A Guide to Title and Escrow

Table of Contents

What is Title Insurance ...... 1

What is Escrow ................... 5

Buying a Home… .............. 8

Selling Your House… ........11

What is Title Insurance?

Title insurance is, by definition, a policy that insures a homebuyer against errors in a title search. The policy is a contract by which the issuing company—typically a title insurance company—agrees to pay the insured—typically the buyer and/or seller—a specified amount for any loss caused by any defects of title. The cost of the policy, usually based on the value of the property, is a one-time fee, and is often paid for by the buyer and/or seller.

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Generally, when people think of insur-

ance, they think of something that pro-

tects their house or vehicle from un-

foreseen circumstances, such as an

earthquake that damages your home, or the theft of

your car. Title insurance is different because the origi-

nal premium is your only cost as long as you or your

heirs own the property; there are no annual payments

to keep your Owner’s Title Insurance Policy in effect.

Title insurance is also unique because—as opposed to

home or auto insurance, which provides coverage for

future claims or losses due to an event that hasn’t hap-

pened yet—it provides coverage for future claims or

future losses due to title defects that are created by any

event that happened prior to the acquisition of the

property. These risks are far less obvious than those

protected against by automobile insurance, but can be

just as devastating because any existing rights or

claims could, in the future, threaten your title and pos-

session of the property.

How do I Find out What Claims Exist? In order to determine the status of title, Chicago

Title conducts a thorough search of the public records

for those documents associated with the property.

Chicago Title then examines those recorded documents

to determine if there are any rights or claims that might

have an impact upon the title to the property. The title

search may reveal the existence of recorded defects,

liens, or encumbrances upon the title that could include:

unpaid taxes, unsatisfied mortgages, judgments and tax

liens against the current or past owners, easements, re-

strictions, or court actions. These recorded defects,

liens, and encumbrances are reported to you prior to

your purchase of the property and, once reported, they

can be accepted, resolved, or extinguished prior to the

closing of the transaction. In addition, you are protected

against any recorded defects, liens, or encumbrances

upon the title that are unreported to you and which are

within the coverage of the particular policy issued in

the transaction.

What About undiscovered Claims (Hidden risks)?

A “hidden risk” is a matter, right, or claim that is not

shown by the public records and, therefore, is not dis-

coverable by a search and examination of those public

records. Matters such as forgery, incompetence or inca-

pacity of the parties, fraudulent impersonation, and un-

known errors in the records are examples of “hidden

risks” which could provide a basis for a claim after you

have purchased the property. In order to protect you

against this possibility Chicago Title provides insur-

ance coverage for such claims.

If a claim is made against your insured title, Chicago

Title protects you by: (1) defending your title, in court if

necessary, at no cost to you, and (2) bearing the cost of

settling the case, if it proves valid, in order to protect your

title and maintain your possession of your property.

Why do I need Title Insurance?Title insurance allows you peace of mind in know-

ing that the investment you’ve made in your home is a

safe one. It is important because it protects possibly

the most important investment you’ll ever make—the

investment in your home. With a title insurance poli-

cy, you have a contract that will reimburse you for

loss in the event someone asserts a claim against the

property that is covered by the policy.

A G u I d E T o T I T l E A n d E S C r o W

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C H I C A G o T I T l E

Title insurance gives you the assurance that any-

thing discovered from the public records has been

called to your attention, and that such defects can be

corrected before you buy. Additionally, it insures that

any undiscovered claims covered by your policy that

threaten your ownership of real estate will be disposed

of, or you will be reimbursed exactly as your title insur-

ance policy provides.

How Can There Be a Title defect if the Title Has Been Searched?

Title insurance is issued after a careful examination

of copies of the public records. Unfortunately, despite the

knowledge and experience of professional title examin-

ers, even the most thorough search cannot absolutely as-

sure that no title hazards are present.

Steps Involved in the Title Process

Initial request for Title InsuranceThe Settlement Officer will place an order with the

Title Department. A Title Report can be issued based on

an examination of the public records in the county

where the subject property is located.

Technical reviewThe skill and expertise of Chicago Title’s staff is the

key to providing you with a useful, accurate title report.

