How to Avoid
7 Common Mistakes
Made by Property Sellers that Affect Escrow
(From an Escrow Officer’s standpoint)
It is human nature to make mistakes. However, when we are processing a transaction that represents the sale of your valuable asset, we want to be sure that mistakes are minimized and everything goes smoothly. The process of selling, however, starts even before the agreement to sell is entered. Some issues that can happen could have been avoided if a little more attention had been paid. Here is a list of 7 mistakes that could be made by a Seller that would affect the transaction.
Even before the agreement to list the property is made you need to think it through. Is the sale of this asset something that you want to do now? Is this the right time to sell, not only in the marketplace but also in your financial life? Do you have your plan in place on what happens after you complete this sale?
We have had transactions in which the Seller decided to back out from selling the property midway, after the sale contract was signed because he found out he could not purchase a replacement property or there would have been huge tax consequences financially. Was there a possibility of a lawsuit filed by the Buyer because Seller wanted to back out ? Yes. There was.
Are you aware of the market condition in your neighborhood? Are you aware of the values of properties comparable to yours? Are your expectations in line? What can you do to enhance the curb appeal of your property or the interiors? New paint, cleaning up the landscaping, putting in plants, de-clutter the interior, all these are small sums to spend for bigger returns.
You might also prepare by paying up front for a third party inspection report and a termite/ structural pest inspection report, both of which would show any areas of structural or other physical concerns. This will also give you an idea as to the cost for repairs if brought up by the potential Buyer after the transaction has entered into escrow. Let there be no surprises!
This is perhaps the biggest area of mistake that can affect your escrow, once it is entered. If you have, in the past couple of years, entered into an escrow for a refinance of this property, then your title work is probably up to date. However, many consumers who have owned their property for many years without having a “check up” done may encounter disturbing issues. For example:
- The ownership to your property is not under the name it should be
- The old loan that was paid off years ago still shows because it was never released
- There are other liens or judgments attached that you were not aware of
- Unpaid property taxes
- Part of your property is encroaching onto your neighbor’s land, or vice versa
Asking your escrow officer to pull a preliminary report or title commitment in advance will give you an idea if there are any “hidden” issues.
No matter if it is your real estate agent or the escrow officer asking, provide the correct information so that there is no delay. For instance, did you have a change of name? Are you presently married but your spouse does not show on the ownership? Did your lender sell the loan to some other servicing company? What is the name of the homeowner association and who manages it?
It might be surprising how much a delay can be caused by incorrect information. By the time the escrow company finds out the information is incorrect, contacts the Seller for the correct information, and then re-does the process, your transaction could be delayed weeks!
Even more important than Mistake #4 is not returning completed paperwork on time. Your escrow officer will rely on the paperwork that you provide to make sure he/she is on track with the closing. In addition, some information on the paperwork may generate questions or concerns, which, if not caught early, will delay the transaction.
A good example is the Confidential Statement of Information. What if your social security number traces to a personal judgment that you were not aware of? Sometimes clearing these judgments and old liens may take a lot of detective work. Sometimes a bond is needed. If your information was sent early to escrow, it might save the transaction from requiring additional time to close.
All escrow officers have this fear that they are the last to know, and that by the time they do know it will require other paperwork to be generated and other parties’ involvement. Here are some examples:
- Forgetting to provide information that there is more than one homeowners association
- Going on vacation without signing all the documents
- Having another person sign as a Power of Attorney without giving the power of attorney document to escrow officer for review and approval
- Needing to remit the funds to be received from this escrow to close escrow on a purchase elsewhere
- Last minute decision to do a 1031 tax deferred exchange
It is always good to contact your escrow officer directly, at the opening of the transaction, to open communications channel with them. Provide them with your direct phone number, email address and present mailing address. If you have any questions during the transaction, they will be happy to answer them. Remember, you are the principal in an escrow transaction and the escrow officer’s fiduciary responsibility is to you.
Once the sale has entered into escrow, there are dates and timelines that the transaction must meet. It is important that the Seller be aware of these dates and calendar them. Some dates will trigger the scheduling of other dates. Do not rely on the real estate agent or escrow to send out reminders. Here are the basic dates that you start out with:
- Closing date per your escrow paperwork - work backwards from this date, but remember that this date can be tentative and subject to everything else going smoothly
- Date when Buyer removes all contingencies – work forward from this date to schedule #3, #4, #5
- Date to complete all scheduled repairs and termite work
- Date to schedule movers
- Actual move out date (which may or may not be the closing date per #1)
There is a reason for this tight scheduling. There have been many times when the completion of #3 has led to the extension of escrow. There have also been times in which #4 has been problematic, particularly in summer months when the demand for movers is high. And, of course, when #1 changes then it can have a domino effect on #3, 4, and 5. So pre-planning is imperative and when doing so, calendaring will keep you on track.
Remember, if there are issues on #3, 4 and 5, communicate this to your real estate agent and escrow officer!
More articles to follow on other mistakes parties to a transaction should avoid.
This is Juliana of Viva Escrow! and we are here to keep you posted!
Juliana Tu, CSEO, CEO, CBSS, CEI, SASIP
President and Escrow Manager
“It’s all about the service, knowledge and experience that the Escrow Officer brings to the transaction”