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The Real McCoy: What’s the difference between escrow and title?

By: Kari McCoy
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Dear Kari, My Realtor said my offer was accepted and now the next step is this escrow thing. Since I have not purchased a home before, I really do not know what to expect. Can you help? Answer: For most first time buyers, the home-buying process is exciting, and a little scary. While it is thrilling to be purchasing a home, some of the terminology used throughout the process could, perhaps, be unfamiliar. Some of those words are underwriting, fixed-rate mortgages, and escrow. Escrow is not a word that people use every day. The escrow process is fairly easy to understand and actually works in the buyer’s favor by protecting the acquisition of their new home. The escrow process is defined by Webster’s Dictionary as, “money, property or a bond put into the custody of a third party for the delivery to a guarantee only after the completion of fulfillment of the conditions specified.” The escrow process with real estate generally starts as soon as the sellers and buyers come to the meeting of the minds and the offer is signed by all parties. Next comes the selection of the title and escrow company.  These days safe guarding your assets from fraud and other risks is more important than ever. Once the escrow company is selected, there are several steps that must take place in order to ensure a successful close of escrow: • Contact your chosen lender and give them a copy of the signed offer, fill out the loan application, and obtain the lender’s loan approval letter. Please note that most buyers go to their lender first and obtain a prequalification letter; this way, the buyers avoid the chance of falling in love with a home they cannot afford. • Conduct all of the necessary inspections, which usually include pest/termite inspection reports, general contractor in-spection reports, and so on, as necessary to the particular situation. You don’t want any surprises when you finally have the opportunity to move into your new home. • Ordering an appraisal helps the lender confirm the property’s value, and is generally required by most lenders. • A preliminary report is not the same thing as a title insurance policy, but merely an offer to insure. If the buyer elects to purchase title insurance, it will be issued in the buyer’s name at the close of escrow. Although title insurance is not mandatory in the state of California for the purchase of property, the majority of the lenders will require that a title insurance policy be issued so as to protect their interest in the property. Also, most buyers will insist that the title insurance policy of their property is insurable to protect their own claim to the property. During this time, the title company will be ordering a preliminary title report, which is prepared prior to the title company issuing the title insurance, that shows the ownership with the specific parcel of land, loans, any encumbrances, liens, easements, taxes, which will alert the buyer to any items filed in public record on the property. The report may then be reviewed and discussed by all the parties involved in the real estate transaction, as well as their agents. Therefore, the preliminary report provides the opportunity to seek the removal of items referenced in the report that may be objectionable to the buyer prior to making the purchase. No contract or liability exists until the title insurance policy is issued to a particular insured person, and others cannot claim the benefit of the policy. Kari McCoy can be reached at 941-9540, KariMcCoy.com.