escrow & title insurance



What is the difference between title and escrow?

The word “title” refers to your legal rights to own, use, and dispose of a specific property. The title company insures the property’s title with policies to the buyer and the lender to protect against problems with the property or the title.

Escrow is the arrangement of one company holding and managing the payment of funds required for two parties in a given transaction. The escrow company or agent acts as the objective third-party between the buyer, seller, and lender to make sure that the contract is closely followed and that the money goes to all of the correct places when terms of the contract are met. At Pioneer Title Company, we provide both services.

What happens in escrow?

An escrow is an arrangement in which a disinterested third party, called an escrow holder, holds legal documents and funds on behalf of a buyer and seller, and distributes them according to the buyer’s and seller’s instructions.

People buying and selling real estate often open an escrow for their protection and convenience. The buyer can instruct the escrow holder to disburse the purchase price only upon the satisfaction of certain prerequisites and conditions. The seller can instruct the escrow holder 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 escrow holder to carry out faithfully their mutually consistent instructions relating to the transaction and to advise them if any of their instructions are not mutually consistent or cannot be carried out.

An escrow is convenient for the buyer and seller because both can move forward separately, but simultaneously in providing inspections, reports, loan commitments and funds, deeds, and many other items, using the escrow holder as the central depositing point. If the instructions from all parties to an escrow are clearly drafted, fully detailed and mutually consistent, the escrow holder can take many actions on their behalf without further consultation. This saves much time and facilitates the closing of the transaction.

  • Acts as the impartial “stakeholder”, or depository of documents and funds
  • Processes and coordinates the flow of the documents and funds
  • Keeps all parties informed of progress on the escrow
  • Responds to the lender’s requirements
  • Secures a title insurance policy
  • Obtains approvals of reports and documents from the parties as required
  • Prorates and adjusts insurance, taxes, rents, etc
  • Records the deed and loan documents
  • Maintains security and accountability of monies owed and owing
The escrow holder may be any disinterested third party (although some states require that certain escrow holders be licensed.)

There are two important reasons for selecting an establishment, independent escrow firm, an attorney, or an escrow officer with a bank, Savings & Loan or title insurance company. One is that the real estate transaction requires a tremendous amount of technical experience and knowledge to handle smoothly. The other is that the escrow holder will generally be responsible for safeguarding and properly distributing the purchase price.

Escrow officers with established firms are experienced and trained in real estate procedures, title insurance, taxes, deeds and insurance.
An escrow officer must remain completely impartial throughout the entire escrow process. He or she will normally adopt a courteous, but rather formal manner when dealing with parties to the escrow, keeping conversation to the matters at hand in the escrow. This formal behavior is meant for the benefit of all concerned, since the escrow officer must follow the instructions of both parties without bias.
Escrow instructions are written documents, signed by the parties giving them, which direct the escrow officer in the specific steps to be completed so the escrow can be closed. Typical instructions would include the following:
  • The method by which the escrow holder is to receive and hold the purchase price to be paid by the buyer.
  • The conditions under which a lapse of time or breach of the purchase contract provision will terminate the escrow without a closing.
  • The instruction and authorization to the escrow holder to disburse funds for recording fees, title insurance policy, real estate commissions, and any other closing costs incurred through escrow.
  • Instructions as to the proration of insurance and taxes.
  • Instruction to the escrow holder on the payment of prior liens and charges against the property, and distribution of the net sale proceeds.
Since the escrow holder can only follow the instructions as stated, and may not exceed them, it is extremely important that the instructions be stated clearly and be complete in all details.

The Seller

  • Deposits the executed deed to the buyer with the escrow holder.
  • Deposits evidence of pest inspection and any required repair work.
  • Deposits other required documents such as tax receipts, addresses of mortgage holders, insurance policies, equipment warranties or home warranty contracts, etc.

The Buyer

  • Deposits the funds required, in addition to any borrowed funds, to pay the purchase price with the escrow holder.
  • Deposits funds sufficient for home and title insurance.
  • Arranges for any borrowed funds to be delivered to the escrow holder.
  • Deposits any deed of trust or mortgages necessary to secure loans.
  • Approves any inspection reports, title insurance commitments, etc. called for by the purchase and sale agreement.
  • Fulfills any other conditions specified in the escrow instructions.

The Lender (If Applicable)

  • Deposits proceeds of the loan to the purchaser.
  • Directs the escrow holder on the conditions under which the loan funds may be used.

The Escrow Holder

  • Opens the order for title insurance.
  • Obtains approvals from the buyer on title insurance report, pest and other inspections.
  • Receives funds from the buyer and/or any lender.
  • Prorates insurance, taxes, rents, etc.
  • Disburses funds for title insurance, recording fees, real estate commissions, lien clearance, etc.
  • Prepares a final statement for each party, indicating amounts to be disbursed for services and any further amounts necessary to close escrow.
  • Records deed and loan documents, delivers the deed to the buyer, loan documents to the lender and funds to the seller, closing the escrow.
  • Who usually pays for what?

While every transaction can have individual conditions, there are certain things which the buyer and seller have traditionally paid for.

The seller can generally expect to pay for:

  • Owner’s title insurance premiums
  • Real Estate Commission
  • Half of the escrow fee (except for VA Loans, where entire fee is paid by the seller)
  • Any loan fees required by the buyer’s lender, per their contract
  • Payoff of all loans on property (unless loan balance 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)
  • Any judgments or tax liens against the seller
  • Recording charges to clear all documents of record against the seller
  • Pro-rated taxes (for any taxes unpaid at time of transfer of title
  • Any unpaid Homeowner’s Association dues
  • Any bonds or assessments (according to contract)
  • Any and all delinquent taxes

The buyer can generally expect to pay for:

  • Lender’s title policy premiums
  • Half of the escrow fee (except for VA Loans, where entire fee is paid by the seller)
  • Document preparation (if applicable)
  • Notary fees (if applicable)
  • Recording charges for all documents in the buyer’s name
  • Homeowner’s Assocation Transfer Fee
  • All new loan charges (except those required by lender for sellers 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
  • Home warranty (according to contract)
  • Fire insurance premium for first year
  • All pre-paids

Title Insurance

Why Do You Need Title Insurance?