Once the report is issued the review begins with a techni-

cal analysis of the documents of record. An interpretive

view of all recorded matters is then made to evaluate

their impact on the title to the property.

Inspection/Survey AnalysisIn anticipation of American Land Title Association

(ALTA) coverage, a site inspection or survey is ordered.

From this report, the title product is supplemented or

amended to show any encroachments or other off-re-

cord matters that would ultimately impact the title.

documents in the Title ProcessPreliminary Report—A document prepared once •

an escrow is opened, but prior to closing, that pro-

vides information about the property essential for

the buyer to see before he or she commits to pur-

chasing the property.

Commitment—Shows the condition of title and the •

requirements necessary for the Title Company to

issue a policy.

Pro Forma—Specimen of what the requested poli-•

cy will look like; underwriting issues are not yet

completed and it is not binding upon the company.

Policy—Final contract of indemnity between the •

insured and the company.

reasons for Title InsuranceThe deed or mortgage in the chain of title may •

be a forgery

A deed or mortgage may be signed by a person •

under age or of unsound mind

A deed or mortgage may be made under a power •

of attorney after its termination and would there-

fore be void

A deed or mortgage may be made by a person •

other than the owner, but with the same name

as the owner

A testator of a will might have had a child born after •

the execution of the will—a fact that would entitle

the child to claim his or her share of the property

A deed or mortgage may be procured by fraud •

or duress

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Title transferred by an heir may be subject to a federal estate tax lien•

An heir or other person presumed dead may appear and recover the property or an •

interest therein

A judgment or levy upon which the title is dependent may be void on account of •

some defect in the proceeding

Title insurance covers attorney fees and court costs•

Title insurance helps speed negotiations when you’re ready to sell or obtain a loan•

By insuring the title, you can eliminate delays and technicalities when passing •

your title on to someone else

Title insurance reimburses you for the amount of your covered losses•

A deed or mortgage may be void because it was signed while the grantor •

was in bankruptcy

There may be a defect in the recording of a document upon which your title is •

dependent

Claims constantly arise due to marital status and validity of divorces and only title •

insurance protects against these claims made by non-existent or divorced “wives”

or “husbands”

A G u I d E T o T I T l E A n d E S C r o W

What is Escrow?

Escrow is an arrangement in which a disinterested third party—called an escrow holder or settlement agent—holds legal docu-ments and funds on behalf of a buyer and seller, and distributes them according to the buyer’s and seller’s instructions.

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A G u I d E T o T I T l E A n d E S C r o W C H I C A G o T I T l E

People buying and selling real estate often open a sale transaction with the

settlement agent for their protection and convenience. The buyer can then

instruct the settlement agent to disburse the purchase price only upon the

satisfaction of certain prerequisites and conditions. At the same time, the

seller can instruct the settlement agent to retain possession of the deed to the buyer until

the seller’s requirements, including receipt of the purchase price, are met. Both rely on

the settlement agent to carry out faithfully their mutually consistent instructions relating

to the transaction and to let them know if any of their instructions are not mutually con-

sistent and/or cannot be carried out.

Chicago Title provides professional escrow settlement services that are convenient

for the buyer and seller because both can move forward separately and simultaneously in

providing inspections, reports, loan commitments and funds, deeds, and many other

items, using settlement as the central depositing point. If the instructions from all parties

to the transaction are clearly drafted, fully detailed, and mutually consistent, the settle-

ment agent can take many actions on their behalf without further consultation. This saves

time while also facilitating the closing of the transaction.

A G u I d E T o T I T l E A n d E S C r o W

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C H I C A G o T I T l E

What Each Party does in Escrow

The Seller:Deposits the executed deed to the buyer with the •

settlement agent

Deposits evidence of pest inspection and any •

required repair work, if applicable

Deposits other required documents such as tax •

receipts, addresses of mortgage holders, any state

or federally required documentation, etc.For more information on the seller’s responsibilities, please refer to the

Seller section of this guide.

