It’s two days before closing and the rainy weather has delayed the installation of the new roof on the property being sold. If the closing is delayed, the buyers will lose the lock on their interest rate. The decision is made to contact the closer to see if it is possible to hold an escrow for the payment of the roof completion. Situations like this arise from time to time during the closing process.
As a part of the closing transaction, Land Title Guarantee Company can assist you with the preparation of an escrow agreement and we can act as the agent holding the funds from such an agreement.
What is an escrow?
The definition of an escrow is an agreement between two or more parties as to the disposition of a cash deposit during the purchase of real estate. A third party (i.e. the title company), holds the deposit and pays or returns it to the appropriate party(ies) based on terms of the escrow agreement.
Any escrows that we hold as a part of the closing must be disclosed on the settlement statement. If there is a new lender involved, we must get approval from the lender to hold the escrow. Due to the regulations currently in existence, it is not always possible for the lender to allow an escrow of any kind at a closing. This is on a case-by-case basis. So if an agent knows there is going to be a possibility of an escrow at the closing, they should contact their Closing Agent as soon as possible so that they can get new lender approval.
There are several different types of escrow agreements that can be used, some of which are listed below.
Repair escrow between the Seller and the Buyer
A repair escrow is the most common escrow that is requested at a closing. Many times, a repair escrow is attached as part of the Inspection Resolution. Sometimes, due to unforeseen problems or the scope of the work to be completed, funds need to be held after the closing to ensure the completion of these items. The Sellers and Buyers will sign the escrow agreement and the money will be released upon written confirmation from all parties that the work is finished.
Land Title’s escrow agreement has an expiration date of one year from the closing date. The parties will need to decide who will receive the money after this expiration date if Land Title has not been notified by that time of the work being completed.
Repair escrow required by the new Lender
Sometimes, when notified of work needing to be done on a property after the closing date, the new lender will be the party that requires an escrow to be held. This can be for items such as landscaping, roof repairs, and plumbing and sewer repairs to name a few.
The closer will be instructed via the lender’s closing instructions to hold an escrow for the items to be completed. Land Title will prepare the “Lender Required” escrow agreement, which will need to be signed by all parties involved, including the new lender. It is very common for the lender to add a charge for a Final inspection on the property so they can send someone out to inspect the property after the repairs are finished.
After the lender has followed their procedures to determine that the work is done, they will then need to contact Land Title with written confirmation that we can now disburse the funds. Please keep in mind that each lender has their own set of requirements for this process.
Title commitment requirements
In some instances, with the approval of our underwriter, Land Title can hold escrows in order to insure over certain types of requirements that cannot be satisfied prior to the closing.
The escrow agreement used in this instance is called an Indemnity Agreement- Cash Deposit. These are items showing on the title commitment such as mechanic’s liens and judgments.
We will require an escrow of 1 1/2 times the amount of the lien on all mechanics liens. For all others, we will require a sufficient escrow to cover the payment of the principal, interest, and any possible penalties that could accrue for the remaining statutory time period for that lien. This amount will be determined by our underwriters if they approve the escrow.
When the lien is statutorily “out by time”, Land Title will release the funds back to the appropriate party. Sometimes, the party is able to negotiate with the lien holder or judgment creditor to pay a lesser amount than what is filed. Land Title will issue the payment of the lien or judgment in exchange for the release documents.
The ability for Land Title to hold the money is limited if the lien claimant or judgment creditor commences a court action (foreclosure). We would then need to pay them the required amount.
Other escrow agreements
There are other situations where we might hold an escrow. One of these is when there is new construction and the new owner has a punch list of items to be completed by the builder. We can escrow money from the builder and the agreement will contain the list of items that are not completed with an amount attached to each item. As the builder finishes each item, we refund them the amount that is associated with that particular task.
Another situation is when the seller is foreign and is subject to the IRS F.I.R.P.T.A. regulations (Foreign Investment in Real Property Tax Act of 1990).
Instead of automatically paying the IRS 10% of the sales price of the property, if certain requirements are met, we are able to hold the 10% in escrow until such time as the IRS can make a determination of the amount of the taxes owed.
Escrow service fees
For Residential properties only, Land Title Guarantee Company has an escrow set up fee of $50 on all escrows. If the consumer wants their funds held in an interest bearing account, there is another $50 charge to set up that account with the bank.
Commercial escrow set up fees are $300. For any escrows with Commercial properties, we suggest you contact your commercial closer.
Release of funds
When Land Title is in receipt of the required documentation that allows us to release the escrow funds, please keep in mind that it usually takes up to 48 hours for the checks or wires to be issued and the funds released.
For additional information about our escrow services, please feel free to contact your Land Title closer or sales representative.