Frequently Asked Questions
The following are a collection of questions that we are often asked about taking titles in Arizona.
What is Escrow?
Very simply defined, an escrow is a deposit of funds, a deed or other instrument by one party for the delivery to another party upon completion of a particular condition or event. The California Escrow Law Section 17003 of the Financial Code provides the legal definition.
The escrow is created after you sign the contract to purchase your new home.
The escrow holder is an independent and impartial clearing house. As a neutral third party, both buyer and seller are assured that the mutual interest of all parties to the transaction are fulfilled.
Using the escrow holder as a common depository, the buyer and seller can proceed simultaneously in providing funds, deeds, inspection reports, insurance information, and other required documents. Both parties give written instructions, the requirements of which must be met before the transaction is complete, to an experienced escrow officer. Lenders also specify their conditions for completing the loan process. Provided that the instructions are clear and mutually consistent, the escrow officer saves time in the closing process.
Why do you need an escrow?
Whether you are the buyer, seller, lender or borrower, you want the assurance that no funds or property will change hands until ALL of the instructions in the transaction have been followed. The escrow holder has the obligation to safeguard the funds and/or documents while they are in the possession of the escrow holder, and to disburse funds and/or convey title only when all provisions of the escrow have been complied with.
How does escrow work?
The principals to the escrow – buyer, seller, lender, borrower – cause escrow instructions, most usually in writing, to be created, signed and delivered to the escrow officer. If a broker is involved, he will normally provide the escrow officer with the information necessary for the preparation of your escrow instructions and documents.
The escrow officer will process the escrow, in accordance with the escrow instructions, and when all conditions required in the escrow can be met or achieved, the escrow will be “closed.” Each escrow, although following a similar pattern, will be different in some respects, as it deals with your property and the transaction at hand. The duties of an escrow holder include following the instructions given by the principals and parties to the transaction in a timely manner; handling the funds and/or documents in accordance with the instruction; paying all bills as authorized; responding to authorized requests from the principals; closing the escrow only when all terms funds in accordance with instructions and provide an accounting for same, the Closing or Settlement Statement.
How does the escrow proceed?
The authority given to an escrow holder is strictly limited by instructions provided by the buyer and seller. The escrow officer is authorized by instructions to allocate funds for items during the escrow period, such as real estate commissions, title insurance, liens, recording fees, and other closing costs. Instructions also specify the method of collecting funds, proration of insurance and taxes and time limitation on settling the transaction. By holding all money and documents, the escrow process assures buyers and sellers that their mutual instructions will be met.
Confidentiality is another important aspect of escrow. To effectively handle a transaction, your escrow officer must be instructed as to the required terms necessary to close. The officer will discuss escrow matters only with the parties involved, specifically the buyer, seller, lender, and real estate agent. No one else has access to this information, except through legal procedures. The escrow officer retains impartiality and confidentiality concerning the real estate process.
Who chooses the escrow?
The selection of the escrow holder is normally done by agreement between the principals. If a real estate broker is involved in the transaction, the broker may recommend an escrow holder. However, it is the right of the principals to use an escrow holder who is competent and who is experienced in handling the type of escrow at hand. There are laws that prohibit the payment of referral fees; this affords the consumer the best possible escrow services without any compromise caused by a person receiving a referral fee.
As the Buyer, what do I provide the escrow?
Once all conditions are met, the escrow holder causes the necessary documents to be recorded and disburses funds according to the instructions given to the escrow officer. Escrow fees are included in these costs, and are based on the sales price of the property, the loan amount, and services required. Executed loan documents are forwarded to the lender.
- Deposit funds to pay the purchase price, and funds for property and closing costs.
- Provide deed of trust or mortgages needed to secure the loan.
- Arrange for borrowed funds to be deposited into escrow.
- Provide, if required, documents such as inspection reports, insurance policies, and lien information to verify compliance with the instructions.
How does the loan process work?
Your real estate agent and / or builder’s sales consultant can provide you with current financing information to help you in selecting a lender. The lender might be a bank, savings and loan or mortgage company.
You will be required to complete a loan application which will require personal and financial information.
The following information will be necessary at the time of loan application:
- Name and addresses of each employer – past 2 years
- Gross Monthly Salary
- Residential History – past 7 years
- Names, Addresses, Account numbers, Balances of all Checking and Savings Accounts, 2 months bank statements
- Names, Addresses, Account numberss, Balances and Monthly Payments for all Open Loans
- 2 years tax returns with all schedules
- W2s (2years) & current check stubs
- Picture ID with proof of Social Security Number
- Addresses of other real estate owned
- Loan information on other real estate owned
- Land information on other real estate owned
- Estimated vale of Furniture and Personal Property
- Certificate of Eligibility or DD214s (VA Only)
- Money for Credit Report & Appraisal
After I submit my loan application…then what?