The Buyer:Deposits the funds required, in addition to any •

borrowed funds, to pay the purchase price with

the settlement agent

Deposits funds sufficient for home and title insurance•

Arranges for any borrowed funds to be delivered to •

the settlement agent

Deposits any deed of trust or mortgages necessary •

to secure loans

Approves any inspection reports or surveys, the •

Preliminary Report or Commitment for title

insurance, etc., called for by the purchase and

sale agreements

Fulfills any other conditions specified in the •

instructionsFor more information on the buyer’s responsibilities, please refer to the

Buyer section of this guide.

The lender (if applicable):Prepares an document package for buyer/borrower•

Deposits proceeds of the loan with the settle-•

ment agent

Directs the settlement agent on the conditions un-•

der which the loan funds may be used

The Settlement Agent:Acts as the impartial “stake-holder,” or depository •

of documents and funds

Processes and coordinates the flow of documents •

and funds

Keeps all parties informed of progress on •

the escrow

Responds to the lender’s requirements•

Opens the order for title insurance•

Obtains approvals from involved parties on the •

Preliminary Report/Title Commitment, as well as

pest and other inspections

Prorates and adjusts insurance, taxes, rents, etc.•

Records deed and loan documents and delivers the •

deed to the buyer, the loan documents to the lender,

and the funds to the seller, thus closing the escrow

Maintains security and accountability of monies •

owed and owing

Receives funds from the buyer and/or any lender•

Disburses funds for title insurance, recording fees, •

real estate commissions, lien clearance, etc.

Prepares an estimated statement or HUD settle-•

ment statement, as required, for each party, indicat-

ing amounts to be disbursed for services as well as

any further amounts necessary to close

Issues final closing statement/HUD settlement •

statement and forwards to buyer, seller, and lender

Questions?If you have questions about the escrow process,

please call your local Chicago Title office.

C H I C A G o T I T l E

Buying a Home…

For most, buying a home is the single biggest purchase of their lives. The enormity of the fi-nancial transaction aside, finding the right home to fit particular needs and wants is no easy undertaking. Just as you wouldn’t buy a car, computer, or camcorder without doing some research into various models and prices, you shouldn’t consider purchasing a home without some expert advice and guidance—and though some people may think of using the ser-vices of a real estate agent only when selling their homes, a real estate agent can be invalu-able when buying one as well.

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C H I C A G o T I T l E

A real estate agent is important to the buy-

ing process because he or she can help

you determine how much home you can

afford based on your financial situation,

has the tools to help you get prequalified for a loan, and

is even able to inform you about available financing op-

tions. Additionally, a real estate agent is an expert on the

neighborhood and can provide detailed information

about schools, transportation, local taxes, and other com-

munity characteristics. Using a real estate agent also

means gaining access to homes listed in the Multiple

Listing Service (MLS), an important marketing tool used

by real estate agents to inform other real estate agents

about available properties. That means they can give you

information about a wide range of available homes from

which to choose. When it comes to finding out if you’re

paying too much, a real estate agent can also provide you

with market analyses comparing asking and selling pric-

es of homes in the neighborhood—and a real estate agent

can serve as the liaison between you and the seller, bring-

ing to the table negotiating expertise and knowledge

about required disclosures and the housing market.

What to Expect in a residential Transaction

Buying a home involves several stages. Below is a

list of the more common steps taken during a residen-

tial transaction. Though your situation may—and prob-

ably will—vary, these steps are provided as a basic

guideline. It is best to contact your real estate agent for

more information as you become more serious about

buying a home.

Initial Meeting1.

Select real estate agent•

Determine needs and wants•

Determine financial eligibility•

Loan Qualification2.

Discuss finances•

Obtain prequalification•

Find a Home3.

Select an affordable property that fits your needs•

Discuss offer with agent•

Buyer reviews contract with agent•

Agent presents offer to selling side•

Present and negotiate offer4.

Buyer provides “earnest money” deposit •

(typically, 1%-3% of purchase price)

Seller accepts offer (seller can accept your of-•

fer, counter your offer, or reject your offer)

Open Escrow with Settlement Office (assuming 5.

seller accepts your offer)

Deposit “earnest money” into escrow•

Settlement Officer will order a Title Report •

(Preliminary Report or a Commitment

depending on region)

Submit loan Application Contingency Period 6.

