The Secrets to Predictable Escrow Closings Revealed

by Larry Christian, Senior Title Consultant, Old Republic Title Company

In this article, a veteran of several hundred probate real estate transactions
reveals what can go wrong and what you can do to avoid costly escrow closing
problems.

It’s Friday afternoon at 4:55 PM and your secretary has just informed you
that an exasperated estate representative is on the phone to let you know that
her buyer has just “walked away” because of a delay in the sales escrow. Does
this sounds all too familiar? This article is about what steps you may take
that will eliminate these last minute surprises which can and often do occur
at the eleventh hour on probate and other real estate sales and financing.

Who’s Driving the Bus?

So you let your Realtor pick the escrow, did you? Most all closing problems
can be avoided or better managed by involving yourself in the process of choosing
the escrow and escrow officer long before taking on a given legal matter. The
Realtor may be tempted to choose an escrow on criteria entirely different from
the ones that best serve you and your client’s interests.

Who’s Doing Your Escrow?

Does it make a difference who does your escrow? There are considerable differences
between the entities which may perform your escrow and the margin of safety
and integrity provided.

Independent escrow companies have by far the most stringent regulations for
performing escrow services and are regulated by the Calif. Department of Corporations
(800)347-6995

Real estate broker owned escrows operate under the brokers real estate license.
Your transaction is as safe and secure as the financial condition of its principal.
Compliance falls under jurisdiction of the Calif. Department of Real Estate
(213)897-3399.

Title companies are regulated by the Calif. Dept. of Insurance (800) 897-3399
and subject to internal audit only; only as safe as the financial stability
of the company providing the service.

Bank owned escrow operate under the license of the State Dept. of Banking
(800) 622-0620. While offering good safety record, many banking institutions
are phasing out this service.

As you can see, each of these are governed by a different regulatory agency
and each has its own set of qualifications to meet for that agency. This also
suggests that each may have its own respective competency level, depending on
the experience of the escrow officer and the frequency of encountering probate
transactions.

Escrow’s Role & Responsibilities

While the escrow holder’s duty seems simple when looked at from outside, they
quickly become far more difficult given the conditions that they must operate
within. These are the typical duties of an escrow officer:

• Acts as an impartial holder (depository) of documents and funds
• Process and coordinate the flow of documents and funds
• Respond to lender’s requirements (conditions)
• Keep all parties informed of progress of the escrow
• Obtain approval of reports and documents from parties, as required per escrow
  instructions
• Prorate and adjust insurance, taxes, rents, etc.
• Secure a title insurance policy
• Record documents relating to property transfer (grant deed or order) and
  loan documents
• Maintain security and accountability of all moneys owed and owing

What Can Go Wrong (Meet Mr. Murphy)

Good intentions and faulty assumptions often spell out why real estate transactions
have closing problems. While not every mishap can be avoided, most can be eliminated
long before a listing for sale of a buyer’s offer is accepted.

Using the services of escrow service which is not experienced with all forms
of probate realty transactions is a formula for disaster. Few escrow officers
will volunteer their lack of knowledge and may erroneously that no substantial
differences exist between probate and a typical sale or refinance. The first
clue that the escrow officer doesn’t understand your transaction should be when
he or she asks: “Who’s the probation officer?” It is better to query escrow
officers about their experience with probate before opening escrow by using
open ended questions such as asking them to describe the most difficult probate
transaction they have encountered and how their services helped save it.

Title related issues frequently tops the list of surprises. When title vests
differently than expected, such as when a spouse or other relative is shown
to have an ownership interest, the problem may be resolved by a simple action
such as filing an affidavit death of joint tenant or a quitclaim deed. However,
when a person or entity vests on title as co-owner (or sole owner!) these problems
make require months to research and resolve.

Surprise liens are also a bit of a shock to a seller who believes title to
property to be free and clear of all liens. Loans from private lenders paid
but not reconveyed can require several months of valuable time to clear up.
The likelihood of such title problems will not be disclosed in a simple title
profile, either. Also, determine what documents (Court orders, etc.) your title
company will require prior to issuing a title policy. Since each title company
is different, develop a relationship with a specific title company well in advance
and know their guidelines. Anticipating their requests is your best assurance
of obtaining a title policy on a timely basis.

Finally, don’t assume that the realty agent will know what remedial actions
to take, if needed. Lender delays can and do play havoc with the simplest transactions,
too. If at all possible, discourage the principals from working with Realtors
or lenders who are inexperienced in selling or financing real property currently
held in probate.

Why YOU Must be the Driver of this Bus

Before your next transaction, you’ll save yourself and your client much grief
and frustration by choosing an escrow company well in advance of your next transaction.
Developing a business relationship can assure that escrow has a long term stake
in serving your best interests. Here’s a summary of points to consider:

• YOU choose the escrow service, not the Realtor
• Develop a business relationship with that escrow service
• YOU choose the title insurance company and develop a working relationship
  with their staff
• Purchase a preliminary [title] report (not a profile) well in advance of
  the transaction
• Use checklists to assure that you have complied with your title company’s
  guidelines
• Don’t assume that all realty agents are probate real estate experts Stay
  involved with the process!

The choice of an escrow service can have a profound affect on the outcome
of your probate real estate transaction. By permitting someone else to make
this decision, you have lost control of your client’s file and potentially jeopardized
the sale or financing of this property. Perhaps most importantly, clients will
likely remember your role in the probate and, if not satisfied, you’ve missed
an opportunity to receive future referrals from that client.

Mr. Christian is a veteran of over twenty years in the real estate industry.
His background includes running an escrow desk, escrow office management and
later as title officer. He is currently Senior Title Representative at Old Republic
Title where his responsibilities focus on acting as a liaison between the company
and the probate legal community.