guide to title and escrow [english]
DESCRIPTION
Provided by Chicago TitleTRANSCRIPT
A Guide to Title and Escrow
Table of Contents
What is Title Insurance ...... 1
What is Escrow ................... 5
Buying a Home… .............. 8
Selling Your House… ........11
What is Title Insurance?
Title insurance is, by definition, a policy that insures a homebuyer against errors in a title search. The policy is a contract by which the issuing company—typically a title insurance company—agrees to pay the insured—typically the buyer and/or seller—a specified amount for any loss caused by any defects of title. The cost of the policy, usually based on the value of the property, is a one-time fee, and is often paid for by the buyer and/or seller.
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A G u I d E T o T I T l E A n d E S C r o W C H I C A G o T I T l E
Generally, when people think of insur-
ance, they think of something that pro-
tects their house or vehicle from un-
foreseen circumstances, such as an
earthquake that damages your home, or the theft of
your car. Title insurance is different because the origi-
nal premium is your only cost as long as you or your
heirs own the property; there are no annual payments
to keep your Owner’s Title Insurance Policy in effect.
Title insurance is also unique because—as opposed to
home or auto insurance, which provides coverage for
future claims or losses due to an event that hasn’t hap-
pened yet—it provides coverage for future claims or
future losses due to title defects that are created by any
event that happened prior to the acquisition of the
property. These risks are far less obvious than those
protected against by automobile insurance, but can be
just as devastating because any existing rights or
claims could, in the future, threaten your title and pos-
session of the property.
How do I Find out What Claims Exist? In order to determine the status of title, Chicago
Title conducts a thorough search of the public records
for those documents associated with the property.
Chicago Title then examines those recorded documents
to determine if there are any rights or claims that might
have an impact upon the title to the property. The title
search may reveal the existence of recorded defects,
liens, or encumbrances upon the title that could include:
unpaid taxes, unsatisfied mortgages, judgments and tax
liens against the current or past owners, easements, re-
strictions, or court actions. These recorded defects,
liens, and encumbrances are reported to you prior to
your purchase of the property and, once reported, they
can be accepted, resolved, or extinguished prior to the
closing of the transaction. In addition, you are protected
against any recorded defects, liens, or encumbrances
upon the title that are unreported to you and which are
within the coverage of the particular policy issued in
the transaction.
What About undiscovered Claims (Hidden risks)?
A “hidden risk” is a matter, right, or claim that is not
shown by the public records and, therefore, is not dis-
coverable by a search and examination of those public
records. Matters such as forgery, incompetence or inca-
pacity of the parties, fraudulent impersonation, and un-
known errors in the records are examples of “hidden
risks” which could provide a basis for a claim after you
have purchased the property. In order to protect you
against this possibility Chicago Title provides insur-
ance coverage for such claims.
If a claim is made against your insured title, Chicago
Title protects you by: (1) defending your title, in court if
necessary, at no cost to you, and (2) bearing the cost of
settling the case, if it proves valid, in order to protect your
title and maintain your possession of your property.
Why do I need Title Insurance?Title insurance allows you peace of mind in know-
ing that the investment you’ve made in your home is a
safe one. It is important because it protects possibly
the most important investment you’ll ever make—the
investment in your home. With a title insurance poli-
cy, you have a contract that will reimburse you for
loss in the event someone asserts a claim against the
property that is covered by the policy.
A G u I d E T o T I T l E A n d E S C r o W
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C H I C A G o T I T l E
Title insurance gives you the assurance that any-
thing discovered from the public records has been
called to your attention, and that such defects can be
corrected before you buy. Additionally, it insures that
any undiscovered claims covered by your policy that
threaten your ownership of real estate will be disposed
of, or you will be reimbursed exactly as your title insur-
ance policy provides.
How Can There Be a Title defect if the Title Has Been Searched?
Title insurance is issued after a careful examination
of copies of the public records. Unfortunately, despite the
knowledge and experience of professional title examin-
ers, even the most thorough search cannot absolutely as-
sure that no title hazards are present.
Steps Involved in the Title Process
Initial request for Title InsuranceThe Settlement Officer will place an order with the
Title Department. A Title Report can be issued based on
an examination of the public records in the county
where the subject property is located.
