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 owners 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, and 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.
Commitment 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 search. It sets forth 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:
- Make certain the ownership vesting is correct by comparing the names on the commitment to those on your Deed.
- Review the informational notes for important property facts.
- Carefully review the exceptions: Bonds, deeds of trust, current taxes, CC&R’s and easements.
Explanation of Title Commitment
This explanation may help you understand the contents of the Title Commitment you receive from the Title Company.
This is the information submitted to the Title Department by the escrow officer. It contains the basic information given to us by the Buyer or Realtor, such as the legal description of the property, sales price, loan amount, lender, name and marital status of Buyer and Seller.
The Schedule B “exceptions” are items which are tied to the subject property. These include Covenants, Conditions and Restrictions (CC&Rs), easements, homeowners association by-laws, leases and other items which will remain of record and transfer with the property. They are referred to as “exceptions” because the Buyer will receive a clear title â€œexceptâ€ the Buyerâ€™s rights will be subject to conditions in the CC&Rs, recorded easements, etc. The Buyer is asked to sign a receipt for the Schedule B documents which state the Buyer has read and accepts the contents.
These are items that the title company needs to delete and/or record in order to provide a clear title to the property. Items that need to be addressed include:
- Current Property-Tax Status,
- Any assessments that are owed such as those for a homeowners association,
- Any encumbrances (or liens) on the property.
Sometimes items show up against a property because another person has a name similar to an involved party. This is one reason the title company asks for an Identify Statement, to determine if items are inaccurate and can be deleted.
Note:This is merely information given to the title company from the County Recorder’s Office that specifies the proper size, margins and print type to be used on the documents to be recorded.
What is 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:
- Accept executed contract and issue earnest money receipt
- Request a commitment for title insurance (shows requirements for issuance of a title policy)
- Order payoff/assumption statements from existing lender(s)
- Prorate taxes and insurance upon instructions from the seller and buyer
- Accept hazard insurance policy, inspection reports, and relevant bills
- Compute settlement figures
- Assist the buyer and seller when signing documents
- Record and appropriate documents with the county recorder
- Disburse final documents and money on the basis of mutual instructions
The seller’s loan(s) will be paid off during the escrow process unless the buyer is assuming the loan(s). The seller will need to furnish the following information to the escrow officer so the loan payoff demands can be ordered and insure the loan(s) will be paid off correctly during the escrow.
- Name of lender(s)
- Loan number(s)
- Lender(s) address and telephone numbers
- Homeowner’s Association information if necessary
Ways to Take Title in Arizona
Arizona is a community property state. Property acquired by a husband and wife is presumed to be community property unless legally specified otherwise. Parties may choose how they wish to hold title. Each method of taking title has certain legal and tax consequences and you are encouraged to consult an attorney or other qualified professional for a recommendation based on your specific circumstances.
- Community Property
- Community Property with Right of Survivorship
- Joint Tenancy with Right of Survivorship
- Tenancy in Common
- Sole and Separate
Escrow instructions define all the terms and conditions that must occur before the transaction can be finalized. The escrow instructions represent your written statement to the escrow holder protecting your interests and specify the disposition of the sales proceeds and the conditions under which the deed may be recorded in favor of the buyer. In most cases, the escrow instructions will be contained within the purchase contract.
A Warranty Deed is the document that legally transfers title of the property to the new owner. The seller must sign the deed in front of a notary public (generally, an escrow officer). Proper identification is required when signing. The Deed is recorded when escrow closes.
Your appointment for signing
The escrow officer will contact you to arrange an appointment for you to sign all the necessary documents. Your appointment will take approximately 45 minutes. Your signature will need to be notarized so make certain to bring either a passport or current driver’s license for identification purposes.
After Your Signing Appointment
After you and the buyer have signed all the necessary instructions and documents, the escrow officer will return them to the lender for a final review. Following the review, which usually occurs within a day or so, the lender is ready to fund the buyer’s loan and advises the escrow officer so that necessary work can be completed to record the documents and “close the escrow”.
Closing Escrow: Recording of the deed signifies legal transfer of title to the property from the seller to the buyer and is the culmination of the transaction. Usually the Deed of Trust are recorded within one working day of the escrow’s receipt of loan funds. This completes the transaction and signifies the “close of escrow”.
Your Proceeds: A final settlement statement and check for any proceeds due you will be available the day the sale is completed, documents are recorded and the escrow is closed.
After Escrow Closes
After the loan has been finalized, the documents signed and recorded, and the financial settlement completed, there are still a few items that must be attended to in order to officially complete the transaction.
Your existing loan is paid in full from escrow. Your lender is required by law to issue a full release and reconveyance of their loan. As soon as this Deed of Reconveyance, removing the previous Deed of Trust is received, it is recorded and the original is returned to you. This process can sometimes take several weeks.
Finally, in some cases, the escrow officer will be instructed to hold funds in escrow to pay obligations that may not be completed until after escrow closes. For example, funds might be set aside for termite repair work, or correction of a structural problem. Upon completion of the project and receipt of the proper documentation and releases, the escrow officer will disburse the reserved funds as appropriate.