Title and Escrow 101 | The Source Weekly - Bend, Oregon

Title and Escrow 101

Parts of the buying process, explained

If you have ever bought or sold real estate in the state of Oregon, chances are extremely high that you used a title or escrow company. An escrow or title company is a neutral third party that acts as the facilitator of a real estate transaction and usually issues a title insurance policy when the escrow account is closed. They gather and process all the necessary pieces of a real estate sale as the parties are contractually obligated, record the transaction, and finally disburse funds according to the agreed-upon contract between buyer and seller.

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The escrow process starts once there is an executed (signed by all parties) sales agreement that lays out all the terms of the contract that must be met for the sales contract to be completed. Once the contract is sent to the title (escrow) company, typically the first step in the contract is for the buyer to deposit their earnest money with the title company. Once this deposit is made, the title company orders a preliminary title report, which is a report that sets out the details of the condition in which a title insurance policy would be issued on a parcel of land. Title insurance is designed to protect the buyer and/or the lender from any defects or omissions in the chain of title (which can go back over 100 years). So, opening an escrow account, verifying a deposit and ordering a preliminary title report are the first steps; next, the specific escrow officer begins their work.

Escrow officers are the individuals who act as the third party and oversee the real estate transaction for both the buyer(s) and seller(s). They work with the buyer to ensure that all inspections included in the sales contract are approved by the buyer and that the title company will issue title insurance on the property. Next, they obtain any required loan payoff or lien release documents needed to clear title, prepare vesting documents and excise tax affidavits on the seller's behalf, and prorate any insurance, taxes, rents, etc.... Finally the officer prepares the final statement that accounts for all funds in the transaction for each party, they receive funds from the buyer/lender, they oversee the signing of any loan documents, forward the deed to the county for recording, and when the deed has been recorded, the escrow officer will disburse all funds to the necessary parties, resulting in a smooth, seamless transaction for both the buyer and seller.

When the transaction closes, the buyer and lender are left with a title insurance policy that protects the "new owner" from financial loss sustained, should there be defects on the title. Defects or clouds on title can take many forms but common ones include liens (money owed) or recorded documents showing ownership interest. Title insurance is a one-time premium that occurs during the escrow process and is included in the escrow fee if the buyer opts for the policy (it is a huge mistake not to get title insurance!). There are a few different types of policies, but to keep it simple let's cover the Standard Owner policy, which covers the owner if certain types of title clouds or defects appear based on public records. There is an extended policy that covers certain items that are not reflected in the public records, and finally a lender policy that covers the lender and only the lender's interest, not the owner of the property. As you can see, the escrow and title process is sizeable and includes a number of parties. This was not meant to be an encompassing article, but rather just cover the basics. If you have additional questions about escrow/title or other real estate related questions, please reach out to me at [email protected]. Thanks!

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