Technical reviewThe skill and expertise of Chicago Title’s staff is the
key to providing you with a useful, accurate title report.
Once the report is issued the review begins with a techni-
cal analysis of the documents of record. An interpretive
view of all recorded matters is then made to evaluate
their impact on the title to the property.
Inspection/Survey AnalysisIn anticipation of American Land Title Association
(ALTA) coverage, a site inspection or survey is ordered.
From this report, the title product is supplemented or
amended to show any encroachments or other off-re-
cord matters that would ultimately impact the title.
documents in the Title ProcessPreliminary Report—A document prepared once •
an escrow is opened, but prior to closing, that pro-
vides information about the property essential for
the buyer to see before he or she commits to pur-
chasing the property.
Commitment—Shows the condition of title and the •
requirements necessary for the Title Company to
issue a policy.
Pro Forma—Specimen of what the requested poli-•
cy will look like; underwriting issues are not yet
completed and it is not binding upon the company.
Policy—Final contract of indemnity between the •
insured and the company.
reasons for Title InsuranceThe deed or mortgage in the chain of title may •
be a forgery
A deed or mortgage may be signed by a person •
under age or of unsound mind
A deed or mortgage may be made under a power •
of attorney after its termination and would there-
fore be void
A deed or mortgage may be made by a person •
other than the owner, but with the same name
as the owner
A testator of a will might have had a child born after •
the execution of the will—a fact that would entitle
the child to claim his or her share of the property
A deed or mortgage may be procured by fraud •
or duress
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A G u I d E T o T I T l E A n d E S C r o W
Title transferred by an heir may be subject to a federal estate tax lien•
An heir or other person presumed dead may appear and recover the property or an •
interest therein
A judgment or levy upon which the title is dependent may be void on account of •
some defect in the proceeding
Title insurance covers attorney fees and court costs•
Title insurance helps speed negotiations when you’re ready to sell or obtain a loan•
By insuring the title, you can eliminate delays and technicalities when passing •
your title on to someone else
Title insurance reimburses you for the amount of your covered losses•
A deed or mortgage may be void because it was signed while the grantor •
was in bankruptcy
There may be a defect in the recording of a document upon which your title is •
dependent
Claims constantly arise due to marital status and validity of divorces and only title •
insurance protects against these claims made by non-existent or divorced “wives”
or “husbands”
A G u I d E T o T I T l E A n d E S C r o W
What is Escrow?
Escrow is an arrangement in which a disinterested third party—called an escrow holder or settlement agent—holds legal docu-ments and funds on behalf of a buyer and seller, and distributes them according to the buyer’s and seller’s instructions.
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A G u I d E T o T I T l E A n d E S C r o W C H I C A G o T I T l E
People buying and selling real estate often open a sale transaction with the
settlement agent for their protection and convenience. The buyer can then
instruct the settlement agent to disburse the purchase price only upon the
satisfaction of certain prerequisites and conditions. At the same time, the
seller can instruct the settlement agent 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 settlement agent to carry out faithfully their mutually consistent instructions relating
to the transaction and to let them know if any of their instructions are not mutually con-
sistent and/or cannot be carried out.
Chicago Title provides professional escrow settlement services that are convenient
for the buyer and seller because both can move forward separately and simultaneously in
providing inspections, reports, loan commitments and funds, deeds, and many other
items, using settlement as the central depositing point. If the instructions from all parties
to the transaction are clearly drafted, fully detailed, and mutually consistent, the settle-
ment agent can take many actions on their behalf without further consultation. This saves
time while also facilitating the closing of the transaction.
A G u I d E T o T I T l E A n d E S C r o W
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C H I C A G o T I T l E
What Each Party does in Escrow
The Seller:Deposits the executed deed to the buyer with the •
settlement agent
Deposits evidence of pest inspection and any •
required repair work, if applicable
Deposits other required documents such as tax •
receipts, addresses of mortgage holders, any state
or federally required documentation, etc.For more information on the seller’s responsibilities, please refer to the
Seller section of this guide.
