Step 6. Closing and Escrow for sellers
Once final mutual acceptance has been reached, you and the buyer move onto the next stage, closing and Escrow. Escrow is an independent 3rd party whose primary responsibility is to close the sale transaction as outlined in the Purchase and Sale Agreement. The escrow agent acts as a guardian over the process and makes sure that both the seller and buyer adhere to their sides of the bargain.
Escrow is the equivalent of PayPal. First, you place an ad on eBay for a piece of burned toast that appears to have Elvis' face on it. Money form the winning bid will be held by PayPal. When the buyer gets delivery of the now infamous Elvis toast, Pay Pal releases the money to you.
In Washington State real estate, Escrow's responsibilities include:
• Acting as intermediary among various interested parties. This includes lenders and lien holders.
• Ensuring that the title to the property is marketable, i.e. is the seller legally entitled to sell the property?
• Facilitating the signing of all closing and lender documents.
• Receiving, holding and disbursing the funds involved in the sale including the buyers earnest money.
• Responsible for ensuring that the appropriate security documents are recorded with the County Recorder.
There are multiple escrow companies in the Seattle area but all must abide by the same code of conduct and state regulations. The seller's side will usually choose the escrow company but both the buyer and seller split the escrow fees.
The sequence of events leading to closing.
Below is a description of the sequence of events leading to closing, the majority of which are orchestrated by an Escrow company. They will ensure that the deal goes through and everyone leaves happy. The term "closing" basically means taking care of all the numerous steps that are required so that you the seller get paid for your home plus ensuring that the title to the property is passed to the buyer.
Escrow is critical in the smooth running of this process. Hopefully, after reading the list below you will have a better understanding of what you are getting for your money when paying for Escrow services. Obviously, you don't need to know all this stuff but it is worth a read.
Step 1: the purchase and sale agreement is signed by all parties and delivered to Escrow
Step 2: Preliminary Title Report is ordered from a Title Company by the your agent.
The purpose of this step is ensure that the you own a marketable title, i.e. do you have the authority to sell the home or are you trying to pull a fast one by selling your neighbor's house while they are on extended vacation. Title is proof of ownership, just like the title to your car.
Step 3: copies of the Title Report are sent to all parties along with letters of inquiry.
Letters of enquiry are sent to you and the buyer by Escrow requesting specific information relative to the transaction. For example, you would be asked if there is a mortgage(s) on the property and who the lender is.
Step 4: Escrow determines what payoffs are necessary to clear title
Step 5: loan documents from the buyer's lender are received and reviewed. Escrow is making sure that the buyer has secured a loan from a lender and that the loan will cover the purchase price.
Step 6: closing documents are prepared including a settlement statement.
Closing documents are the closing instructions prepared by Escrow based on information provided by all parties. Closing statements are detailed and itemizations (cash accounting) of the various transactions that are provided to all parties in the transaction.
Step 7: individual appointments are made with you the seller and the buyer to meet with the escrow agent.
In Washington State, the buyers and the sellers will meet with Escrow separately to sign a bunch of paperwork. In some other States, you might be sitting across the table from each other.
Step 8: the buyer's loan documents are signed and returned to the lender for funding approval.
The lender must approve the signed loan documents before funds are made available.
Step 9: Original Deed and Deed of Trust are sent to the County Recorder.
A deed is an instrument that is used to transfer title from one person to another.
Step 10: the document(s) are recorded with the County Recorder.
Step 11: funds needed to close are received from the lender and buyer.
The funds from the buyer would be earnest money (good faith deposit) and closing costs.
Step 12: funds are disbursed (distributed) to clear title, pay the seller, and closing costs.
Step 13: final Closing Statements are mailed out to the buyer and seller.
Step 14: Reconveyance is recorded when received from party(s) who are paid off.
When an obligation, such as a mortgage, that has been secured by a Deed of Trust and has been paid in full, a Reconveyance is recorded with the County to remove it from public record.
Step 15: and finally, the new owner's (the buyer) Title Policy is mailed out.
When does the buyer take possession (exchange)?
Closing and taking possession are two different stages although they can occur on the same day. Closing is signing all that paperwork in the Escrow office. Exchange is when the buyer gets the keys ito the home; the sellers have moved out and the buyers are free to move in.
The date on which the buyer takes possession will be part of the Purchase and Sale Agreement and hence is negotiable. Things to consider when setting the date, from your perspective might include whether you are also closing on a new home and need to move into the new home first so that you won't need to put all your stuff in storage or pay two mortgages.
Continue to Seller's step 7. Moving
Return to Seller's setp 5. It's show time.
