TITLE INSURANCE

If you are new to Arizona or have had little experience with real estate purchases, the following information may be helpful to you.  Arizona is similar to many of the Western states in the use of title insurance and escrow services for real estate transactions.  Title Insurance is very important to a real estate purchases.  Title Insurance companies in Arizona close real estate purchases by providing escrow services.

Escrow is a neutral depository for funds and documents needed to complete a real estate purchase.  When a  Buyer and Seller have agreed to a purchase contract, the earnest money and a copy of the contract are deposited in escrow.  The title company then begins a search of the title to the property and provides a commitment to insure the title under certain conditions.  When all of the conditions of the purchase contract and the title commitment have been met, close of escrow can take place.

The closing is a very simple process of the Buyer(s) meeting with the escrow officer to sign their final documents and deposit their closing funds.  Generally, the Seller will not be present as they have typically completed their obligations prior to this closing meeting with the Buyer(s).  When the escrow officer determines that all the terms of the purchase contract are fulfilled, the documents will be sent to the County for recording.  The recording actually constitutes the close of escrow.

In Arizona, real estate agents are authorized to write purchase contracts and escrow holders are authorized to complete standard forms to consummate real estate purchases.  As a result, attorneys are not commonly engaged in real estate closings.  Real estate professionals used in Arizona transactions typically include your RealtorŪ, your loan officer and your escrow officer.  It is important, however, that you consult with an attorney if your transaction is complex or if you have questions or doubts you feel aren't adequately addressed by others on your team.


ESCROW

What is an Escrow?
An escrow is a neutral, independent account created to process a transaction such as a sale or loan.  It protects the interests of all parties involved and favors neither the buyer nor seller.  An escrow is created after the Purchase Contract is executed and becomes the depository for all monies, instructions and documents pertaining to the transaction.

How does the Escrow process work?
The escrow officer follows instructions based on the written terms of your Purchase Contract and the lender's requirements for closing.  The escrow officer secures the satisfaction of all requirements of the title commitment.  Escrow cannot be completed until all terms and conditions have been met.

Opening an Escrow
Either real estate agent may open escrow as soon as the Purchase Contract is executed by placing the initial deposit (earnest money) in an escrow account at the Title Company.

Information you need to provide
You will be asked to complete a Statement of Identity for the Title Company.  This is a confidential tool used to correctly identify all parties involved in the transaction.

Title companies and escrow officers
Title companies in Arizona offer escrow services.  An escrow officer is employed by the title company to handle the escrow transaction.  The duties of the escrow officer are as follows:

TITLE INSURANCE

In Arizona, most real estate transactions are closed with a title insurance policy.  Many erroneously assume that possession of the deed to the property is all they need to prove ownership.  This is not true.  Unknown title defects may attach to real estate.  A property owner's greatest protection is a policy of title insurance.

What is Title Insurance?
It is a contract of indemnity and guarantees that the title is as reported and, if not reported and the owner is damaged, the title policy covers the insured for their loss up to the amount of the policy.

Title insurance assures owners they are acquiring marketable title.  Title insurance is designed to eliminate risk or loss caused by defects in title.  Traditional title insurance provides coverage only for title problems that were in existence at the time the policy was issued.  More extensive coverage is now available through an ALTA residential policy (the Plus Policy).

The Title Search
Title companies work to eliminate risks by performing a search of public records or through the title company's own plant.  The search consists of public records, laws and court decisions pertaining to the property to determine the current recorded ownership, any recorded liens or encumbrances or any other matters of record that could affect the title to the property.  When a title search is complete, the Title Company issues a commitment detailing the matters affecting title and the requirements for issuance of a policy.

Commitments for Title Insurance
The commitment for title insurance (often called a prelim) indicates all the items or situations that pertain to the subject property.  It is a detailed report of findings from a title company serach.  It sets for the the current status of the property ownership, matters affecting the title that will appear as exceptions or exclusions to the policy, and requirements for issuing a policy.  When you receive the prelim, you should review it carefully, paying attention to the sections identified below:

WHY TITLE INSURANCE?

