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ESCROW 190 (Escrow I)
Spring Term 2016
Got coffee?
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What do ya know?
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Purchase and Sale Agreements
 From
the Escrow Agent’s Point of View
 Serves
as the primary set of instructions for the Escrow
Agent
 Escrow Agent must know how to read and understand
the Purchase and Sale Agreement
 The Purchase and Sale Agreement is a contract and
must contain all the elements of a contract in order to
be valid and binding.
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Elements of a Valid Contract
 Capacity
 All
parties must have legal capacity to enter into a
contract.
 This means that the parties…
 Must be at least 18 years of age, and
 Must by competent (legally sane)
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Elements of a Valid Contract
Mutual
 Must
Consent
clearly express willingness of the person
making the offer to contract, and the offer must be
accepted
 Negotiations and/or counteroffers are common, but
there is no contract until all parties accept the
contract
 The offer and the final contract must be definite and
certain in its terms or can be deemed
unenforceable
 Acceptance of the contract must be free of negative
influences: Fraud, undue influence, duress or
menace
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Elements of a Valid Contract
 Lawful
Objective
 The
purpose and the consideration for the contract
must be lawful
 Consideration
 To
be valid there must be a form of consideration.
 Consideration is something of value: Money, goods,
services, promises to provide money goods or
services)
 It can also be a promise NOT to do or NOT to
provide something.
 Consideration must be a benefit to the party
receiving it or a detriment to the party offering it.
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Elements of a Valid Contract
In Writing
 Washington
State Statutes of Frauds require that all
contracts in real estate transactions be in writing.
 Verbal agreements are difficult (darn near
impossible) to enforce
 Statute applies to any agreement to convey real
property, assume debts of another, or employ an
agent for compensation to sell, buy, lease or
exchange real property
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Elements of a Valid Contract
The Written
 Doesn’t
Agreement
need to be in one document but it must
have these elements:
 Clearly identifies the subject matter of the
contract;
 Indicates an agreement between the parties and
its essential terms;
 Signed by all parties who are bound by the
contract
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Terms In a Typical Purchase and
Sale Contract
A
typical Purchase and Sale Agreement (P&S) will contain
the following:
 Date of offer
 The Parties
 Names of Buyer and Seller
 Legal status – Married? Single?
 Spouses may need to sign or sign off depending on
the transaction
 Corporations, partnerships, trusts and estates
 Escrow needs to know entity type to ensure
authorized parties are signing on behalf of the entity
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Terms In a Typical Purchase and
Sale Contract
 Amount
and Form of Earnest Money
 Earnest Money is the deposit a purchaser puts down to
show they are acting in good faith. It gives the seller
recourse if the purchaser fails to perform.
 Check, cash or note
 Held by selling or listing agent, escrow, or seller
 Escrow and agents will generally hold funds in a noninterest bearing Trust account unless directed to place
in an interest bearing account
 Interest bearing accounts are for significant deposits
($10k or more)
 Buyer and seller must provide written instruction to do
so and specify who gets the interest
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Terms In a Typical Purchase and
Sale Contract
 Earnest
Money – What happens if no closing?
 If purchaser refuses to complete the transaction
without legal justification, and all contingencies
have been met, the seller can claim the earnest
money as liquidated damages for having taken the
property off the market
 Seller may also opt to sue
 In the event of a failure to close, what the parties can
and cannot do depends on their agreement
 Many P&S Agreements contain language limiting
the parties’ rights to earnest money, and the seller
may be entitled to the earnest money even with no
actual damages
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Terms In a Typical Purchase and
Sale Contract
 Escrow
Agents and LPOs cannot give legal
advice
 They cannot get involved; they cannot take
sides or give advice.
 They can refer the parties to an attorney of
their choosing.
 No money from the file is disbursed until
the dispute is settled.
 No resolution = Escrow interpleads the
funds to the court and are relieved of
liability
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Terms In a Typical Purchase and
Sale Contract
 Description
of the property
 In contract law, the item contracted for
must be accurately described.
 An agreement to buy and sell real estate is
only enforceable if it contains a Metes and
Bounds, Lot and Block or Government Lot
Legal Description
 Address is helpful, but alone is not a valid
and enforceable description of property.
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Mr. Seller owns a house and two lots which are side-by-side. The
Purchase and Sale Agreement describes the property by address
only. How does the Escrow Agent determine whether one lot or
both lots are being sold?
Ask the seller and the seller may say he intended to sell only one of
the lots. If the purchaser had paid full price, he would have
included both lots, but when he accepted the lower offer he meant
to sell only one of the lots.
Ask the purchaser and the purchaser may say the seller told him he
was selling two lots (which the seller may have said prior to the
purchaser’s low offer).
What we have is not a Purchase and Sale Agreement, but a Purchase
and Sale Dis-Agreement. If closed, this might also be called a
lawsuit.
Hopefully, it will be a lawsuit narrowly avoided.
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Example: Lot & Block
 Lot
1, PIERCE COUNTY SHORT PLAT NO. 8710210358,
according to Plat recorded October 21, 1987, in Pierce
County, Washington.
FACTOID:
This is a recorded plat system, which refers to specific parcels of land
identified by a lot number or letter and the block, or subdivision plat,
in which the lot is located. The block itself is located by using either
the metes and bounds system or the rectangular survey system.
To identify a particular parcel of land, the lot-and-block system
specifies the lot and block number, the name or number of the
subdivision plat, and the name of the county and state.
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Example: Metes and Bounds
FACTOID:
Metes-and-bounds descriptions were used in the
original 13 colonies before the rectangular survey
system was developed.
A metes-and-bounds description uses lengths and
angles of boundaries starting at the point of
beginning (POB). A mete is a boundary line and
bounds is the area enclosed by the metes — hence,
the name.
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Example: Metes and Bounds
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Tax Parcel Numbers

