Do cash buyers need title search and escrow?

Why? Can’t I draft a deed on my own?

If you’re using a settlement agent, they won’t permit it. While it may be technically possible for you to draft your own deed in some states, it is highly inadvisable. There are 2 major problems with doing so:

It may not have all the legal language required to protect you from being defrauded, from being subject to sales tax, etc., for your specific type of transaction.
If it has certain types of technical errors that force the county recorder’s office to reject it for recording. This may call into question its’ validity and that can present big problems for you.
1. 1. Buyer – you now may not own the property and you’re out your cash. You may have to resort to legal action to recover your cash if the seller will not comply with signing a corrected, valid deed.
  2. Buyer – who is going to make sure all the seller’s liens are paid off?
  3. Buyer – you do not know who the owners really are – you could be defrauded and lose all your cash.
  4. Seller – Buyer has moved in and you may not be able to remove them quickly, cheaply or even at all.
  5. Seller – What happens if the buyer does not deliver funds to you, or their check bounces? How do you get “good” funds? Did you know Cashier’s Checks can have stop payments applied to them?
Why do I need a title search in a purchase transaction?

To make sure the deed chain has no breaks in it, and to identify the seller’s liens/mortgages will need to be paid off and released.

You could write your own deed in some states, assuming it has the right legal language and no technical errors. But, you’d still be taking title to the property without knowing what seller’s liens are against the property.

Here’s why that’s a bad idea – I had an attorney who practiced some other type of law, call me and ask me for my advice on a transaction he got himself into. (I owned a title/escrow company for 15 years and closed over 8,000 transactions.) He bought a $150k rental property for cash by preparing his own deed. Then he tried to get a loan on the property to get his cash out, and the lender did a title search – they found liens on the property totaling $180k, that’s $30k more than it was worth. This know-it-all attorney hadn’t done a title search, and as a result, was stuck with a property that he could not get a loan on or sell without paying off all these liens. A foolish mistake. See the Blog on What is “Title” in Real Estate

Can I do my own title search?

Yes, if you want to find information only, but not if title insurance if being issued. See Blog 1-B.

What is the cost of a title search?

Residential searches average $100-300 and commercial average $350-$1,500. See the blog on How to do a title search

Who orders a title search?

The settlement agent used to close a transaction is who orders the search. If you want information, anyone can order one from a search vendor. Title Leader makes this easy, fast.

Who chooses the title/escrow company for a purchase?

Custom varies by state and county. It can be the buyer, seller, or Realtor of either. The lender always has final say and may prohibit the use of any title/escrow company for any reason. Local banks may have “approved attorney” lists.

What is a title/escrow company?

The following terms are often used interchangeably: Closing attorney, title attorney, title co, escrow co. title & escrow co. Regardless of their differences, they all perform the same role: Settlement Agent. The independent 3rd party that finalizes real estate transactions.

What is the turnaround time for a title search?

Residential searches average 1-3 days, and commercial searches average 10-14 days by the providers in Title Leader’s marketplace.

What is “escrow”?

“Escrow” technically refers to an account into which buyers/sellers deposit funds (or signed documents) into, before a transaction takes place that is managed by a 3rd party under certain laws and responsibilities. The 3rd party that administers your transaction is called a title & escrow company (aka settlement agent, closing attorney, title company, escrow company, etc.) So, when a buyer delivers their good faith or earnest money funds to a title/escrow company, this is referred to in some states as “opening escrow.” The finalizing of the transaction and disbursement of all funds is referred to as “closing escrow.”

Why do I need a title/escrow company for my purchase transaction?

So that a proper title search is performed before a deed can be properly prepared. The title search, and an examination of it’s results, does the following:
1. ID all parties with an interest in the property – all
2. IDs property tax status, delinquent amounts, and who they are owed to
3. ID any judgments against sellers and buyers that attach to the property.
Because they are an independent 3rdparty that conducts closings – they finalize the transactions – this protects the parties (buyer/seller) in many areas. They…
1. Perform the title search and examine it.
2. Prepare all documents – deeds, powers of attorney, corporate resolutions, documentation of estates/trustees that ID who has authority to sign the closing documents (deed, settlement statement, etc.)
3. Get all docs signed, and notarized by all parties, regardless of their physical location.
4. Receive all funds from buyers, realtors or lenders –
5. Pro-rate taxes, rents, etc. between buyers/sellers, and
6. Disburse all funds: Payoff all the seller’s liens/mortgages, the property taxes, Realtors, appraisers, etc., and gives what’s left over to the correct sellers.
7. Record the deed (and mortgage if a lender is involved) at the county recorder’s office with all appropriate fees.
8. Issue any title insurance policies to buyer, lender or both. See blog on why do I need title insurance, what is it?
If you choose to try to handle all facets of closing a transaction on your own, you take on a great deal of liability. The risks are outlined above, and can result in loss of all your funds plus a costly and protracted lawsuit. If you buy a property and you fail to ID and payoff/release any lien, cannot finance it or sell it without paying off that lien.