Real Estate Help Library Closing Escrow Buying, Paperwork, Selling

All repairs have been completed, the seller is moved out and all personal belongings are gone, you’ve done your Pre-closing Walkthrough, and it is time to close escrow. This is the last step to ownership!

What is Escrow?

As stated earlier, we use title and escrow companies to handle closings in Arizona. There are no lawyers reviewing contracts or transferring title. It is the job of the title/escrow company to:

  • hold all money
  • research title, CCR’s, and HOA docs
  • ensure all docs have been delivered and accepted by buyer
  • calculate all fees for lenders, title policies, insurance, taxes, and recording
  • Issue a settlement statement with all credits and debits for buyer and seller

Settlement Statement

The settlement statement will have the combined information for every penny that needs to be dispersed to all parties involved, including the seller, lenders, government entities, HOA’s, recording fees, title insurance policies, agent commissions, and any other fees involved in the transaction. Both parties will be given a chance to review this document before closing to ensure it is correct. Here is a sample for what it will look like. I have an article explaining a lot of these items here: Closing Costs.

On the left is the seller side, it will have all debits (this is money owed to the seller) and credits (money owed from the seller).

On the right is the same, only for the buyer.

A lot of debits/ credits will be from the buyer, to the seller, however this is not always true. The buyer has debits to lenders, the deposit is usually given as a credit to the buyer since it is being applied to the purchase price.

Debits from the seller could be concessions to help cover closing costs, any reductions in price agreed to during escrow, loan payoffs, agent commissions, title policy, HOA disclosure and/or transfer fees, taxes, etc.

Seller side

The title company adds all credits: mostly the purchase price and prorated taxes for instance, to be sellers total credit.

They add all debits: loan payoff amounts, agent commissions, title policy, escrow fees, HOA transfer and disclosure fees, taxes owed, and any concessions to the buyer.

Total Credits - Total Debits = Due to Seller Amount

 

Buyer Side

The same process is used, though buyers often have different charges.

They add up the purchase price, any origination fees, escrow charges, title policy to lender, and any HOA transfer fees, appraisal fees, prorated taxes (already paid by seller so they are getting a credit equal to your debit) and then you get the number at the bottom 

Due from Buyer.

It is notable that due to seller and due from buyer are not the same number. That’s because there are a few other entities that have their fingers in the pie, such as HOA comanies, lenders, tax agencies, and title/ escrow company charges. Somebody has to pay these, and that means that often the buyer owes more than the seller receives.

The number at the bottom totals for the buyer is the amount they need to bring to closing, which includes their earnest money, down payment, the amount the lender is funding, all debits and credits explained above, and additional cash due at closing.

Beware of Wire Fraud

This is perhaps the most dangerous portion of the transaction, since wire fraud is on the rise. I explain wire fraud more in this article, but will outline what to do an not to do here.

Wire fraud occurs primarily when someone sends a fake email that looks remarkably similar to the title company’s email address or the agents’ email with instructions to wire money to a particular account.

These accounts are usually foreign, which is a big red flag.

What to do if you receive an email with wire instructions:

The first thing you should do is call the title company to make sure they sent the email. Usually wire transfers are handled in the office of the title company, but some companies that have remote signings you will have to transfer money either online or in the branch of your local bank.

Note: Do not call the number for the title company that is listed in the email. It could be fake and a fake assistant will answer and tell you all the numbers are correct. Call the number listed publicly for the company on their website or maps listing.

Once you have confirmed they sent the email, verify the routing and account numbers are in fact the title company’s. The account numbers should be within the U.S., even if the seller is routing the money out of the country later, the title company will do this. You should not be transferring money directly to the seller, only to the title company.

When in doubt:

Do nothing. Simply do nothing for a day or so and if closing must be delayed for you to be sure that money is being sent to the title company instead of a scammer, fine. It’s not worth the risk to send hundreds of thousands of dollars away that cannot be recovered once it leaves the country.

What to bring to closing

 

Usually you just need a valid identification and, if you have not transferred money to escrow already, your bank account and routing information.

Title companies do not accept checks for closings, only “readily available funds”, which are primarily wire transfers and cashiers checks.

You will start reviewing and signing documents, and there can be a lot of documents. Among them will be

  • Settlement statement
  • HOA transfer papers
  • Deed transfer
  • Title company disclosures
  • Promissory note if funding
  • other disclosures

Even though it can be a lot, do your best to know what you are signing before you sign it. There should not be any surprises at closing, and the title agent should help explain anything you are unsure of or any charges on the settlement statement.

What happens after signing

Sometimes you sign a day or two before closing. This is normal, since escrow will wait until the day of closing to have all funds transferring where they need to go anyway. After all funds have been transferred, the title company will release for recording.

Released for Recording

The title company has submitted all documents that need to be recorded to the county. There is no way to tell how long this will take, since there is no way to know how many files are in line at county waiting to be recorded. It usually happens within a few hours, though it should be noted that the office closes at 4:59 pm, so if it is submitted later in the day, it may not record until the following day.

When is escrow “closed”?

Not until after recording. This means that the home is the property of the seller right up until it records. After it records, escrow company will “close escrow”, actually close the file with all the money in it, since all money should have gone out by this time anyway, and let everyone know it is recorded, which verifies that ownership has been transferred.

It is at this time the buyer can meet their agent at the property to get keys to the property and begin moving in, if they are doing so right away.

Note: Sometimes agents are busy and cannot meet the buyer at the property right after closing, and they try to “cheat” by giving them keys or a garage door opener before the property records at county.

While convenient, this is not only illegal it is against agent rules for access to the house and the agent will be fined a minimum of $500 for a first offense, and repeat offenders can lose their licenses.

Do not ask your agent if you can have keys or start moving in prior to recording. It is the agent’s job to give you the keys and/or access to the house after recording. If they are unable, they need to make other arrangements such as having another agent in their brokerage meet you at the property to give you the keys to the house.

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