The lender will begin the qualification process including verification of information submitted on the application and appraisal of the value of the property.
The lender will require that you obtain hazard / fire insurance. However, if you are buying a condominium, there may already be a master hazard policy. Check with your real estate agent on this. Also, check with your insurance agent for additional coverage for your personal property. the lender will also require that you obtain title insurance and may have other requirements that will need your attention prior to the close of escrow. Your real estate agent / builder sales consultant can help you take care of these requirements well in advance.
What is Title Insurance?
Title insurance insures against the loss resulting from defects of title to a specifically described parcel of real property. Defect may run to the chain of title or to encumbrances on the property.
Title insurance services are designed to provide real property owners, lenders, and others with interests in real estate the maximum protection from adverse title claims or risks.
Title insurance is usually obtained when real property is purchased. The policy of title insurance insures the owner and/or the lender of ownership of the property. There are various coverages afforded, but a basic policy insures that the buyer is the owner and that any lender shown on the policy is an ”insured” lender. Many different types of extended coverages are available; for example, an ALTA policy is quite often required by an institutional lender to afford them additional protection under the title insurance policy. The title policy is written after an extensive examination of the public record is made and the recording of the required documents as called for in the escrow. Customarily in Arizona, the seller will pay for the owner’s title policy and the buyer will pay for the lender’s title policy. But in almost every case, the question of who pays closing costs is a matter of agreement between the parties. In the case of some FHA or VA transactions, the escrow officer must follow the guidelines as required by the lender and/or government. The National Association of Insurance Commissioners has defined the characteristics of Title Insurance that distinguish it from other insurance lines as:
- The title insurance policy is a one-time fee
- Low premium rates
- Proportionately low loss and high expense to premium ratios
- Most of premium paid for title insurance pays for the title examination required for the policy
- Insures the current status of title instead of unforeseen future events
- Policy term is coextensive with the interest insured
The essence of title insurance is to insure the status of the title for a specific time by assuring the policyholder that there are no recorded or hidden defects to the interest insured in addition to those listed in Schedule B (“Items of Record” or recorded documents that affect a subject property).
More about owners title insurance
A.L.T.A. Plain Language Residential Owner’s Policy
Title insures the purchaser of residential real property, in which he will reside, to the same extent as the Standard Coverage Owner’s Policy. In addition, this policy affords protection against defects which are insured against in the extended coverage policy if that defect interferes with the use of the property for the residence of the insured. Title policy provides Coverage for Labor or Mechanics liens and forced removal of the main structure on the property because it encroaches onto adjoining land or an easement. (Removal of boundary walls or fences is not included in the coverage).
More about lender’s title insurance
A.L.T.A. Standard Coverage Loan Policy
Title insures the lender, based upon a search of the public records only, that:
- The borrower owns the estate or interest in the property which is used as collateral for the loan.
- There are no defects, liens or encumbrances on the title which the lender was unaware of, or are not shown as an exception from coverage.
- There is a right of access to and from the property.
- There is marketable title to the property.
- The insured deed of trust is valid and enforceable (usury or truth in lending laws excluded).
What do I need to do before my appointment to sign the escrow papers?
Cashier’s Check. Obtain a cashier’s check or certified check in the amount indicated to you by your escrow officer or you may choose to wire funds. Contact your escrow officer to obtain wire instructions. A personal check may delay the closing since a title company is required to have “good funds” (check has cleared) before disbursing funds from escrow. Similarly, an out of state check could cause a delay in closing due to delays in clearing the check.
Lender’s Requirements. Make sure you are aware of your lender’s requirements and that you have satisfied those requirements before you come to the title company to sign your papers. Your loan officer can assist you.
Hazard / Fire Insurance. Be sure to order your hazard / fire insurance once your loan has been approved. Then call your escrow officer with the insurance agent’s name and phone number so that he or she can make sure the policy complies with your lender’s requirements. You must have your insurance in place before the lender will send money to the title company.
Identification. Please bring a valid driver’s license, passport or picture I.D. with you to the title company. This is needed so that your identity can be verified by a notary public. It’s routine, but a necessary step for your protection.
When does the transaction actually “close”
After you have signed all the necessary instructions and documents, the escrow officer will return them to the lender for a final review. This review usually occurs within a few days and upon completion, the lender is ready to fund your loan and advises the escrow officer.
Usually the Deed and the Deed of Trust are recorded within one working day of the escrow’s receipt of loan funds. This completes the transaction and signifies the “close of escrow.”