How To Avoid The Most Common Escrow Problems

Dated: January 31 2019

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How To Avoid The Most Common Escrow ProblemsThe seller changes their mind, you change your mind, the home is infested with termites or the title has issues. All of these problems and more can potentially crop up during the escrow process. Having an experienced real estate agent on your side is key to getting over these hurdles without too much stress or financial mishap.

Curri Properties is here for you every step of the way, no matter what. Here are some common escrow problems we are qualified to help you navigate.

1. Unexpected defects uncovered during the home inspection. In most cases, the purchase offer should include an inspection contingency that allows the buyer to back out if there are serious issues revealed during home inspections. BUT, if the contract does not include this clause, it is possible to lose money, generally around several thousand dollars.  You may negotiate with the seller to have any problems resolved and repaired, but this will potentially slow down the purchasing process and delay closing on the home.

2. Your financing does not come through. Getting pre approved will greatly help prevent this problem from happening in the first place. Yet, even if you do get pre approved there are some things that can hold up financing, such as a sudden increase in interest rates, filling out false information on your application, your credit score changes or you change jobs. If you wait until escrow to get approved for financing there’s always the potential you won’t be approved on the amount you need. Getting with the a reputable lender, preferably one that has a relationship with your Realtor can make a huge difference in making your transaction smooth and actually closing on the property inside the contract timeframes.

3. Your future home is damaged during the escrow process. A natural disaster or any other calamity can damage a home that is currently in escrow leaving buyers wondering—now what? The first step is to look over the contract and see if it details how this sort of situation is to be dealt with. If damages total 5% or less of the total contract value, the buyer and seller typically come to an agreement to keep the deal moving forward as long as the seller fixes and funds repairs prior to closing. If damages are more than 5% of the total contract, buyers typically back out of the deal and have their deposit returned. To protect yourself, always make sure that the purchase agreement has a clause for potential damages that occur during escrow.

4. The home appraises for less than you are paying for it. The home will be appraised during escrow to ensure your lender’s interest in the home. The lender wants to make sure that the home is worth at least what you are paying for it. If the home ends up falling short according to their appraisal you will either have to front the difference in cash or the seller will have to lower the sale price. It is also possible to get a second opinion from a different appraiser, but only for a conventional loan.  If a house is going through VA or FHA financing the appraisal is in the government system for 90 days and there is nothing you can do, unless you rebuttal the appraisal and the appraiser makes a change to the appraisal justifying the purchase price.

5. You change your mind and no longer want the house. If you find another house you like better or just decide against moving to that practical neighborhood, you do have the right to back out of the deal. If the reason for backing out is listed on the contract as a justifiable reason you can back out without penalty.  BUT, if your reasoning is not justifiable by the contract you will lose your earnest money in order to compensate the seller for the time their home was off the market.

6. The seller changes their mind and no longer wants to sell you their home. If the seller has a change of heart because they don’t want to sell or received a better offer, you are entitled to collect damages from the seller if they refuse to go to settlement.

7. The title has issues. During escrow a title company completes a title search and issues title insurance. As a result, this ensures no one else, such as the IRS, relative of the seller, etc., has any future claims against the property. If the title comes back showing a lien or claim against it, the issue must be resolved before the escrow process can proceed.

8. The house is infested with termites. During escrow a number of inspections are conducted including a pest inspection. This protects you against buying a home with damages caused by termites and carpenter ants. The lender typically requires this to protect their interest in the property as well. If termite damage is uncovered the seller has the option to fix it before closing. If the damage is too extreme or the seller refuses to fund repairs you have the right to back out of the purchase agreement.

9. The home cannot be insured. There are a number of reasons getting insurance may prove difficult, or even impossible. For instance, if a previous homeowner made a claim for large damages related to mold or a flood the house may be extremely expensive or even impossible to insure. The most common issue’s are a roof is at it’s life expectancy, or a home has aluminum electrical wiring, or the home as a Federal Pacific Electrical panel.  Even if you are buying a house with all cash it’s never advisable to buy a home that you cannot insure.

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