Things that can go wrong during escrow from buyers, sellers, and lenders.
For most people, the biggest financial decision in their life comes when buying or selling a home. To obtain a smooth escrow process, solve possible problems beforehand.
Things that can go Wrong during Escrow
Sellers and buyers often find the escrow process a little mysterious and tedious. A large responsibility lays on the escrow officer’s shoulders. Protecting funds, following written instructions, handling lots of paperwork, along with the details of the purchase to protect all parties.
Once your property goes into “escrow” knowing a few situations affecting escrow become important. Some things which challenge successful escrows:
Problems with the Seller
Problem with the Title
Often, after the purchase agreement signed by both parties the escrow officer performs a title search only to discover a problem with the title. A contractor’s lien, an IRS tax lien, or a pending lawsuit against the property affects the ability to sell.
Solution: Discover this problem ahead of time by obtaining a title report when listing the house or applying for a loan using the property as collateral. Read the preliminary title report and if problems exist contact the seller to fix them.
Besides liens, problems with the title include questions about ownership. Maybe the seller thinks he can sell it without getting approval from co-owners like a spouse or partners? Or, the property ownership is in the name of a trust or a corporation who needs to sell it, not the seller.
Problems with the House
Home Inspection Reveals Serious Problems with the House
Normally, appraisals and home inspections occur during the escrow process. Serious termite damage kills transactions. Also, a low appraisal forces the lender to reject the mortgage application.
A home inspection involves hiring a certified professional to go through the home top to bottom. The inspector looks at the foundation, crawl spaces, attic, gutters, roof and more.
Problems like termite damage or poor condition of the structure allow buyers to back out of the transaction. Even less serious problems like air conditioning, fireplace, plumbing, or water heater allow the buyer to demand the seller to fix them before proceeding.
Solution: The seller either fix all the problems, or negotiates a price reduction so the buyer fixes them after closing, or the buyer walks away.
Problems with the Buyer
The Buyer (Borrower) makes a Big Purchase during Escrow
When buyers apply for a mortgage loan they list all their debts. During escrow, if a buyer purchases a new car this may cause the lender to reject the mortgage.
That’s because the maximum mortgage amount from the lender depends upon the borrower’s debt-to-income ratio. In other words, a formula indicating an affordable amount for the buyer based on debt and income. Raising the debt during escrow changes the formula. This leads to denial of the mortgage application.
The Buyer No Longer Qualifies for a Loan
When a buyer borrows from a bank or a credit union an initial pre-approved loan amount qualifies the buyer. However, during the escrow process circumstances like an interest rate rise may end up making the buyer unable to pay the new larger monthly loan payments.
In addition, if the buyer loses his/her job the lack of income results in the borrower not qualifying for the mortgage.
Sadly, no solutions exist for these types of problems.
Problems with Documents
Errors in documents occur often during the escrow process. Simple errors like a transposed address number or a misspelled name cause delays. In addition, more serious problems arise like missing pages or an incorrect loan amount.
Prevention requires previewing everything. Every piece of paper requires reviewing. Especially with loan documents.
The law requires borrowers (buyers) to receive Loan Estimate and Closing Disclosure forms at least three days before the closing. Buyers need the time to look at every page to spot any mistakes. The sooner the better to fix such errors.
Solution: Double checking the interest rates, loan and down payment amounts, personal information, and even spelling become very important during escrow.
Problems with Cash Flow
Buyers need to check with their bank online or in person to verify that the correct amount of funds for the closing exist before the closing. A bank transfer to the escrow company requires at least a couple of business days in advance of the closing to arrive on time.
Solution: The buyer brings a cashier or certified check to the closing. Otherwise, the buyer should make sure a bank transfer arrives a couple of business days in advance of the closing. Buyers not knowing the exact amount can transfer enough money beforehand knowing they will receive a refund later.
Problems with the Walk-Through
Shortly before closing, the buyer does a final walk-through of the home. Problems like missing appliances, furniture, or fixtures included in the purchase are missing. Or, the seller damaged the walls or floors ripping out carpeting and fixtures.
Solution: Ask the agent (who should attend the final walk-through) to contact the listing agent or seller to fix the problems or the closing won’t occur.
- Negotiate with the seller to delay closing until all problems get fixed; or
- The seller agrees to pay more at closing to pay for the estimated expenses the buyer’s contractor asks for; or
- Setting aside the appropriate amount of funds from the seller’s proceeds placed in escrow until the buyer completes the repairs.
Problems with the Lender
At times, while knowing the closing date approaches, the lender fails to communicate a problem with the mortgage processing. In hot real estate markets lenders often get overworked. Finding out too close to the closing means delays.
Prevention requires communicating with the lender with enough time before closing to spot and fix problems on time.
Solution: Missing documents, misspellings, information errors caught in time and resolved means no delays in closing.
In addition, a weekly check-in to verify the lender received pending documents until the file is complete.
Also, once the lender says everything is in order make sure the escrow officer received them.
Choose an Experienced Escrow Company
Things that can go wrong during escrow mentioned above makes selecting an experienced escrow company essential.
OpenEscrowNow provides knowledgeable escrow experts. This includes our escrow officers and customer service staff and everyone between. We are the best at what we do.
Our Escrow Services: We handle escrows for residential and commercial markets and everything in between. Real estate agents, buyers, and sellers throughout California use our services. That’s right, our team serves you and your clients from San Diego and all parts of California.
Our unique turn-key Virtual Escrow services mean avoiding long trips (or even short ones) to our office for closings. We send one of our escrow experts to you. Wherever you are, we come to you. Expert escrow services at a convenient location you choose.
Use our “Document Hunters” to help you find missing documents before the closing.
Our “Virtual Escrow Platform” makes life easier for you and your clients. Enjoy faster response times with smooth closings and on-demand support.
Contact Us no matter where you are in California.
Steven Rich, MBA – Guest Blogger
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