl of Ephrata in eastern Washington; the Columbia Tower Club in downtown Seattle to everyone’s second office, Starbucks!

Major Proposed Changes for Residential Closings in 2008

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Alternative sexier titles to this post are: “Your Escrow Officer is a NARC” or “No More Quicky Closings” or how about “The Escrow Hills have [photopress:detctive_1.jpg,thumb,alignright]Eyes”. There are some major changes brewing with how escrow will be practicing their business in 2008. Escrow companies may become “undercover

Common myths & misconceptions of Escrow.

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Please do not construe this as legal advice, it is not. The sampling below is general in nature and is referencing common escrow misconceptions we see in the course of conducting business.

Here are a few to get started.

1) Escrow firms produce and verify the validity of Legal Descriptions.

  • Incorrect. In a sale it is the Seller’s responsibility to correctly identify the property that is being sold. The Buyer should verify that the legal description matches the property that they intend to purchase.

2) Escrow firms are bound by Northwest Multiple Listing Rules.

  • No. Escrow is bound by the Escrow Agent Registration Act of Washington. Some managing real estate brokers erroneously believe otherwise. The Legislature also has determined that escrow officers are subject to the Consumer Protection Act.

3) Escrow firms never have conflicts of interest or problematic transactional issues.

  • Untrue. Escrow firms commonly run into potential conflicts of interest, and problematic issues. The idea is to reduce the exposure of potential conflicts and issues as much as possible via a variety of means. For example, escrow commonly discloses those problems to the principals in the transaction so they can consult appropriate professionals and give escrow additional instructions on how to proceed.

4) Independent Escrow firms are sued more often than attorney-owned escrow firms.

  • No. Ironically, Attorneys who own escrow firms have earned that privilege. (Source: Fred Phillips- Attorney, LPO Seminars).

5) Limited Practice Officers at escrow firms are tested & licensed by the Washington State Dept. of Licensing.

  • No. The LPO exam is administered by the Washington State Bar Association twice a year. The pass rate has been under 30 % for quite a while, but has recently improved. LPOs are regulated by the Washington State Bar Association and Washington State Supreme Court. Independent Escrow Companies are regulated by the Washington State Dept. of Financial Institutions.

6) Escrow staff work at all hours of the day and evening.

  • Traditionally, no. Most are open from 9-5pm. From a practical standpoint, ownership does work at all times (speaking only for our company). Escrow firms have banking hours for a reason. Escrow firms are closed when the there are Federal holidays and when the Federal Reserve is closed. The receipt of lender wires occurs up to specific times in a business day, typically until about 2 pm. This may depend upon the trust account banking policy the escrow firm has with its own bank.

7) Loan officers and real estate agents are principals in the escrow transaction.

  • Incorrect. The buyer(s) and seller(s) are the principals and escrow can only be instructed by these parties. Loan officers and agents cannot instruct escrow or influence the escrow transaction in any manner.
    • Example: a loan officer who calls escrow to request proceeds check mailed to their customer instead of being wired to the customer’s bank as the client previously instructed escrow in writing.
    • Example: a real estate agent/Broker instructing escrow to refund an earnest money check to a borrower (buyer) without a rescission agreement.

8) Escrow staff can produce, prepare and/or instruct their clients (buyer or seller) on drafting purchase & sale addenda for common things such as extending a closing date.

  • No. This is tantamount to practicing law and may be a conflict of interest. Only a licensed real estate agent, attorney or principal parties can draft addenda.

9) Loan documents are almost always perfect when submitted to escrow.

  • No. Loan documents frequently and frustratingly have errors, such as incorrect fees, incorrect name spellings, incorrect vesting, among other errors.
  • Loan documents take time to prepare after receiving them from the lender, particularly if docs are re-drawn several times. This is a reason many escrow firms refuse to set up signing appointments with clients (who sometimes have to take off work early or are inconvenienced in other ways) until the docs are at escrow, prepared and confirmed correct with the borrower, mortgage broker and real estate agent.

10) Escrow staff have no deadlines.

