Real Estate Title and Escrow Terms

Depending on the State in which you reside, real estate law is different. In Arizona for example, Title Companies participate in a real estate transaction. In Ohio, and even Canada, the real property transaction is serviced by an Attorney. The Title Company or Attorney act as a “neutral” or “third-party” to the buyer or seller. Below are the most commonly used Title and Escrow terms used in a real estate transaction.

Escrow account – A separate account set up by the lender or escrow agent so that the lender can meet certain financial obligations related to the mortgage on behalf of the borrower. The borrower contributes to the escrow account monthly, as a portion of the mortgage payment is set aside for this account. Expenses funded by the escrow account include homeowners insurance and property taxes.

Closing of Escrow – The final act in a real property transaction where the title of the property transfers from seller to buyer.

Real Estate Settlement Procedures Act (RESPA) – A federal statute, designed to protect consumers, ordering disclosure of specific estimated settlement costs in the sale of a home or residential property, which a federally insured lender intends to finance. Lenders are required by law to disclose this information once after the loan application has been submitted and again prior to or at the time of the closing.

Title – Also known as a “deed”. A title is a legal term that confirms ownership of real property and an owner’s right to claim the property. It is recorded and held on file in a county recorder’s office.

Title Company – A business entity that acts as a neutral or third party to a real estate transaction. They conduct a thorough examination of real property titles. They report these findings for the purposes of ensuring that the title is legally free and clear of liens and encumbrances. The title company also provides title insurance to protect the property owner’s future losses caused by such situations as unknown title defects or prior claims against the property.

Title Insurance – A policy that indemnifies the lender and the homeowner against title defects. It also insures any possible claims against the property title that were not found in the title search.

Title search – An in-depth review of the public records and court actions involving a real property title. It ensures that the seller has the legal right to sell and transfer ownership of the property. A title search reveals the names of owners in the chain of title and other applicable information including any encumbrances, liens, and claims that may affect its ownership. These can include any unpaid claims, liens, unknown heirs, and overdue special assessments.

Trustee – A neutral party who is entrusted with the legal title to a property to administrate it on behalf of another party.

Whether the real estate transaction is serviced by a Title Company or Attorney, there are terms every buyer and seller needs to be acquainted with. Understanding and becoming familiar with these Title and Escrow terms will assure a smoother transaction for all parties concerned.