Title Issues and Closing | Interactive Questions
Escrow Requests to Avoid
There are several requests title company escrow officers receive from real estate agents that should be avoided. Below are some common examples.
1. Real estate agents should not ask the escrow officer to select or order the buyer’s residential service contract. The buyer, and not the escrow officer, should handle the process of ordering a residential service contract (“RSC”), also known as a “home warranty,” The buyer can send the invoice to the escrow officer to be collected and paid at closing. The escrow officer has limited or no familiarity with the structure, features, or size of the home subject to the RSC, and the escrow officer is unaware of the particular coverages the buyer may want included in the RSC’s coverage. Real estate agents do a disservice to their clients if they do not encourage them to be involved in this process. Title companies and real estate agents can end up in conflict with the buyer after closing if the buyer is not involved in selecting the RSC coverages, and then buyer ends up having to pay for repairs for which RSC coverage was available but not selected.
2. Real estate agents should not ask the escrow officer to pass checks between buyer and seller at closing. Sometimes real estate agents ask that the title company deliver a check from buyer to seller, or vice versa, at closing for funds that are not shown on the settlement statement (often referred to as the “Closing Disclosure”). However, in any transaction where the buyer has a lender, any monies that need to be transferred between Seller and Buyer at closing must be reflected on the Closing Disclosure. The title company has a fiduciary relationship with the lender, which requires the title company to close as instructed on lender’s written closing instructions. Typical lender closing instructions contain language similar to the following:
“The escrow agent shall close the transaction and disburse funds only in accordance with the Closing Disclosure. If any party to the transaction requests that his/her funds be disbursed in any manner different from the Closing Disclosure, the escrow agent shall advise us of the request and obtain prior approval from us before any funds are disbursed in a manner different from the Closing Disclosure.”
This means that payments for matters connected with the sale of the property, such as leasebacks, non-realty items, or credits from Seller to Buyer, must be reflected on the Closing Disclosure. To ask the escrow officer to aid them in circumventing the Closing Disclosure via “side payments” not reflected thereon is to ask the title company to violate its fiduciary duty to the lender. In addition, “side deals” not reflected on the Closing Disclosure could also subject those involved to liability for mortgage fraud.
3. Real estate agents should not ask the escrow officer to delav closing due to a dispute between the listing agent and the buyer’s agent as to the commission split.
Technically all of the commission belongs to the listing broker. In the e1ent of a dispute, the law would require the title company to pay the listing broker all of the commission, and the buyer’s broker would have to pursue the listing broker for their split owed to them. To try to bold up a closing based on such a dispute is a violation of the agent’s fiduciary duty to act in the best interest of the client.
4. Real estate agents should not ask the escrow officer to notarize pre-signed documents. With the exception of Online Notaries (who are subject to a separate set of stringent regulations), a Texas notary cannot notarize the signatures of persons that do not sign or acknowledge a document in the notary’s physical presence. Texas notaries must also review sufficient identification that meets the standards required by state notary regulations. Asking a notary to notalize documents of a client who is not present is asking the notary to break the law.
5. Real estate agents should not ask the escrow officer to pay an entity (LLC’sl or trust seller’s pro ceeds directly to an individual client.
6. Real estate agents should not ask escrow officers to pay their individual agent commissions to their own unlicensed LLCs.
7. Real estate agents should not be delivering option fee monies to title companies instead of the listing agent or sellers.
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