Timing is often crucial in the purchase of real estate. The same can be said of the escrow and closing process: Funds must be disbursed on a specific date so that the seller, previous lender and any other party owed money in the deal can be on their way.
The payoff figures the lender supplies to the escrow agent are critical. When a loan is refinanced, the amount still owing on the old loan usually is faxed to the escrow agent. Once the old loan is paid off, the "lien" is removed from the title, clearing the way for the new loan and lien to be put in place.
When there's a problem
But who is responsible when an incorrect payoff figure is reported or paid? A problem, still unresolved, surfaced for one of our readers recently when a lender called, after the refinance was completed, and said $3,000 was still owing. The escrow company says the lender is at fault, and vice versa.
"You can only go on what was reported from the lender in writing," said Maureen McCormick, vice president of Stewart Holding Company. "A good escrow agent will not take a verbal. If the escrow actually paid the wrong amount, I would think the escrow (agent) would be liable.
"The only time I can think of when the lender came back at us was for interest on a loan. Some of the government loans can be confusing as to how much interest the lender expects to be paid. I've had to eat a month's interest, but never an amount as large as $3,000."
Tim Shannon, president of The Escrow Connection in Bellevue, said many things would have to be overlooked for an escrow agent to make such a large mistake.
"There's usually no way a lender's going to give up his lien without proper payment," Shannon said. "The escrow company could be on the hot seat but it would take one heck of a screw-up."
One possible way for $3,000 to fall through the cracks would be late spending by the consumer. Many home-equity loans now come in the form of a checkbook line-of-credit. The borrower simply writes a check similar to a common checking-account check to borrow money. These lines of credit need to be totaled and repaid to the respective lender at refinance time. If a check were written at about the same time escrow payoff figures were requested, that late check could cause a major problem.
Escrow is an arrangement in which money and/or documents are held by a third party on behalf of the buyer and seller. The purpose of escrow is to ensure that all parties to the deal are satisfied.
It sees that the seller receives the purchase price, the buyer receives clear title to the property, and the lender gets the proper security interest in the property.
Escrow may be "opened" by either buyer or seller and typically occurs when the real-estate agent delivers a copy of the purchase and sale agreement to the escrow agent. Escrow can technically open when the lender delivers a copy of the loan commitment to the escrow agent.
An escrow agent may be a bank, some other financial institution, a title insurance company, an independent escrow firm, a mortgage broker or an attorney.
The escrow agent orders title insurance and works to clear any defects or encumbrances from the title, reviews the purchase-and-sale agreement and loan commitment, collects the funds necessary to close and prepares settlement or closing documents.
The escrow fee is one of the closing costs. It is often split between buyer and seller. The escrow fee on a $150,000 home sale is approximately $800 (commonly split $400 apiece between buyer and seller), plus tax. The higher the sales price, the higher the escrow fee.
Closing a deal
Closing is the consummation of the transaction - the seller delivers title to the buyer in exchange for the purchase price. The term "closing date" refers to the legal closing date, when the documents transferring title from seller to the buyer are delivered and recorded.
"Some of the lenders can get amnesia when it comes to loan payoff requests," said Rhonda Evans, president of Commercial Escrow. "In some cases, we have had to ask two or three times. To take a verbal payoff figure would be sloppy work."
Make sure you get clear title to your property. If you a have a line of credit, stop spending at least 10 days before closing. If the payoffs were improperly reported or paid, make certain you were not in the middle of it. It could take an attorney to sort it all out.
Tom Kelly is a private real-estate consultant. His column runs Sundays in the Home/Real Estate section. Send questions and comment to: Tom Kelly, P.O. Box 70, Seattle, WA 98111.
The Home/Real Estate section appears every Sunday in The Seattle Times. Home Real/Estate Editor is Karen West, 464-2354. Address mail to Home/Real Estate, The Seattle Times, P.O. Box 70, Seattle 98111 or fax to (206) 464-2239.