So, you’ve found the home of your dreams. You obtained a preapproval letter from a mortgage lender. The seller has accepted your offer. You’re practically home-free, right?
Not so fast. There’s still one step left in the homebuying process: escrow.
Escrow is easy to define. But reaching the close of escrow and having the keys to the front door in your hand depend on many factors.
We asked Tegan Powell, the Escrow Officer-Branch Manager at Pickford Escrow Company, a HomeServices of America Company, in Mission Viejo.
Over the years, the escrow process has evolved. It is no longer just a safe, independent third party or company that holds the money until the transaction is complete. Now, escrow officers have much more responsibility, one of which is drawing escrow instructions reflecting the terms of the buyer and seller.
Only when all conditions are met will the lender agree to fund the transaction. Once the funding takes place, the title company will request for the transfer of ownership to be recorded at the county recorder’s office. The buyer’s mortgage goes into effect as soon as the recording confirmation is received and sale proceeds are released to the seller.
Each real estate transaction is assigned an escrow officer–whether it’s successful or not.
“The escrow officer serves as the communications link, or the hub, for all the parties in a transaction,” Tegan said. “Ten to 15 people can be involved in a single escrow.”
Who is involved in the escrow agreement process?
The escrow fees are customarily split 50-50 between buyer and seller in Southern California. Fee arrangements can vary by state and even regions within states.
Various parties must perform due diligence to assure all elements are acceptable so the loan can be funded.
The elements during an escrow where the buyer is obtaining a loan include:
Typically, the escrow fees are covered by your closing costs.
As many homeowners know, various outcomes can slow or even end the escrow.
If a home does not appraise at the purchase price, that can be a main factor that ties the process up, according to Tegan.
For example, a home that is on the market for $750,000 and goes under a contract for that price could only be appraised for $735,000. If that happens, the lender may not lend until the price is reduced or, in some cases, the lender may still move forward if the buyer is able to bring in a larger down payment.
When one or both parties aren’t willing or able to reduce the sales price, it can lead to falling out of escrow.
One of the most common reasons for an escrow to cancel is the buyer not being able to obtain financing, even with a preapproval letter. Lenders tend to be very willing to write a preapproval letter to a buyer, but when it comes down to it, after the lender performs its thorough loan-approval process, the buyer might not qualify for a loan.
“The buyer doesn’t always find out right away even if they are approved,” she said. “Sometimes we won’t get an approval until two full weeks into a transaction.”
Another typical scenario, Tegan said, is when a buyer asks for excessive repairs and the seller isn’t willing to provide them. The buyer might want all-new windows. But the seller might just say no and go on to a new buyer.
“I’ve even had escrows cancel because there was litigation against the HOA,” Tegan said. “One fell out because the buyer was a symphony cellist, but the HOA rules said no instruments were allowed to be played in the home.”
Online security is one of the most essential elements in an escrow transaction since it involves one of the biggest purchases of most people’s lifetime: their home. So it is important to use an escrow firm that takes steps to ensure funds are not misdirected or personal information subjected to hacking now or in the future.
Your escrow company is mandated to report the purchase or sale of a residential property to the Internal Revenue Service. In the process, the escrow firm must collect all parties’ non-public personal information, such as Social Security numbers, date of birth, bank account numbers. It’s the kind of information you don’t want hackers to have. To be safe, select an escrow company that is SOC1 and SOC2 certified by a third-party auditor to protect against online predators.
Buyers need to make sure they are using an accredited lender that is savvy and familiar with new federal requirements.
“Berkshire Hathaway HomeServices California Properties agents are the most educated I’ve worked with. We have a great legal department within our company and prompt support for all escrow matters. The Pickford Escrow Company and The Escrow Firm branch managers and escrow officers attend the weekly sales meetings that Berkshire Hathaway HomeServices California Properties hold for all agents. We are able to keep them constantly informed about any new regulations, so they can help buyers and sellers make educated decisions moving forward.”
The Consumer Financial Protection Bureau (CFPB), an organization that governs financial institutions, including residential real estate and closing services, mandates the new federal regulations.
“They have stricter timelines and stricter disclosure requirements for lenders,” Tegan said. “They make it a lot more difficult for a lender that is not savvy to meet these timeframes and get loans closed on time. So it is very crucial for a buyer to choose a good team in both an agent and a lender.”
Buyers and sellers are now facing longer escrows under than in the past. Instead of the typical 30 days to close, it is now common to take up to 45 days unless they are all-cash transactions.
A brief video about the regulations can be viewed on the Pickford Escrow Company website.
Interest payments on a loan might continue over a weekend if a home isn’t recorded on a Friday, so the day of the week a deed conveyance is recorded can make a difference. The 2017 Optimal Closing Date Calendar on the Pickford Escrow Company’s website is a helpful resource for San Diego County, Orange County, and Los Angeles County buyers and sellers.
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