  • Emphatically incorrect. Escrow staff are looking at the clock all day long. In our State, disbursing funds cannot take place until confirmation that the documents have been recorded.
  • Escrow staff must get loan payoffs to Fed Ex or UPS on time. This is a prime reason our company is located just blocks away from the major UPS terminal for Snohomish Co. It allows just that much more flexibility in TIME. Time is precious in the escrow business.
  • There are many other time-sensitive tasks as well.

11) Once escrow has been opened and is progressing towards closing, Escrow cannot refuse to close a transaction.

  • Incorrect, and it does happen.

Are you leaving too much on the table?

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I received a phone call from one of the agents I work with who is representing a seller requesting my opinion on another lender’s closing costs.    The seller had agreed [photopress:MPj04331500000_1_.jpg,thumb,alignright] to “pay up to $10,000 towards buyers closing costs.

Real Estate and Ethics: Collision or Harmony?

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The “Party is over” for local company
Elizabeth Rhodes of The Seattle Times reports on the rise and fall of Merit Financial in today’s Sunday paper. Ironically, it is not in the real estate section (it should be) but the business section— a full page article, above the fold.

I encourage everyone who is in business and those not already aware of the demise of Merit Financial to read the article in Sunday’s paper. I grabbed the bulldog edition and read through it taking away several points and add a couple personal suggestions:

  • It is critically important to know who you do business with.
  • It is of equal importance to understand (as much as possible) the financial foundation with those whom you entrust your clients. Will they be here today and gone tomorrow? There are several ways to get a general snapshot of this legally and unobtrusively. It has saved me more than once of going into business with others who have a poor track record or are saddled with debt. Debt and escrow trust accounts are a disaster waiting to happen.
  • Success is not necessarily defined by owning designer shoes, clothes or driving Hummers, Porches, Mercedes, BMW’s or living in a McMansion. I think we all have our experiences of knowing a multi-millionaire or two who drives a modest car, shops at Goodwill or is found handing out $100 Bills to surprised people in Chicago, as was the case last week.
  • Worry about your very last customer’s experience and service satisfaction, not the trappings of the paycheck. Income will only follow if you are passionate about providing great service at a great price, in that order.
  • If the focus is only on the paycheck, increasing that yield spread premium, or making a “deal,” your customers will see right through you, sooner or later. It shows.
  • Fundamental real estate knowledge coupled with the experience of having a great support structure around you will lead to satisfied customers and foster long-term business relationships.
  • Make it a point in 2007 to surround yourself with real estate professionals in your support structure that may know more about their expertise than yourself. It is not necessary to be an expert in every arm of real estate. There are great loan officers, excellent escrow and title staff that are eager to assist you with your questions. The more I hear “I’ve been in this business x amount of years and I’ve never heard of escrow doing such a thing or…..(insert your own verbage)…. the more we know it is a dead giveaway that posturing is taking place and what is meant is “I don’t know.” There is much to gain and everyone learns more collectively if there are less “I know it all” personalities. What is sorely needed and refreshing to hear is, “I have never run into this scenario, please help.”

Escrow closes the door on a closing

Every real estate practitioner has had the opportunity to work through an ethical dilemma in real estate. Recently, our escrow office experienced probably one of the more difficult ethical issues: coming across highly probable transaction fraud a business day prior to closing. We wrestled with the issue all weekend a short while ago. Any way you sliced it, the ramifications were not good. In our minds, the “what-if scenario flow charts” were in full swing. For example:

  • Don’t close the transaction and lives will be turned upside down, not to mention thousands of dollars of commissions lost, including our own earned income. Side note: escrow (the “presumably” neutral party) only gets paid if the deal closes, an issue that I personally would like to see changed and take up with Dept. of Financial Institutions or others in Olympia.
  • Obviously, another downside is that we will probably lose the business relationship forever, regardless of whether we are correct or not. Certainly, how this plays out will clearly show the true colors of the agents involved.
  • Close the transaction and the risk grows exponentially as time goes on. Escrow will be named in a claim regardless of all the disclosures and tight legal language escrow has.