The Buyer:Deposits the funds required, in addition to any •
borrowed funds, to pay the purchase price with
the settlement agent
Deposits funds sufficient for home and title insurance•
Arranges for any borrowed funds to be delivered to •
the settlement agent
Deposits any deed of trust or mortgages necessary •
to secure loans
Approves any inspection reports or surveys, the •
Preliminary Report or Commitment for title
insurance, etc., called for by the purchase and
sale agreements
Fulfills any other conditions specified in the •
instructionsFor more information on the buyer’s responsibilities, please refer to the
Buyer section of this guide.
The lender (if applicable):Prepares an document package for buyer/borrower•
Deposits proceeds of the loan with the settle-•
ment agent
Directs the settlement agent on the conditions un-•
der which the loan funds may be used
The Settlement Agent:Acts as the impartial “stake-holder,” or depository •
of documents and funds
Processes and coordinates the flow of documents •
and funds
Keeps all parties informed of progress on •
the escrow
Responds to the lender’s requirements•
Opens the order for title insurance•
Obtains approvals from involved parties on the •
Preliminary Report/Title Commitment, as well as
pest and other inspections
Prorates and adjusts insurance, taxes, rents, etc.•
Records deed and loan documents and delivers the •
deed to the buyer, the loan documents to the lender,
and the funds to the seller, thus closing the escrow
Maintains security and accountability of monies •
owed and owing
Receives funds from the buyer and/or any lender•
Disburses funds for title insurance, recording fees, •
real estate commissions, lien clearance, etc.
Prepares an estimated statement or HUD settle-•
ment statement, as required, for each party, indicat-
ing amounts to be disbursed for services as well as
any further amounts necessary to close
Issues final closing statement/HUD settlement •
statement and forwards to buyer, seller, and lender
Questions?If you have questions about the escrow process,
please call your local Chicago Title office.
C H I C A G o T I T l E
Buying a Home…
For most, buying a home is the single biggest purchase of their lives. The enormity of the fi-nancial transaction aside, finding the right home to fit particular needs and wants is no easy undertaking. Just as you wouldn’t buy a car, computer, or camcorder without doing some research into various models and prices, you shouldn’t consider purchasing a home without some expert advice and guidance—and though some people may think of using the ser-vices of a real estate agent only when selling their homes, a real estate agent can be invalu-able when buying one as well.
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C H I C A G o T I T l E
A real estate agent is important to the buy-
ing process because he or she can help
you determine how much home you can
afford based on your financial situation,
has the tools to help you get prequalified for a loan, and
is even able to inform you about available financing op-
tions. Additionally, a real estate agent is an expert on the
neighborhood and can provide detailed information
about schools, transportation, local taxes, and other com-
munity characteristics. Using a real estate agent also
means gaining access to homes listed in the Multiple
Listing Service (MLS), an important marketing tool used
by real estate agents to inform other real estate agents
about available properties. That means they can give you
information about a wide range of available homes from
which to choose. When it comes to finding out if you’re
paying too much, a real estate agent can also provide you
with market analyses comparing asking and selling pric-
es of homes in the neighborhood—and a real estate agent
can serve as the liaison between you and the seller, bring-
ing to the table negotiating expertise and knowledge
about required disclosures and the housing market.
What to Expect in a residential Transaction
Buying a home involves several stages. Below is a
list of the more common steps taken during a residen-
tial transaction. Though your situation may—and prob-
ably will—vary, these steps are provided as a basic
guideline. It is best to contact your real estate agent for
more information as you become more serious about
buying a home.
Initial Meeting1.
Select real estate agent•
Determine needs and wants•
Determine financial eligibility•
Loan Qualification2.
Discuss finances•
Obtain prequalification•
Find a Home3.
Select an affordable property that fits your needs•
Discuss offer with agent•
Buyer reviews contract with agent•
Agent presents offer to selling side•
Present and negotiate offer4.
Buyer provides “earnest money” deposit •
(typically, 1%-3% of purchase price)
Seller accepts offer (seller can accept your of-•
fer, counter your offer, or reject your offer)
Open Escrow with Settlement Office (assuming 5.
seller accepts your offer)
Deposit “earnest money” into escrow•
Settlement Officer will order a Title Report •
(Preliminary Report or a Commitment
depending on region)
Submit loan Application Contingency Period 6.
