Title? Escrow? What’s the Purpose?
Arizona is a title company state. The escrow company- escrow officer- closes escrow, not an attorney. In attorney states, close of escrow takes place with the attorney for the buyer and seller. The attorney is responsible for clearing the “chain of title”. In title company states, it is the title company which insures the chain of title.
The escrow company and title company are often used interchangeably, but they are different. The escrow company is responsible for preparing all documents and ordering the title report from the Title Company. The escrow company holds the money and disburses it according to instructions from the lender, reviews the files to make sure all the conditions of the contract have been met and makes sure all contingencies have been fulfilled.
Some of the larger Brokerages have relationships with title companies; on the purchase contract, the Title Company and the Escrow Company are different. Often the prices for title and escrow are higher than if the same company performed both functions. It is the buyer’s choice to choose the title and escrow company.
In Tucson, we are seeing real estate agents “recommend” in the MLS listing, that a specific title company or escrow officer be used. The buyer and buyer’s agent can choose any company and does not have to abide by this “recommendation”. The purpose is to generate more business for that company (owned by the brokerage) which generates more money for the brokerage, which is allegedly used for additional marketing. (These relationships also exist for the lender and the home warranty company.) The Consumer Financial Protection Bureau, is investigating whether this is a violation of RESPA rules –The Real Estate Settlement and Procedures Act since consumers allegedly pay more.
Most big brokerages have disclosures in the myriad of paperwork which clients are asked to sign. Whether those disclosures are explained to the client depends upon the agent;some agents can’t explain the documents to be signed.
Once the contract has been signed, the agent “opens escrow”. The earnest money check and the purchase contract are given to the escrow officer. The escrow agent orders the title search. The preliminary title report is issued and it is important for the agent to read the “prelim” in case there are red flags.
Often a person with a common name will be flagged for back child support, or a lien on the property. These must be cleared prior to transferring title. If the buyer/seller is not this person, he/she will have to sign a “not one in the same” document and provide proof he/she is not that person.
Other onerous title issues may occur. If there has been a death of one of the owners and the estate has not been probated, often heirs must be located and/or the estate probated prior to the surviving spouse transferring title.
On occasion, I have had to refer these title issues to a real estate/estate lawyer. However, it is far better to insure the title is clear prior to listing the property so that any transaction can flow smoothly. Waiting until escrow has been opened and title problems solved may put the kibosh on the transaction.
When dealing with sellers where one party may be incapacitated, it is important to get a durable power of attorney. Sometimes this takes a while; agents are often eager to get property on the market. Being knowledgeable about title issues prior to putting a property on the market is essential for a smooth transaction.