Conduct physical inspection of property •

by a qualified inspector

Approve seller’s Transfer Disclosure Statement•

Approve Title Report•

Conduct property appraisal•

Obtain loan approval from lender•

Perform termite inspection and certification•

obtain Homeowner’s Insurance7.

Select insurance company and coverage•

Insurance will be in effect at close of escrow•

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obtain Home Warranty Insurance; Sign 8.

documents (if applicable)

Chicago Title receives signed documents•

down Payment9.

Provide cashier’s check or money transfer •

prior to closing date

Closing Escrow10.

Deposit down payment and closing costs •

to escrow

Lender sends balance of purchase price to •

Chicago Title

Deed is recorded with County Recorder’s office•

Get your keys and move in!•

Buyer’s Financial responsibilitiesThere are various costs and fees involved in pur-

chasing a home. The following list depicts examples of

the costs you may be responsible for. Always keep in

mind that responsibility for some of these charges can

be negotiable and the responsible party may vary from

area to area. Contact your real estate agent for further

information about applicable costs in your area.

Title insurance premium (according to contract)•

Escrow fees (according to contract)•

Document preparation (if applicable)•

Notary fees•

Recording charges for all documents in buyer’s •

name(s)

Termite inspection (according to contract)•

Tax prorating (from date of acquisition)•

Homeowner’s Association transfer fee•

All new loan charges (except those required by •

lender for seller to pay)

Interest on new loan from date of funding to 30 •

days prior to first payment date

Assumption/change of records fees for takeover •

of existing loan (if applicable)

Beneficiary statement fee for assumption of •

existing loan

Inspection fees (roofing, property inspection, •

geological, etc.)

Home warranty (according to contract)•

City transfer/conveyance tax •

(according to contract)

Fire insurance premium for first year•

A G u I d E T o T I T l E A n d E S C r o W

Selling Your House…

Structuring transactions, arranging financing, and finding the right buyers are some of the keys to success in the real estate market, and there are few entities that know as much about the trends in today’s market as licensed real estate agents and brokers.

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Licensed agents and brokers undergo thor-

ough training and examination to help

make them experts in the real estate mar-

ket. Several states even require continu-

ing education in real estate for license renewal and

these specialists are compensated on their ability to

sell properties quickly and cost-efficiently—and their

expert abilities are chargeable only when a transaction

is complete.

Why It Pays to use a ProfessionalWhen you use an agent, you’ll get the benefit of •

professional experience from the moment you con-

sider selling your house. Your agent will help you

establish a fair market value from his or her daily

dealings in your neighborhood, and arrange financ-

ing terms that make it easier to obtain a quick sale

in today’s market—helping you receive the equity

in your home.

If you wish to participate in financing the pur-•

chase of your property, your agent or broker can

structure a workable plan that helps reduce risk

from unusual terms, and give you an estimate of

the anticipated yield from carrying a property-se-

cured financing plan.

Real estate agents are professionals at marketing •

properties so they know how to choose the right

media and message to bring interested prospects to

your home. They’ll interview and qualify buyers

for you while using their sales skills and negotiat-

ing techniques to help you receive the best possible

return on your sale.

Every brokerage office has a steady stream of pros-•

pects that no individual can match. National refer-

ral networks and Multiple Listing Services also

help to reach buyers from out of town or out of

state. Many corporate relocation clients may be

working with a broker before a move is even made.

When you work with an agent or broker, they will •

follow up with other agents who have shown your

property and share their constructive comments on

cosmetic repairs, financing arrangements, or re-

evaluating your list price.

An agreement between buyer and seller is just the •

beginning of a final transaction. From that point on

your agent or broker can handle the details and pa-

perwork necessary to make it complete—from

building and termite reports to fire insurance and

closing arrangements with the escrow company, ti-

tle company or closing attorney.

As an expert in real estate, your agent or broker •

will give you advance estimates of your closing

costs and net proceeds from the sale while keeping

you informed of the details to assure a smooth and

timely closing.