Conduct physical inspection of property •
by a qualified inspector
Approve seller’s Transfer Disclosure Statement•
Approve Title Report•
Conduct property appraisal•
Obtain loan approval from lender•
Perform termite inspection and certification•
obtain Homeowner’s Insurance7.
Select insurance company and coverage•
Insurance will be in effect at close of escrow•
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A G u I d E T o T I T l E A n d E S C r o W
obtain Home Warranty Insurance; Sign 8.
documents (if applicable)
Chicago Title receives signed documents•
down Payment9.
Provide cashier’s check or money transfer •
prior to closing date
Closing Escrow10.
Deposit down payment and closing costs •
to escrow
Lender sends balance of purchase price to •
Chicago Title
Deed is recorded with County Recorder’s office•
Get your keys and move in!•
Buyer’s Financial responsibilitiesThere are various costs and fees involved in pur-
chasing a home. The following list depicts examples of
the costs you may be responsible for. Always keep in
mind that responsibility for some of these charges can
be negotiable and the responsible party may vary from
area to area. Contact your real estate agent for further
information about applicable costs in your area.
Title insurance premium (according to contract)•
Escrow fees (according to contract)•
Document preparation (if applicable)•
Notary fees•
Recording charges for all documents in buyer’s •
name(s)
Termite inspection (according to contract)•
Tax prorating (from date of acquisition)•
Homeowner’s Association transfer fee•
All new loan charges (except those required by •
lender for seller to pay)
Interest on new loan from date of funding to 30 •
days prior to first payment date
Assumption/change of records fees for takeover •
of existing loan (if applicable)
Beneficiary statement fee for assumption of •
existing loan
Inspection fees (roofing, property inspection, •
geological, etc.)
Home warranty (according to contract)•
City transfer/conveyance tax •
(according to contract)
Fire insurance premium for first year•
A G u I d E T o T I T l E A n d E S C r o W
Selling Your House…
Structuring transactions, arranging financing, and finding the right buyers are some of the keys to success in the real estate market, and there are few entities that know as much about the trends in today’s market as licensed real estate agents and brokers.
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Licensed agents and brokers undergo thor-
ough training and examination to help
make them experts in the real estate mar-
ket. Several states even require continu-
ing education in real estate for license renewal and
these specialists are compensated on their ability to
sell properties quickly and cost-efficiently—and their
expert abilities are chargeable only when a transaction
is complete.
Why It Pays to use a ProfessionalWhen you use an agent, you’ll get the benefit of •
professional experience from the moment you con-
sider selling your house. Your agent will help you
establish a fair market value from his or her daily
dealings in your neighborhood, and arrange financ-
ing terms that make it easier to obtain a quick sale
in today’s market—helping you receive the equity
in your home.
If you wish to participate in financing the pur-•
chase of your property, your agent or broker can
structure a workable plan that helps reduce risk
from unusual terms, and give you an estimate of
the anticipated yield from carrying a property-se-
cured financing plan.
Real estate agents are professionals at marketing •
properties so they know how to choose the right
media and message to bring interested prospects to
your home. They’ll interview and qualify buyers
for you while using their sales skills and negotiat-
ing techniques to help you receive the best possible
return on your sale.
Every brokerage office has a steady stream of pros-•
pects that no individual can match. National refer-
ral networks and Multiple Listing Services also
help to reach buyers from out of town or out of
state. Many corporate relocation clients may be
working with a broker before a move is even made.
When you work with an agent or broker, they will •
follow up with other agents who have shown your
property and share their constructive comments on
cosmetic repairs, financing arrangements, or re-
evaluating your list price.
An agreement between buyer and seller is just the •
beginning of a final transaction. From that point on
your agent or broker can handle the details and pa-
perwork necessary to make it complete—from
building and termite reports to fire insurance and
closing arrangements with the escrow company, ti-
tle company or closing attorney.
As an expert in real estate, your agent or broker •
will give you advance estimates of your closing
costs and net proceeds from the sale while keeping
you informed of the details to assure a smooth and
timely closing.
