Download The Escrow Red Flags PDF

ESCROW RED FLAGS

A “red flag” is a sign to pay attention! These issues can cause delays or complications within an escrow and must be addressed well before the expected close of escrow. The Preliminary Report or “Commitment of Title Insurance” will identify many red flags, so the escrow officer will review it thoroughly. Agents and parties involved in the transaction should also review the preliminary report for potential delays. Various life events and external factors can trigger a “red flag” situation. Here are some things to watch for:

  • Bankruptcies
  • Business trusts
  • Clearing liens and judgments, including child or spousal support liens
  • Deposits made by a third party on behalf of the buyer
  • Encroachments or off-record easements
  • Family trusts
  • Foreclosures
  • Home improvement loans (HERO), including solar liens
  • Last-minute change in buyers
  • Last-minute change in type of title insurance coverage
  • Probates
  • Proper execution of documents
  • Proper notary seals and jurisdiction
  • Recent construction
  • Transfers or loans involving corporations or partnerships
  • Sellers or buyers who are outside of the United States (Foreign Persons)

EXAMPLES OF RED FLAGS

Bankruptcy Involvement:

If the buyer or seller is involved in a bankruptcy that is still pending, obtain the attorney’s contact information. Escrow cannot close until the property is released from pending bankruptcy proceedings.

Tax-Deferred Exchange:

If the property is part of a tax-deferred exchange, obtain contact information for the exchange accommodator to avoid delays. Your escrow officer will coordinate with the exchange to ensure compliance with state and federal tax guidelines.

Language Barriers:

If your clients do not speak English or it is their second language, find a qualified and reliable interpreter. Inform your escrow officer about the interpreter to make appropriate arrangements for correspondence and signing appointments.

Divorce-Related Sale:

If the property is being sold due to a divorce, verify if the divorce is final and if the necessary documents are available. If not, both spouses will need to sign all listing and escrow documents. Determine if separate checks are required for proceeds and ensure you have current contact information for both parties.

Recently Married Sellers:

Determine if the new spouse will be a seller in the transaction or if they need to sign a quitclaim deed to convey their community property interest to the other spouse.

Deceased Owner:

Many red flags arise from the death of a property owner. Prepare the appropriate documents for closing the escrow. If there is a probate proceeding, a court order confirming the sale is required before closing. If a family trust was established before the seller’s death, identify the Successor Trustee to obtain proper signatures. Involve your escrow officer early to avoid frustration.

Power of Attorney:

Verify if the Power of Attorney is legal and binding. The document should be recorded in the county and state where the property is located and should be less than two years old. Provide a copy to your escrow officer as soon as possible.

Title in Trust:

If buyers want to hold title in the name of a trust, the new lender may not allow this vesting type. Raise this issue as soon as possible.

Out-of-State Seller or Non-Principal Residence Sale:

If the seller lives in another state or is selling a property other than their primary residence, some states (like California) require tax withholding on certain property sales. Discuss special tax reporting situations with your escrow officer immediately.

Download The Escrow Red Flags PDF

For expert guidance as well as personalized assistance in real estate, reach out to Irina and Jeff Shoket. We are dedicated to helping you achieve your real estate goals with confidence in addition to making the experience rewarding. Contact us today!

We look forward to assisting you with all your real estate needs in Thousand Oaks and beyond. Don’t hesitate to get in touch – your successful real estate journey starts here!