Working with a real Estate Agent is an Integral Part of Selling Your Home

For one thing, your real estate agent can list your

property in the Multiple Listing Service (MLS), provid-

ing your home with incomparable exposure and ensur-

ing you have as many real estate agents as possible

helping to find a buyer. But that’s not all a real estate

agent does to market your home. He or she knows how

to specifically target advertising to reach buyers for

your home, and uses all the marketing tools available to

ensure that your home is sold expeditiously. Additionally,

A G u I d E T o T I T l E A n d E S C r o W

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a real estate agent conducts a variety of other marketing

efforts on your behalf—from holding open houses and

handling phone inquiries to showing your home to pro-

spective buyers.

What does a real Estate Agent do for You Besides Find Buyers?

Plenty. A real estate agent provides information on

local market conditions to help you price your prop-

erty realistically and fairly, and keeps you abreast of

changes in the market that may affect your property.

And let’s face it, buying or selling a home means lots

of paperwork. When it comes to closing escrow, a real

estate agent can be invaluable, leading you through

the paper trail with a steady hand, while familiarizing

you with escrow, insurance, property disclosures, and

inspection procedures.

So, Where do You Find a real Estate Agent? Like finding any good professional, the best way to

locate a real estate agent is through recommendations

from friends or acquaintances that have bought or sold

homes recently. Ask for references and check each

agent thoroughly, and interview several real estate

agents before you decide on one.

When You Make the SaleA vital part of any sale is title insurance. Lenders

usually require a loan policy to protect their interests,

and buyers need an owner’s policy to protect their eq-

uity. Be sure to ask your agent or broker for protection

from Chicago Title so your title insurance policy—

and your investment—is backed up by the resources

of FNF, the strongest title insurance family in the in-

dustry. Your Chicago Title Account Manager is an in-

tegral part of your agent’s or broker’s closing team.

What to Expect When Selling Your Home

You should select a professional real estate agent to

represent your needs. Once you establish a working rela-

tionship with your agent, your home is put on the market

and marketed to potential buyers. Once a buyer makes an

offer on your home you have three options: accept the

offer, counter the offer, or reject the offer. If you decide

to accept the offer, here’s what happens next:

Escrow is opened and buyer deposits “earnest 1.

money” into escrow.

Seller submits documents and information to 2.

escrow holder, such as: addresses of lien holders, tax

receipts, equipment warranties, home warranty con-

tracts (if any), and any leases or rental agreements.

Seller approves and signs the escrow instructions, 3.

grant deed, or other related documents required to

complete the transaction.

Seller orders inspections, receives clearances, and 4.

approves final reports and/or repairs to the property

as required by the terms of the purchase and sale

agreement (responsibility for inspection procedures

may vary).

Buyer and seller fulfill any remaining conditions 5.

specified in the contract and/or escrow instructions,

and approve the payoff demands and/or beneficia-

ry’s statements.

Buyer and seller approve any final changes by 6.

signing amendments to the escrow instructions

or contract.Note: The above is general information only. Your situation may differ. Please

consult your real estate professional for details about your specific situation.

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Seller’s Financial responsibilitiesThe process of selling your home involves several

costs and fees. The following information is very gen-

eral, and many of these items can be negotiated with

the buyer. Consult your real estate professional for

more information.

Real estate commission•

Document preparation fee for deed•

Document transfer tax•

City transfer/conveyance tax •

(according to contract)

Loan fees required by buyer’s lender•

Payoff of all loans in seller’s name (or existing •

loan balance if being assumed by buyer)

Interest accrued to lender being paid off, •

statement fees, reconveyance fees, and any

prepayment penalties.

Termite inspection (according to contract)•

Termite work (according to contract)•

Home warranty (according to contract)•

Judgments, tax liens, etc., against the seller•

Tax proration (for any taxes unpaid at time of •

transfer of title)

Unpaid Homeowner’s Association dues•

Recording charges to clear all documents of •

record against seller

Bonds or assessments (according to contract)•

Any and all delinquent taxes•

Notary fees•

Escrow fees (according to contract)•

Title insurance premium (according to contract)•

A G u I d E T o T I T l E A n d E S C r o W

For More Information Please Visit Chicago.Title.com

Copyright © 2007 Fidelity National Financial All rights reserved. Printed in the United States of America. No part of this publication may be reproduced in any manner whatsoever without written permission. First Edition, June 2007

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