A property described by a tax parcel number is one way to identify real
property

But its best practice for the Escrow Agent to require that the Purchase
and Sale agreement be amended to include a proper legal description

Why?

What if the County Tax Assessor’s records are incorrect?

What if the seller in the example owned two lots side by side and had
one tax parcel number for both?

What if the seller and purchaser had agreed verbally to sell one lot?

How would the Escrow Agent know?
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What if the Escrow Agent prepared the deed based on the tax parcel
number and had it signed and recorded?
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
Cranky seller: He no longer has title to the lot he intended to keep
What if purchase was not scrupulous and discovered he was in title to
both lots and sold it before anyone knew what happened?
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Circling back to Legal
Descriptions:

If there is no legal description attached to the Purchase and Sale
Agreement, the Escrow Agent must request it
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The Escrow Agent cannot insert or correct a legal description on a
Purchase and Sale Agreement

The LPO cannot prepare a deed based on the legal description
provided by title

P& S Agreements that contain verbiage like the examples below are
not sufficient as legal descriptions:

“to be attached later”
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“to be attached in escrow/closing”
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“as shown on the title commitment to be issued”
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Consideration

Without consideration, a contract is not binding

The most common form of consideration for real estate is money
(“sales price”)

Other forms of consideration may include:

Assumed loan balances
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Exchange of other property
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Work performed
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Contingencies

Conditions that must be met before a real estate transaction closes

Parties can void the transaction without the purchaser forfeiting earnest
money of contingencies cannot be met

Escrow needs to know if all contingencies have been met
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Escrow needs to know if contingencies cost money, who will be paying,
if payment goes through escrow or outside of closing.

Contingency examples:
 Purchaser needs to qualify for financing
 Purchase needs to sell another home or property to have money for
closing
 Seller may need to make repairs or complete construction
 Do other parties require inspections?
 Can the seller convey clear title?
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Amount of down payment or
Amount of new loan
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Typically included in the Purchase and Sale Agreement

If transaction dependent on the buyer qualifying for a loan, how
large of a loan they need will make a difference in the buyers
ability to complete the purchase
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If seller has agreed to pay closing costs, they need to know the
type of loan
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How the balance will be paid
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Will the purchaser be obtaining a new loan?
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Is the seller providing financing?
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Is their an institutional lender involved?
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If so, what type of loan will be obtained?
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Assumptions

Assuming an existing loan has special considerations

Original borrower may still be liable
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Original lender may require the purchase qualify if they are to
release the original borrower’s liability
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Escrow must obtain proper release before closing
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Seller Financing
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Parties must use a Real Estate Contract, Note and Deed of Trust or a
Note and Mortgage
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Copies of the forms to be used must be attached to the Purchase
and Sale Agreement.
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If not, most LPOs will provide blank copies of LPO Boardapproved forms they are authorized to prepare
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Escrow will include instructions to the purchaser and seller to
select the forms they wish to use
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Purchase and seller will initial the documents to signify
acceptance, attached them to the purchase and sale agreement
and return to Escrow Agent.
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If the forms selected are not LPO Board approved, the Escrow
Agent will advise the parties to complete the forms themselves,
submit the forms to their legal counsel for preparation or
choose approved LPO forms
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Seller Financing
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Escrow Agent determines whether all terms are clearly delineated
and prepares the documents accordingly.
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Terms must be provided to the Escrow Agent in writing such as:
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Interest rate
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Payment amount (or method by which the Escrow Agent can
accurately calculate the payment)
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Due date of payments
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Is there an early cash-out provision or acceleration clause?
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Are there pre-payment penalties?
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Late penalties?
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Default interest rate?
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Due on sale clause?
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Personal property

