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ESCROW 190 (Escrow I)
Spring Term 2016
Day 7
+ Housekeeping:
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Midterm is due this morning! 
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Ch: 8 – Closing the file
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Closing is the most important part of the transaction!
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Closing is final and can be undone with great difficulty
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Documents that are recorded cannot be withdrawn
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Title has passed to the purchaser
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New lender’s loan (if there is one) is secured as a lien against the
property
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Title is obligated to issue the Title Insurance Policies
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Escrow is obligated to make disburse all funds per the settlement
statement
+ Pre-Closing Responsibilities:
Before recording and disbursement
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The Escrow Agent must address many matters
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If Purchaser is obtaining financing through a mortgage lender, the
Escrow Agent must coordinate with the lender for disbursement
of loan proceeds
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Documents requiring recording need to be sent to the title
company
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Deed(s)
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Deed of Trust
Closing deposits must be received from all parties and be good
funds
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Coordinating with the Lender
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Preparing the “Funding Package”
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Original docs or “Table funding”?
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Docs that are included in the package are…
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Lenders often require 24 hours to review signed docs before
releasing loan funds (all lenders are different in requirements)
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Funder reviews the signed loan package
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What are funding conditions? …
Same day closing challenges
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Coordinating with the Title
Company
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Preparing the Title Package (“Recording Package”)
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Once the signed docs are sent to the lender, escrow must get the
title documents ready for recording and transmit them to the title
company
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All recordable docs must be complete:
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Legal description, names, vesting and exhibits are all correct
and attached to the recordable documents;
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Documents are properly notarized and notary seal is legible
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Excise Tax check is correct and attached to the package
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Package includes instructions to hold pending instruction for
escrow to “release for recording”
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Yes, written instructions again!
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Just as written instructions are attached to the funding
package to the lender, there are written instructions that must
be prepared and attached to the Title Package (aka “Closing
Instructions”, “Closing Order”)
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The instructions direct the title company on every aspect of
the closing such as:
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Which docs are included in the title package and what the title
company is supposed to do with them
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What the title company is supposed to do with the attached funds
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What type of policy or polices are to be issued
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The coverage amount requested for each policy
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The name of the insured party to be shown on each policy
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Any special exceptions in the preliminary title commitment which
will be shown in the final policy or policies
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Yes, written instructions again!
Continued….
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Any additional coverage or special endorsements to be issued
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Any special exceptions in the preliminary title commitment which
are to be eliminated from the final policy
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Escrow Agent is willing to take responsibility via indemnity to
the title company
Since documents can’t be retracted once they are recorded,
the instructions from Escrow to the Title Officer must be very
clear about what is to be done upon receipt of the Title
Package
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Review and record docs on receipt
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Review and hold pending recording authorization
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Receipt of Closing Funds
Before the Escrow Agent can proceeds any further with closing, they
must have all closing deposits due from the purchaser and/or seller in
the escrow trust account, and verification that the deposits are all
“good funds”.
After being receipted into the trust account, a copy of any checks and
receipts should be kept in the file and distributed to the customer and
the book keeper
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Closing
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Balancing with the Lender (if applicable)
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The Escrow Agent and Loan Funder “balance” the file: Come to
am agreement regarding the amount of funds needed from the
lender to closer
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Some lenders wire the entire loan balance and require the Escrow
Agent to disburse a check at closing payable to the lender for all
the loan fees an escrow account deposits
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Other lenders “net fund”. This means the lender deducts any
escrow account deposits and/or loan fees from the loan balance
before the loan proceeds are wired to Escrow
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Closing
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Receipt of Loan Funds
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In theory, the Escrow Agent should obtain loan proceeds before the
transfer deed is recorded and the deed of trust is recorded against
the property
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In practice, some lenders require verification that their lien (deed of
trust) is secured (recorded) against the property before they will
release funds to escrow
Escrow conundrum: Escrow agents can’t record until all funds are
received, but they can’t obtain all funds until the documents record.
If they want to stay in business, then the Escrow Agent needs to
assume some risk by authorizing recording of the documents based
on a verbal guarantee form the lender that they will fund the loan
immediately upon verification that documents are recorded
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Closing (continued)
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Recording
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Once the file is balanced, all conditions have been met and the
lender has guaranteed funding the Escrow Agent will release the
documents on hold with the Title Officer to for recording
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Title Officer will confirm recording numbers with Escrow Agent
once received from the County Recorder’s office
Now the actual “settlement” begins….
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Preparing Final Settlement
Statement
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Prepared based on estimated settlement statement
acknowledged by purchase and seller
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Official notice to purchaser and seller that the transaction has
closed
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Copies are traditionally emailed or mailed out to principals
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Escrow agent will notify all parties via phone as a courtesy,
through their agents
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Many parties require the Final Settlement Statement
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Realtors will need for commission check for example
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Disbursing Funds:
Recording numbers and loan proceeds are
received
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Checks prepared in accordance with the Settlement
Statement
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Disbursement occurs after the Escrow Agent has completed
a Balance Sheet or a check/receipt register (see page 102 for
a sample)
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All funds on deposit are listed in the balance sheet
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Earnest money deposits held by Escrow Agent
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Loan proceeds
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Closing funds received from purchaser and/or seller
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Disbursing Funds (continued)
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The Escrow Agent lists every check they are writing against the
account
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Proceeds to seller
Payoffs to lien holders
Real estate commission
Title Fees
Real Estate Excise Tax
Property taxes
HOA dues, etc
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Any funds held for later disbursement (i.e. Reconveyance)
should be listed as a separate item under “funds held” and
deducted from the balance just like a check
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After all checks issued, the balance in the file should equal zero.
