As a home buyer, finding that right home is both exciting and nerve-wracking. The list of requirements from your real estate agent, attorney, title company or mortgage broker may seem overwhelming. A lot can go wrong during the process, so it is important to understand the possible problems so you can protect yourself. The escrow process gives you time to inspect the property, read all disclosures, perform a title search, understand encumbrances and remedy any issues that may arise. Once your escrow account is opened, here are some of the most common things that can go wrong and how to avoid them.
1. Lending Problems
Issues that crop up in the underwriting process are probably the most common reason escrows fail to close. If the buyer makes a large credit purchase before closing, discovers additional debt, encounters difficulty providing required documents due to self-employment, or if interest rates increase and the borrower no longer qualifies, the deal may fall through.
To avoid unexpected lending issues, work with reputable title agents, escrow officers, and lending professionals. Heed their advice, and do not make any major financial changes or purchases during escrow.
2. Bank Delays
This issue often takes people by surprise. Bank wires sometimes take longer than expected to complete, but more commonly, banks impose transfer limits when moving large sums of money. Many people have a $10,000 per day transfer limit and not know it. This means that transferring the funds to your escrow account may not happen in a single day.
To avoid these issues, contact your bank early in the escrow process to discuss how to transfer your down payment, so you do not miss any escrow deadlines.
3. Property Inspection Defects and/or Final Walk Through
Another common escrow risk is the home inspection. If the seller has not done these prior to listing the house, a home inspection may turn up all sorts of issues, especially if the previous owners have lived there for a long time and have not made repairs. The inspection could find anything from termite damage or mold to rodents or a damaged roof. If the seller refuses to remedy these, the buyers might walk away.
To avoid surprises and delays with escrow, it is best for sellers to have home inspections done and major repairs addressed prior to listing the house. Buyers also need to do their own inspections and be prepared for problems.
4. Errors in Public Records
Everybody makes mistakes, but that does not mean you want to be paying hard cash for the mistakes of others. From a property title perspective, this is probably the most common issue. People sometimes make clerical errors—misspelling names, inverting address numbers, entering inaccurate square footage or getting the lot size wrong can all lead to property title and tax assessment issues down the road. Public record errors can affect the deed or survey of your property and cause undo financial strain in order to resolve them.
To avoid the impact of these errors, both buyers and sellers should purchase title insurance to protect themselves against these issues, which can become big problems without protection. Make sure to check with your real estate and title agent on this.
5. Unknown Liens
Prior owners of your property may not have kept meticulous records or may not have paid their property taxes. Whether you are buying or selling, you may not know that a contractor put a lien on the property in question, now causing a defective title. If it is a foreclosure property, there may be a third lien on the home from a private lender or some other party that nobody knew about.
Avoid this issue by running a title search during escrow to reveal any issues that need to be resolved. Obtaining title insurance can protect both buyer and seller against future claims. Finding a detail-oriented title agent can help.
6. Illegal Deeds
While the chain of title on your property may appear perfectly sound, it’s possible that a prior deed was conveyed illegally, for example, by entering into a contract with a minor, an incapacitated person or an undocumented immigrant without authority to sign. Any of these can cloud and cause a defective title. These instances may affect the enforceability of prior deeds, affecting prior (and possibly present) ownership.
Once again, to avoid this issue and protect your investment, do a title search and obtain insurance prior to closing escrow.
7. Missing Heirs
When people pass away, the ownership of his properties are often transferred to heirs. Sometimes heirs are missing at the time of death and turn up later, filing claims against your property years after it was sold. Other times, family members may contest the will for their own property rights. These scenarios can happen long after you have purchased the property and could affect your rights to the property.
Good title insurance will protect you from these situations.
Unfortunately, we do not live in a completely honest world. Forged and fabricated documents are not myths and unfortunately do happen. If documents pertaining to your homeownership have been forged, it could come back to endanger your status as a homeowner.
To protect your investment, perform a title search and obtain title insurance when buying or selling real estate.
9. Undiscovered Encumbrances
An encumbrance is a claim against a property by a party that is not the owner. An encumbrance can impact the transferability of the property and restrict its free use until the encumbrance is lifted. Encumbrances include liens, deed restrictions, easements, encroachments, and licenses.
Title checks can uncover other owners attached to your land. This will help you avoid unexpected issues.
10. Unknown Easements
An easement is a limited right to use another person’s land for a stated purpose. Examples of easements include the use of private roads and paths, or the use of a landowner’s property to lay railroad tracks or electrical wires. An unknown easement may prohibit you from using it as you would like, or could allow government agencies, businesses, or other parties to access all or portions of your property. While usually non-financial issues, easements can still affect your right to enjoy your property.
A comprehensive title search by your title agent during escrow should reveal any easements that owners are bound to respect.
11. Boundary Disputes
You may have seen several surveys of your property prior to purchasing, however, other surveys may exist that show differing boundaries. These happen more often with raw land and rural properties. But even when purchasing a home, you may not realize that the neighbor built his fence three feet onto the property you are considering until you are in escrow and inspecting its plat map, which is an illustration of legal divisions of land including boundary measurements. When your survey and your neighbor’s survey come into conflict, property boundary issues will come to the forefront. This could result in shared ownership of the conflicting property.
Title and escrow companies provide these as part of the due diligence process, which is why it’s essential to work with a reputable title agent.
12. False Impersonation of Previous Owner
Identity theft is on the rise, and some thieves will impersonate a property owner and illegally transfer a property title. This happens more often when the owner has a common name and can occur anywhere along the chain of title, causing your title to the property to fall through and become void.
This is another good reason to obtain title insurance.
13. Wire Fraud
This is a relatively recent development as thieves become more and more proficient at cybercrime. Wire fraud typically involves hacking into the email account of a party to the transaction and providing fraudulent wiring instructions that end up in the bank account of the thief. Purchasing a property is big investment of time and money, so it is important to take every precaution you can.
The best way to prevent being victim to wire fraud is to call and confirm any wiring instructions received with the appropriate party.
Is Your Escrow Company Looking Out for You?
Escrow is not a simple process. Neither is examining a property title. That is why professionals are involved to help along the way to closing on a deal. When choosing an escrow company there can be many important factors to evaluate. Fees, location, staff and even recommendations from friends and colleagues are all things to consider. With Citrus Heritage Escrow by your side, you can rest assured that when you receive your settlement check, you have gained the maximum benefit from your home sale or purchase.
Call us today with any questions or concerns. Our professional Escrow Agents will help you through this exciting yet confusing process. (951) 335-7200