Most Purchase and Sale agreements contain standard verbiage
regarding fixtures and/or appliances
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Additional items included in the sale must be in the agreement
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Escrow Agent must determine if a Bill of Sale is necessary
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Is a price or value established for additional items?
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Sales or Use Tax must be paid on personal property
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Purchaser pays the tax unless specified otherwise in the
agreement.
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Title Insurance
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Most Escrow Agents in Washington will not close a transaction
without title insurance
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Purchase and Sale Agreement should address the type of policies to
be obtained, who will pay for which policy, and what the condition
of title should be after closing
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Generally easements, covenants, conditions and restrictions
(CC&Rs) of record remain on title. Purchase has the right to approve
them
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Generally, most monetary encumbrances will be paid off at closing
from the seller’s proceeds; the Escrow Agent is responsible for
obtaining/verifying releases.
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Closing costs
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Purchase and Sale Agreements and/or Addenda must state which
party will pay specific costs.
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Common closing costs include:
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Real estate commissions
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Costs associated to loans
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Hazard insurance
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Real estate excise tax
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Escrow fees
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Title insurance
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County recording fees
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Homeowner Association Dues
(HOA Dues) and Transfer Fees
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If the property is a condominium or part of a homeowner’s
association, the Purchase and Sale Agreement should disclose any
assessments or fees owing
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As a matter of best practice, Escrow doesn’t rely on the agreement
for this information.
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Escrow will contact the HOA directly for written confirmation of all
fees, assessments and/or transfer fees, and:
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Obtain specific instruction from the purchaser and seller as to which
fees will be prorated and which will be paid by the purchaser or the
seller
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Leased equipment
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Purchase and sale agreement needs to specify if there is leased
equipment on the property.
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The agreement must specify if the purchaser is assuming the lease,
or if the seller will acquire title to the leased equipment by paying
the lease off at closing
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Common leased equipment includes:
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Furnace
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Hot water heater
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Gas conversion burner
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Date of closing
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Time is of the essence in real estate closings
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There must be a date by which the parties must perform
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A transaction is voidable (not automatically) if not closed by the
date agreed upon
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If the closing date is unreasonable, the Escrow Agent’s best
practice is to get it resolved before accepting the file (i.e. title has
not been ordered and the closing date is tomorrow – it happens!!)
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Pro-rations (Math!)
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To pro-rate simply means to divide something proportionately
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What date is to be used for the items being pro-rated?
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It’s custom to use the closing date
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Sometimes its based on date of possession
In real estate, pro-rations refer to the division of items between the
purchaser and seller, such as:
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Real estate taxes
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Homeowner association dues
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Rents
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Interest on assumed loans
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Possession date
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Generally not an Escrow Agent issue but its good to know what the
agreement says because the parties can be sensitive about move
dates 
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Possession is commonly show in the agreement as:
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“On closing”
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“Closing plus 3 days”
If possession occurs later than 3 days after closing, there should be
a rental agreement between the parties, but the Escrow Agent
cannot offer advice
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Signature of all parties

No contract is enforceable if it’s not signed by all parties.
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Generally, it is acceptable to rely on fax, email and photocopies of
the Purchase and Sale agreement
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Electronic signatures are now acceptable for signing the Purchase
and Sale Agreement
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Unless the purchaser knows the offer has been accepted, they can
back out of the transaction
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Therefore, most agreements have a place for the purchaser to
acknowledge receipt of the seller’s acceptance of the offer
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Addresses and contact information
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The contract is valid without this information
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Real estate agents must be willing to provide the Escrow Agent with
contact information if they are expected to close the transaction
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Preparation of Addenda to the
Purchase and Sale Agreement
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Real estate agents, or clients buying and selling on their own, may
ask Escrow Agent to prepare addenda to the Purchase and Sale
Agreement.
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As a neutral party to the transaction, the Escrow Agent must stay out
of the negotiation. Period.
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An Escrow Agent preparing addenda to the Purchase and Sale
Agreement is engaging in the unauthorized practice of law in the
eyes of the Courts of Washington.
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Only attorneys, real estate agents, and the principals themselves are
permitted to prepare the Purchase and Sale Agreement and
Addenda in the State of Washington