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What You Need to Know About Escrow

Posted by admin on May 15, 2018
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So you’ve finally found the property of your dreams and you can’t wait to finish the buying process. Not so fast, though. One of the most important steps is figuring out the escrow arrangement first. The escrow process is what many refer to when they say that they are in the process of closing on a purchase.

At Santa Cruz Properties, we’ve been in the owner-financing lot business for over 25 years, and we know exactly what goes into the escrow process. With owner financing, most closing costs are eliminated, but not all of them. Certain expenses may remain.

If you are new to the term “escrow”, or just need a refresher, the following information is sure to benefit you.

What Title Companies Can Do for You

In short, a title company ensures that the title to a piece of real estate is legitimate. If it is considered as such, title insurance is then issued for the property. Title insurance protects the owner and/or lender from lawsuits or claims levied against the property resulting from title disputes.

Finding out if a title is legitimate, however, is an art form in itself. Title companies run a title search, which is a thorough examination of property records, in an effort to ensure that the person selling the land does, in fact, legally own the property, and that no one else can claim that they own—partially, fully, or otherwise—said property as well.

That’s not all that they do, however. Title companies manage escrow accounts, where funds needed to close the property (or home) can be stored. This ensures that the money is used only for closing and settlement costs. With that taken into consideration, the formal process of closing on a property is conducted.

Next, the title company will issue out an escrow agent.

An Escrow Agent’s Role

As mentioned above, title companies offering escrow services provide a third-party agent or officer that handles financing, mortgage refinancing, title transfers, transaction instructions, and other paperwork needed for completing the purchase.

These officers’ main purpose is to keep all documentation safe and to make sure that the closing process isn’t taking too long. If for any reason you feel that your closing process was taking too long, a conversation with your escrow agent or officer can help to expedite the process.

These officers also handle your monies a few different ways, like in an escrow account. There are usually two forms of escrow accounts:

  1. The Closer’s Escrow Account – This holds the buyer’s deposits and handles the distribution of funds after the closing process has concluded, thus transferring ownership of the property.
  2. Lender-Required Escrow Account – In this scenario, lenders (like the bank) would require that borrowers make additional payments to this account that covers taxes and insurance. The escrow agent would then release the funds to pay the property tax collector and property insurer directly.

Finding the Right One

As for finding one that you can trust, you don’t have to look that hard. Normally, your real estate agent may recommend one for you, but you can always search for an escrow officer on your own through family, friends, co-workers, or other professionals.

In any case, you are going to want to what their experiences and capabilities are. An escrow agent should be familiar with the type of property you are purchasing.

How Does This Pertain to Owner Financing?

There is a subtle difference between the closing procedure between regular real estate transaction and an owner-financed transaction.

In a regular real estate transaction:

  1. The bank delivers the funds.
  2. The seller delivers the property deed.
  3. The buyer delivers a down payment with a promise to pay back the bank.
  4. The closing agent delivers a legitimate title, ran through a title search and backed up by a title company.

All in all, three entities plus the attorney, title company, or escrow officer are all involved in the closing procedure for your property.

With an owner-financed transaction:

  1. The owner (a.k.a. the seller) delivers the property deed.
  2. The buyer delivers a down payment with a promise to pay the owner of the entire purchase price.
  3. The closing agent delivers a legitimate title, ran through a title search and backed up by a title company.

With an owner-financing transaction, you only have two parties involved plus the closing agent, and no loan is made because the owner of the property didn’t deliver any kind of loan to the buyer like the bank did in the previous example.

As is evident above, owner-financing essentially cuts a big chunk out of the real estate transaction process by taking the bank out of the equation. Choosing this scenario means that the buyer forgoes an application and appraisals process, nor will they be required to open an escrow account to hold taxes and insurance after closing.

There is no need to purchase title insurance, or even to enlist the aid of a title company to assist you in the closing procedure, which can save you, the buyer, time and money when purchasing an owner-financed lot.

It’s not all green pastures, however. You are risking a lot if you are dealing with a disreputable owner financing company.

Do I Really Need Escrow Services?

In short, when you are purchasing property under an owner-financing option, enlisting the aid of escrow accounts and title companies are not a requirement. Ultimately, trust is the key to doing business. Not just trust from the owner’s side, but trust from the buyer’s side as well.

Why?

If an owner pockets the money instead of paying the existing mortgage, the property could be seized by the original lender. That means you as a buyer lose out on money and property.

On the other hand, if a buyer doesn’t pay property taxes because they are not making money on the property, the state can foreclose due to non-payment, and the original owner of the land loses the right to foreclose on the property.

Since payments are made monthly from the buyer to the original owner, the buyer can make a request for proof that their payment was made to any existing mortgages so that their land isn’t seized. Owners can fix the financing agreement to specify that you submit insurance and tax payments to them so that they can, in turn, forward it to the county and insurance company respectively.

With Santa Cruz Properties you are dealing with a trusted company that has been providing beautiful lots to families in the Edinburg area for more than two decades. We take great pride in our sterling reputation and ensuring our clients’ happiness.

No matter your financial situation, Santa Cruz Properties has a great owner-financed lot for you.

We here at Santa Cruz Properties have been in the business of making the American dream come true for the last 25 years. We understand how trust plays a major role when purchasing owner-financed land, and we work hard to earn it.

For more information on our owner-financed lots, contact us at (956) 383-0868 today.[:es]Esta entrada está disponible sólo en Inglés.
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