For Sale By Owner

Escrow Process  Handbook

FSBO Escrow Process  
Thank you for reaching out to me about the escrow process. I hope that the information below is of help. If you need me to help you through the process just give me a call and we can work something out. I will follow up with you in the next couple of days.

Once you have received an acceptable offer and entered into a buying contract, there are several steps that will need to be completed before the transaction and transfer of your property is complete. The paperwork begins. You now have to start gathering the legal documents to give to the buyer, buyer’s agent, lawyers and other professionals. You will have to coordinate inspectors and appraisers. You will need to call your mortgage company to start the mortgage payoff. You need to firm up your moving plans. I have included a list of some of the paperwork that you will have to handle. 
  • Mortgage, loan and lien documents
  • Property records, building permits and receipts for the appraiser
  • Property records for the title insurer
  • Insurance documents
  • Disclosures paperwork as required by state and municipalities
  • Related legal documents for financial and estate planning
Understanding Property Disclosures
Before final closing, you will be asked to fill out a disclosure statement that will list "material facts" about problems you are aware of regarding the condition and history of your home. Both federal and state laws govern what must be disclosed during a property sale and as the homeowner you must be the person to complete these disclosure forms. By law your real estate agent cannot complete these forms for you.

The general rule of thumb is that you must disclose anything that would:
  • Lower the perceived value of the property
  • Affect the buyer's decision to purchase
  • Change the price and/or terms the buyer offers
As you fill out these forms just remember, you should strive to answer all of the questions to the best of your ability. Don't sweat the small stuff, but make sure you disclose everything that you'd want disclosed to you if you were the buyer. If you don't know the answer to a question (such as the exact age of the roof if you're not the original owner or the like), answer "Do Not Know." But not having precise facts about defects you know exist does not permit you to answer "Do Not Know" to every question. This will always raise a red flag. If you are a home seller and are aware of a boundary dispute you will need to get a survey to show the right boundary to save legal problems down the line.

If you feel like you don't properly understand the disclosure requirements, you should consult a real estate attorney who knows the local disclosure laws.

Understanding the steps and terminology used for the closing procedures are key, and I am happy to help you with a quick run down of the process in our local area. There are a few things that you will need to do to prepare.

Michigan Transfer Tax 
Transfer tax needs to be paid at closing. I found a Michigan Government website that will help you understand the tax.  The example below from the state website explains how it works.
Example Calculating the real estate transfer tax is done in increments of $500. The state charges $3.75 for each increment and the county charges $.75. These combined represent the total tax obligation. The Michigan legislation states: That a discounted rate of $. 55 is allowed if the county’s population is less than 2 million.

The Seller duties while in escrow are the following:
  • Accepts Buyer’s offer to purchase and initial good faith deposit to open escrow
  • Submits documents and information to the escrow holder, such as: addresses of lien holders, tax receipts, equipment warranties, home warranty contracts, any leases and/or rental agreements, etc..
  • Orders inspections, receives clearances and approves final reports and/or repairs to the property as required by the terms of the purchase and sale agreement (Deposit Receipt)
  • Approves and signs the escrow instructions, payoff demands, grant deed and other related documents required to complete the transactions.
  • Approves any final changes by signing amendments to the escrow instructions or contracts
The Escrow Officer Duties while your home is in escrow are the following:
  • Examines the title to the real property and issues a preliminary title report. Determines the requirements and documents needed to complete the transaction and advises the Escrow Officer and/or agents
  • Reviews and approves the signed documents, releases and the order for title insurance, prior to the closing date
  • When authorized by the Escrow Officer, records the signed documents with the County Recorder’s office and prepares to issue the title insurance policies
Title Company duties while your home is in escrow are the following:
  • Receives an order for the title and escrow services for Title orders the title search and examination on the subject property. Acts as the impartial “stakeholder” or depository, in fiduciary capacity, for all documents and monies required to complete the transaction, per written instructions from the principals.
  • With authorization from the lender, agent or principal, orders demands on existing deeds of trust and liens or judgements, if any. For an assumption or subject to loan, orders the beneficiary’s statement or the formal assumption package.
  • Reviews documents received in the escrow: Preliminary Title Report, payoff of assumption statements, new loan package, and other related instruments.
  • Reviews the condition in the lender’s instructions, including the hazard and title insurance requirements
  • Prepares the escrow instruction and required documents, together with a preliminary estimate of settlement charges for the borrower in accordance with the terms of the sale.
  • Presents the instructions, documents, statements, loan package and other related documents to the principal for approval
  • Reviews the signed instructions and documents, returns the loan package, and requests the lender’s funds.
  • Receives the balance of funds required from the borrower and/or the proceeds of the loan from the lender.
  • Determines when the transaction will be in the position to close and advises the parties involved.
  • Assisted by title personnel, records the deed of trust and other documents required to complete the transaction with the County Recorder and orders the title insurance policies.
  • Closes the escrow by preparing the final settlement statements, disbursing the proceeds to the seller, paying off the existing encumbrances and other obligations
  • Delivers the appropriate statements, funds and remaining documents to the principals and/or the lenders.