Interestingly, with the broker and sales agents fully aware of why we elected to not close, they have elected to try another company to close the transaction. Hopefully, they can work through the problem and get it done in a legal and ethical manner. We wish them the best.

In the end, pushing the ethical limit or being a party to fraud is just not worth the risk, short-term and long-term.

East Lake Sammamish Trail to open tomorrow

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I’m excited to see this latest addition to our regional trails system. We will now have trails that extend from Ballard to Issaquah. For anyone who’s run or biked on East Lake Sammamish, this will be a welcome relief from contenting with the very fast and very heavy auto traffic on that road.

This is also a good example about understanding Title Reports when you purchase real estate — particularly when it comes to existing easements. For those of you not familiar with the history, the Seattle Times has a good story about the events leading up to the opening. The abridged version is:

  • Lakeside homeowners purchased property with existing Burlington Northern Sante Fe railroad easement — even though it was no longer active the easement remained
  • Under the federal Rails to Trails act, King County purchased the easement for purposes of a recreational trial
  • Homeowners sue to try and block the trail
  • A federal judge rules that the former rail bed is appropriate for trail use

So ask yourself — should you ignore that easement that shows up in title just because it’s not in active use?

The property rights issue aside, I’m looking forward to trying out the trail tomorrow. One cocession they did provide for the homeowners was to add heavy fencing along the path. For others using the trails, I plead for you to remember that the adjoining homes are private property so please respect thier rights and stay on the trail.  Happy trails to all.

Robert

Title Insurance 101: What is Involved in Issuing a Title Insurance Policy?

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Magnifying GlassBelieve it or not, title insurance is one of the most integral parts of the real estate process, yet many people readily admit they have very little understanding of what it is and why it is important.

Within King and Snohomish Counties, title insurance is commonly opened at the time a listing agreement is signed. Once the listing agreement is signed, the listing agent will often contact their preferred title company and ask to open a preliminary title commitment. It is referred to as a preliminary title commitment, because the proposed party to be insured (the buyer) has yet to be identified.

Once the order has been opened, the title company creates a file for the property by doing an initial pull of basic information in connection with the property – legal description, plat map, assessor parcel numbers, tax roll information, etc. This will form the base of the file and provide specific information from which the property can be further inspected.

Once the file has been created, a title search will then ensue. A title search is the process of determining from public record just what these rights are and who owns them. The title search is a means of determining that the person who is selling the property really has the right to sell it; and the buyer purchasing the property is getting all the rights that he or she is paying for.

A title search will typically contain the following steps:

1) Chain of Title: This is simply a history of the ownership for a particular piece of property, telling who bought and sold it, and when.
2) Tax Search: This is a search to determine the present status of general real estate taxes against the property. The tax search will reveal if taxes are current or past due and what amounts are unpaid from previous years.
3) Report on Possession: Title companies may send inspectors to look at the property to verify the location of improvements, look for evidence of easements that are not shown on public record, and for encroachments.
4) Judgment & Name Search: This determines if there are any unsatisfied judgments, IRS liens, state tax warrants, and superior court actions against the seller or previous owners which were in existence while they owned the property. A judgment is a general lien against the property and constitutes security for any money owed to a particular party under the judgment.
5) Commitment: Once all searches have been completed, the title company issues a commitment to insure, stating the conditions under which it will insure the title to the property.

Once a commitment has been issued, the title company simply waits to be made aware of a mutually accepted offer. After an offer has been accepted, the title company will update the commitment with the proposed insured party’s (buyer’s) information. Once the commitment has been updated, the buyer, seller, mortgage lender (if applicable), and escrow can proceed with closing the transaction. To help protect the buyer and the seller in a transaction, a disinterested third party, known as an escrow holder, will often be contracted with to assist in the clearing of any encumbrances on the title and ultimately closing the transaction. Once the transaction is closed and recorded on county records, the title company will officially issue a title insurance policy to the buyer’s of the property.

I will post another message in the near future outlining what title insurance covers for the buyer and a summary of the three different coverages available. Also be on the lookout for a message from me in regards to the role escrow companies fill, the customary closing costs you can expect when buying or selling a home, and the keys to a successful closing.