Why do you need Title Insurance?
To protect the most important investment you'll ever make - the investment in your home.  What if some matter arises affecting the past ownership of your property?  You could have to assume your own legal defense.  The title to your home, along with all your equity, could be lost.

How do you learn about what claims there are against the property?
Title insurance is issued after a search of the public records.  Matters found, such as unpaid taxes or mortgages and other recorded documents that can affect the title, are reported to you so that these matters can be corrected before you buy.

What protection does Title Insurance provide against defects and hidden risks?
Title insurance will pay for defending against a lawsuit attacking your title, and if the claim is valid, will either resolve title problems or pay the insured's losses.  For a one-time premium, an owner's title insurance policy remains in effect as long as you or your heirs retain an interest in the property or have an obligation under a warranty in any conveyance of it.  By providing expertise in risk elimination at the time of purchase against hidden risks, your title insurer protects against title loss.

What does Title Insurance protect against?
In addition to recorded matters that may affect the title, here are just a few of the most common hidden risks that can cause a loss of title or create an encumbrance on title:

What does this mean to me?
The peace of mind in knowing that the investment you've made in your home is a safe one. 

PLUS POLICY

The ALTA-Residential Title Insurance (ALTA-R) provides enhanced coverage concerning access, location, encroachments, violations of restrictions, subdivision law, building permit requirements, surface entry for water or mineral extraction, nad supplemental taxes.  It also provides important Post Policy protections from forgery, encroachment and conveyance to a trust.  The Plus coverage additionally offers the highest appreciation coverage, automatically increasing the value of your policy to 150% during the first five years you own your new home.

The Plus Policy is available for an owner-occupied, one-to-four family residence or condominium unit and is added as items 15 to 26 to the ALTA-R (6-1-87).  Some of the covered risks are subject to a separate deductible amount (1%) and to a separate maximum dollar limit ($10,000 - $25,000).  The following additional protections are added to Covered Title Risks, items 1-14, in the ALTA-R through the Plus coverage.

About one in six Homeowners place their property in a Title Holding Trust for estate planning purposes.  If ou select the Plus Policy, your title insurance automatically continues to cover the property held in trust.  Should you choose not to obtain the Plus Policy and utilize a trust, you should discuss with your legal or financial advisor whether a CLTA Endorsement 107.9, is recommended.

WAYS TO TAKE TITLE IN ARIZONA

Note:  Arizona is a community property state.  Property acquired by a husband and a wife is presumed to be community property unless legally specified otherwise.  Title may be held as "Sole and Separate".  If a married person acquires title as sole and separate, his or her spouse must execute a disclaimer deed to avoid the presumption of community property.  Parties may choose to hold title in the name of an entity; e.g., a corporation, a limited liability company, a partnership (general or limited), or a trust.  Each method of taking title has certain significant legal and tax consequences.  Therefore, you are encouraged to obtain advice from an attorney or other qualified professional.

Community Property

Joint Tenancy with the Right of Survivorship

Community Property with the Right of Survivorship

Tenants in Common

THE BUYING PROCESS

RealtorŪ Constulation

Loan Qualification

Home Shopping

Find "Ideal" Home and Make Offer

Present and Negotiate Offer

Open Escrow

Inspections Insp_page.gif (4165 bytes)   and DisclosuresDiscls_page.gif (4147 bytes) 

Resolve Issues, if any

Submit Loan Application

Underwriting and Appraisal 

Loan Commitment

Review Title

Remove Contingencies

Homeowners Insurance

Sign Documents

Loan Funding

Close of Escrow  

LIFE OF AN ESCROW

Open Escrow

Order commitment, payoff and assumption statements

Prepare instructions and documents

Update parties on escrow status

Coordinate closing with Buyer's new lender

Prepare pre-audit settlement statement

Collect buyer's funds for closing

Send exeucted loan documents to lender

Prepare recording package

Receive new loan funds

Record documents, prepare statements and disburse funds

Forward final packages to all interested parties

Information above provided by Security Title Agency (www.securitytitle.com)

 

   
  
Teri@BoulterProperties.com