The title and escrow section of the contract is important because it sets forth the instructions for the title company who bears the responsibility for correctly accounting for all of the financial terms of the contract.
In addition, the title company is also provided some additional latitude to determine the dispensation of earnest money in a failed contract.
In general the following are the common risks associated with the Title and Escrow section of the purchase contract:
- Disputes over title/escrow company
- Failure to review requirements of the title commitment
- Failure to review schedule B
Section 3.a Lines 115-119
The contract itself is to be used as escrow instructions, and the escrow company is identified in this section
Discussion: Why is the buyer generally considered to be entitled to choose the title company? What happens if the seller insists on a particular title company?
Section 3.b Lines 120-122
The buyer will take title as determined before close of escrow. The buyer is advised that taking title may have significant legal, estate planning and tax consequences; therefore the buyer should obtain legal and tax advice.
Note: If Buyer is married and intends to take title as his/her sole and separate property, a disclaimer deed may be required.
Section 3.c Lines 123-132
This section instructs the Title Company to deliver a commitment for title insurance together with legible copies of all documents that will remain as exceptions to the title insurance. All documents are to be sent directly to the clients with copies sent to the broker’s agent.
The seller agrees to convey title by General Warranty Deed and to provide the best title policy available.
How long does the buyer have to review the commitment for title?
What is the difference between a General Warranty Deed and Special Warranty Deed?
What are the risks for licensees and brokers associate with failing to review the title commitment?
What are the risks for failing to properly review schedule B of the title commitment?
What are the buyer’s options if they have concerns about exceptions in schedule B?
Section 3.d Lines 133-142
The additional escrow instructions require the escrow company to:
- Furnish a notice of pending sale that contains the name and address of the buyer to any homeowners association in which the premises is located
- Deliver to the buyer and seller, a closing protection letter from the title insurer indemnifying the parties for any losses due to fraudulent acts or breach of escrow instructions by the escrow company if the title insurer is not acting as the title and escrow company.
- Modify its standards documents to the extent necessary to be remain consistent with the contract
- Allocate escrow company fees according to the contract
- Send copies of all notices and communications pertinent to the contract to the seller, buyer and brokers
- Provide broker access to information regarding the escrow
- Record the Affidavit of Disclosure at COE if applicable
Section 3.e Line 143 and Section 3.f Lines 144-148
Real Property taxes payable by the seller are prorated to close of escrow and are based on the latest tax information available.
Provides for the title company to interpret the contract and release the earnest money according to that interpretation. Provides indemnity language for the title company as it relates to the release of earnest money.
Section 3.g Lines 149-151
Close of escrow date is used as the peroration date for all assessments and fees that are not a lien unless otherwise indicated in the contract.
Section 3.h Lines 132-134
The amount of any assessment lien or bond including those charged by a special taxing district, such as a Community Facilities District, shall be prorated as of COE.