Escrow, Title, and Insurance: Who Cares?
One of the reasons why more attention should be paid is that problems do, at times, come up. “Problems do occur, but we work to correct them. There isn’t a situation that exists that can’t be addressed,” explains Sharon Francis, Escrow Officer and Branch Manager of North American Title Company’s Alameda office.
And Francis knows whereof she speaks. In addition to her 38 years in the title business, she also teaches new real estate agents about the ins and outs of escrow.
But is everything really fixable? “The worst case scenario is when you have to go to court to clear the title,” she explains.
Nor are problems always predictable. However, there are a few risk factors buyers and sellers should consider. “The newer the home and subdivision, the less likely something problematic will turn up,” Francis notes. “Likewise, if you are handling the sale of a relative’s home, or of someone who passed away, something is more likely to turn up you aren’t aware of,” she explains.
In those instances, the real estate agent may choose to open a “pre-escrow” account, referred to as such because it is opened before the home is even on the market. “This allows the seller to start looking at any issues before the house is on the market, so it gives them time to clean up anything that arises. That way, once the house is on the market, it can close soon,” Francis notes.
Regardless of the home’s age or circumstances, Francis also says buyers should purchase title insurance. “Be sure you are purchasing insurance for yourself. The lender will insist on it, of course, but the insurance which covers them does not cover the buyer.”
According to Francis, the title insurance should cover anything that comes up later. “It’s not just a question of the home’s age, and what was done to the home, but also what the seller was up to financially,” she explains. She also points out that, unlike the buyer, who goes through a rigorous process just to qualify for a home loan, the seller does not go through any such vetting process.
She also cautions against reliance on the preliminary title report. “The preliminary report won’t show everything, and it may also show items that have nothing to do with the buyer and seller.” Francis explains that, for a title report on property owned by John Doe, the preliminary title report may include any and all public records under “J. Doe”, which may also be Jane Doe, Justin Doe, etc.
For that reason, title insurance is recommended. “That way, if something comes up, the insurer takes care of it. The buyer really doesn’t have to deal with it much.”
Francis recommends that buyers ask specifically what the title insurance covers, as some policies are more comprehensive than others. “For those who purchase a policy with us, we will insure the title for the rest of your life. Even if you sell the property, and someone comes back with a problem, we’ll take care of it. We also cover both past and future problems,” she explains. “For example, say you find out, after buying the property, that the kitchen was unpermitted, and you must now bring it in line with local codes. You can file a claim.”.
Within California, some counties allow the buyer to choose the escrow company, whereas some allow the seller to choose the company. According to Francis, Alameda and Contra Costa counties allow the buyer to choose, whereas Santa Clara County gives that right to the seller.
Real estate attorney Chris Hanson echoes the need for title insurance. In addition to being an attorney who specializes in the area, Hanson was an advisory title officer for more than five years, so he knows the process well.
“You seldom run into questions, beyond, perhaps, was an easement adequately descirbed,” he says. “However, quite frankly, you’re foolish if you don’t purchase it.”
Hanson explains that California has chosen a streamlined route to closing on real estate, which makes title insurance much more important. “In other states, you have an abstract of title, and an attorney researches from when the land was first owned to the present day. California streamlines the sales process dramatically, so it is a good idea to have the insurance.”
Even when research has been done extending as far back as the patent grants from the Mexican government, before California was a state, questions are not always answered. Hanson notes that he had just such a case. “Even then, questions existed regarding the boundaries of some property.”