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Total receipts minus total checks (and funds held) equal zero
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Disbursing Funds (continued)
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Once funds are disbursed it is darn near impossible to get
them back.
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If file does not equal zero (there is not enough money in the
file to cover ALL the checks), the Escrow Agent should not
disburse any funds until they can determine WHY there is a
shortage
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If it all balances then then checks are issued and closing is
complete
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Lenders often sell their loans immediately after closing and
the lender will need the final title policy completed to do this
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Post Closing Responsibilities
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1099 Reporting
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Unless a seller obtains some sort of exemption or deferral, the
seller must pay income tax on earnings form the sale of real estate
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Its not the Escrow Agent’s responsibility to determine what taxes
are owed
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It’s the Escrow Agent’s responsibility to report the sale to the IRS
under Section 6045-E of the IRS Code
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In order to report properly, the Escrow Agent must “solicit”
information from the seller including Tax ID # (Social Security
Number) and forwarding address
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The original 1099 form is mailed directly to the seller and a
duplicate to the IRS
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Obtaining Final Title Policies
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Post closing, the Title Company will issue the Final Title
Policy
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Policies are issued directly to the policy holders, but Escrow
needs a process to follow up on all policies to ensure they are
issued
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Mortgage companies often intend to sell their loan
immediately and will require the final title policy be issued
before they can do it
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Reconveyances – What is this?
When a deed of trust is is used to secure a promissory note
(typical in WA State), there are three entities involved in this one
document
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The Grantor: Borrower
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The Beneficiary: Lender
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The Trustee
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Commonly a title insurance company or an attorney
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Act as neutral third party to the transaction (similar to the Escrow
Agent but with different responsibilities)
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Through the execution of a deed of trust, the Grantor is “conveying” a
clear title to the Trustee
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The Trustee then “holds” the deed “in trust” for the borrower and the
lender
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Reconveyances (continued)
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Trustee has two obligations in conjunction with the deed of
trust
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Act as an independent party in the event of a trustee’s sale
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This is a non-judicial foreclosure proceeding that allows for an
expedient foreclosure process
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The Trustee sells the property, since technically the Grantor did
“convey” title to the Trustee
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They then pay the lender out of the proceeds of the sale
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Anything remaining goes to the Grantor
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Reconveyances (continued)
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The second function of the Trustee is the act of reconveyance
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Once the deed of trust is paid off, the lien holder is obligated to
release that lien from title of the property
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The Reconveyance acts as a paper trail
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WA State RCW 60.16 says that upon payment in full of a mortgage,
the Beneficiary has 60 days to comply with the request to release
the lien from the property
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The Escrow Agent has to be diligent in ensuring the
Reconveyances are recorded timely.
+ Four things the Trustee needs to prepare
and record a full reconveyance
1
Trustee’s Fee
2
Original Promissory Note
3
Original Deed of Trust
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Request for Full Reconveyance signed by the legal note
holder:
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NOTE: Many lenders sell the servicing of their loans, and the
current holder of record may not be the same as the legal
holder. Therefore, the Trustee will need to see a copy of the
Assignment of Deed of Trust
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Reconveyance (continued)
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All these documents must be obtained from the Beneficiary
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When sending out the payoff funds, its good practice for the
Escrow Agent to request that the original note, deed of trust
and request for reconveyance be forwarded to them
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Why? Escrow has indemnified the title company that the liens
will be removed from record.
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Surrendering control of this process to an out of state lender is
scary.
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Maintaining control of the entire transaction, even after closing,
is the most prudent way to close
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Reconveyance (continued)
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Once the original documents, request for reconveyance and
the Trustee’s fee are received by the Trustee, the process of
removing the lien from record is almost complete
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The Trustee prepares a Full Reconveyance
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This is the document that transfers the title back to the Grantor
(Borrower/Purchaser) from the Trustee
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This document is recorded in the county where the property is
located and the lien is removed from record
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Release of Privately Held Deeds of
Trust
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Process is virtually the same as an institutional lender
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The prudent Escrow Agent will request the release
documents be deposited with them prior to closing, or to
exchange documents for payoff funds
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Other types of release documents
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Request for reconveyance / partial reconveyance
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Used in the event that a deed of trust which encumbers the
property being sold is also encumbering other properties
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This is common in the case of a builder having taken financing on
an entire plat and payoff off a portion of this loan with each lot
sale
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These documents work the same as a request for full
reconveyance, except they release only a portion of the deed of
trust on the property sold, not the entire lien
+ Other types of release documents
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Release of mortgage/partial release of mortgage
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Releases a mortgage, which is different from a deed of trust, the
same way we just discussed, but there is no Trustee
All releases are executed by the Beneficiary
Mortgages are mainly used for agricultural purposes, so are not
very common
Statutory Warranty Fulfillment Deed
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This document is used when paying off a Real Estate Contract
Since the seller, in the case of a Real Estate Contract, is not the
owner of record, this document transfers title to the seller upon
satisfaction of the contract
Its very important to have this original document held in Escrow
prior to closing
This document can stand up even if one or more of the parties is
deceased
+ Other types of release documents
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Satisfaction of Judgment
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If there is a judgment being paid off in escrow, you will need to file
and possibly record a satisfaction of judgment before the lien is
removed from title
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Like all other release documents, this document will complete the
“paper trail”
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Final Close-Out of the file
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Some lenders will release their own liens from record
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If this is the case, and a release number is obtained from the
Trustee, then funds held at closing for the reconveyance must
be returned to the proper party
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When all funds have been disbursed, final title policies have
been issued and the Escrow Agent has confirmation that all
pertinent liens have been cleared the Escrow Agent can
move the pending file to storage
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WA State statutes require that Escrow Companies and DEO’s
store closed files for a minimum of 6 years