Tag Archives: title

Title and Escrow – Who Chooses?

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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”.

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

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apples

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.

Do YOU have a durable power of attorney?

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So, I haven’t been on RCG for a while because I am gone from Seattle to Wichita, KS where I and my siblings are on hospital watch. My parents were hit by a drunk driver on Monday night and so I caught a flight here immediately since both of them were in the hospital with injuries. My dad has a brain injury and has been unconscious for several days now. For anyone that is interested in reading my blogs about the experience feel free to do so at this link: http://blog.myspace.com/teamreba
When I’m working with clients there are always situations that come up where we have to deal with difficult circumstances. My partner, Michael, and I frequently ask our clients if they have a durable power of attorney. Typically we make it for a specific property based on the transaction and usually the title company has to approve the POA to insure the purchase. Sometimes the POA is put in place under in the context of just making sure we are able to get signatures if there is a spouse or partner that travels a lot or an out of country trip is planned that would make it difficult to get notices or addendums signed. I’ve used these when I have siblings in multiple states as well who are buying or selling property.

Thankfully my parents did put together POA’s about 4 years ago. My mother is a REALTOR(R) in Wichita and my dad works with her as a licensed agent. They also own several rental properties and they had just received mutual acceptance on an offer for one the day they got in the accident.  My mother is conscious, although on pain medication for her broken bones, and she is aware enough that she knows what is going on and can sign things for herself. However, while I am my dad’s medical POA one of my siblings is his financial POA.  I’ll likely have my sister sign for my dad just so there is no question about mental faculties with my mom when the additional paperwork for this transaction is turned in.

It’s been a relief for me (and I think my mom too) to be able to come in and help out with her business while she and dad are in the hospital. I can’t practice real estate agency in Kansas but I have contacted some other agents that know my mom (she’s been an agent 20 years) and they’ll help with any items that require licensing and I’ll be a knowledgeable “gopher”. This also relieves stress from my siblings who may not know what they should do for her contracts and listings. I hadn’t really considered I’d have to help out in this way, but I sure am glad that I can.  It helps to also give me something else to think about rather than my dad in ICU.

My comments to all that read RCG is that if you don’t have a durable power of attorney for your personal affairs you really should do it and the sooner the better. You never know when a truck will slam into you and render you unconscious and you’ll need help with your medical and personal affairs such as paying bills. We stress this kind of long term planning to pretty much all of our clients and we host a client event every year that covers things like this to prevent more cases like Terry Schiavo. I hope you’ll consider it and go do it soon yourself.

A Personal Take on the Ethics of a Title Professional…

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[photopress:ed.jpg,full,alignright]Writing about his experience of going to prison because of his actions as a Title representative could not have been easy for Ed…

I became federal inmate number 34661-037 and like every inmate in this country was regarded as a slave of the state forfeiting my liberty and all personal rights. While passing the threshold of that terrible place, I surrendered not only my person, but my legitimacy and the sum of my hopes, and my dreams, for the future.

Title Insurance: Kickbacks, Competition & Pricing

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Editor’s Note: Tim Kane owns and manages (with his wife Lynlee) Legacy Escrow, a local escrow company and has been a regular fixture of the Seattle blogosphere for the past year or so… Not only does he run his own blog, the closing table, but he has contributed to numerous threads on RCG under the names of Chief Errand Boy, S-Crow, and Tim. I’m definitely excited to bring him on as a regular contributor!

“I have a special interest in Ethics in Business, particularly in the industry of real estate. A good many of future posts and comments will address ethics, much of which is drawn upon the experiences our small escrow office encounters in working with our clients, loan officers, title insurance companies, and Realtors every day.

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.