Working with a real Estate Agent is an Integral Part of Selling Your Home
For one thing, your real estate agent can list your
property in the Multiple Listing Service (MLS), provid-
ing your home with incomparable exposure and ensur-
ing you have as many real estate agents as possible
helping to find a buyer. But that’s not all a real estate
agent does to market your home. He or she knows how
to specifically target advertising to reach buyers for
your home, and uses all the marketing tools available to
ensure that your home is sold expeditiously. Additionally,
A G u I d E T o T I T l E A n d E S C r o W
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C H I C A G o T I T l E
a real estate agent conducts a variety of other marketing
efforts on your behalf—from holding open houses and
handling phone inquiries to showing your home to pro-
spective buyers.
What does a real Estate Agent do for You Besides Find Buyers?
Plenty. A real estate agent provides information on
local market conditions to help you price your prop-
erty realistically and fairly, and keeps you abreast of
changes in the market that may affect your property.
And let’s face it, buying or selling a home means lots
of paperwork. When it comes to closing escrow, a real
estate agent can be invaluable, leading you through
the paper trail with a steady hand, while familiarizing
you with escrow, insurance, property disclosures, and
inspection procedures.
So, Where do You Find a real Estate Agent? Like finding any good professional, the best way to
locate a real estate agent is through recommendations
from friends or acquaintances that have bought or sold
homes recently. Ask for references and check each
agent thoroughly, and interview several real estate
agents before you decide on one.
When You Make the SaleA vital part of any sale is title insurance. Lenders
usually require a loan policy to protect their interests,
and buyers need an owner’s policy to protect their eq-
uity. Be sure to ask your agent or broker for protection
from Chicago Title so your title insurance policy—
and your investment—is backed up by the resources
of FNF, the strongest title insurance family in the in-
dustry. Your Chicago Title Account Manager is an in-
tegral part of your agent’s or broker’s closing team.
What to Expect When Selling Your Home
You should select a professional real estate agent to
represent your needs. Once you establish a working rela-
tionship with your agent, your home is put on the market
and marketed to potential buyers. Once a buyer makes an
offer on your home you have three options: accept the
offer, counter the offer, or reject the offer. If you decide
to accept the offer, here’s what happens next:
Escrow is opened and buyer deposits “earnest 1.
money” into escrow.
Seller submits documents and information to 2.
escrow holder, such as: addresses of lien holders, tax
receipts, equipment warranties, home warranty con-
tracts (if any), and any leases or rental agreements.
Seller approves and signs the escrow instructions, 3.
grant deed, or other related documents required to
complete the transaction.
Seller orders inspections, receives clearances, and 4.
approves final reports and/or repairs to the property
as required by the terms of the purchase and sale
agreement (responsibility for inspection procedures
may vary).
Buyer and seller fulfill any remaining conditions 5.
specified in the contract and/or escrow instructions,
and approve the payoff demands and/or beneficia-
ry’s statements.
Buyer and seller approve any final changes by 6.
signing amendments to the escrow instructions
or contract.Note: The above is general information only. Your situation may differ. Please
consult your real estate professional for details about your specific situation.
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Seller’s Financial responsibilitiesThe process of selling your home involves several
costs and fees. The following information is very gen-
eral, and many of these items can be negotiated with
the buyer. Consult your real estate professional for
more information.
Real estate commission•
Document preparation fee for deed•
Document transfer tax•
City transfer/conveyance tax •
(according to contract)
Loan fees required by buyer’s lender•
Payoff of all loans in seller’s name (or existing •
loan balance if being assumed by buyer)
Interest accrued to lender being paid off, •
statement fees, reconveyance fees, and any
prepayment penalties.
Termite inspection (according to contract)•
Termite work (according to contract)•
Home warranty (according to contract)•
Judgments, tax liens, etc., against the seller•
Tax proration (for any taxes unpaid at time of •
transfer of title)
Unpaid Homeowner’s Association dues•
Recording charges to clear all documents of •
record against seller
Bonds or assessments (according to contract)•
Any and all delinquent taxes•
Notary fees•
Escrow fees (according to contract)•
Title insurance premium (according to contract)•
A G u I d E T o T I T l E A n d E S C r o W
For More Information Please Visit Chicago.Title.com
Copyright © 2007 Fidelity National Financial All rights reserved. Printed in the United States of America. No part of this publication may be reproduced in any manner whatsoever without written permission. First Edition, June 2007
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