Escrow Management

Escrow is a common practice used in real estate transactions. This is where a third party holds large amounts of money or property rights until one or both parties have met a specific condition. In real estate transactions, it’s common for this condition to be the fulfillment of a purchase agreement. Then upon the agreement’s fulfillment, the escrow manager will release the property or funds for a property’s taxes and homeowner’s insurance. Before putting anything in escrow, you need escrow management you can trust.

This third party has to have three things:

• An understanding of real estate law so they know when an agreement is fulfilled.
• The fiduciary duty to keep both party’s financial holdings safe.
• The experience necessary to ensure the transaction finishes smoothly.

But the best real estate attorney to handle your escrow management is one who can help you establish your escrow in preparation for your transaction. The real estate attorneys at Tressler & Associates are perfect for what you need.

What are the Requirements for Escrow Management?

If you’re unsure whether you should or need an attorney to use the escrow process for your real estate purchase, consider the many steps that go into it. An escrow management attorney can help you understand and complete each step so that the property or funds you need for your purchase are available.

Having an Escrow Account

The first step that an attorney can help you complete is acquiring an escrow account. What kind of account and what holdings it can retain are all factors an attorney can guide you through. The account does not only contain purchasing funds but other items and finances such as:

• The initial earnest money check
• All loan documents
• The signed deed for the property

Once you and the property seller agree on a price and sign your purchase agreement, we can open up an account. This part of the process does not drastically change whether you are purchasing a residential or commercial property. The main differences will likely be the amount of money being stored and extra documents to confirm the legality of the property and its uses.

Getting Your Lender’s Approval

In most cases, your lender will be your bank or another financial institution. They will also need assurances for the property to protect their financial interests in the case of foreclosure. If they believe it cannot be resold for the money they lent you, that could be a reason to not approve a purchase. This valuation process is called an appraisal.

If the appraisal comes in lower than the offered price, they’re likely not going to provide the funds unless you offer to pay for the cash difference or convince the seller to lower their price for the appraised amount.

There are options for changing the appraiser’s mind that an attorney’s help is instrumental with, including:

• Proving why you believe the property should be appraised for a higher value.
• Getting another appraiser.
• Seeking out another lender with another appraiser.

If all else fails, you can cancel the purchase agreement and dismantle the escrow account. This will allow you to search for another property to purchase.

Financing Contingencies

By this point, your purchase agreement should be written and signed. It should already detail the property’s address and good faith estimates for:

• Your loan amount
• Interest rate
• Closing costs
• Associated purchasing costs

Once this is finished, and you have your escrow account and lender’s approval, the last barrier that needs to be taken care of before you have secured financing is your financing contingencies.

Real estate agents place these on your purchase agreements to prevent buyers from owning two homes and paying two mortgages. They do this because if you already have a mortgage and you find you can only pay one, you won’t pay the one you have on the home they’re selling.

To deal with financing contingencies, you have to sell your current home within a specified amount of time. A real estate attorney can help you prepare all the papers and agreements you need to finish your property sale.

Getting Approved Seller Disclosures

Rarely is a property perfect. It’s not uncommon to have a residential or commercial property violate a local ordinance or housing code. This doesn’t have to deter you from purchasing a property, but a seller has to disclose this information to you in a seller disclosure agreement.

You should always have an attorney look this over before you sign it so you can be properly informed of anything in it that may harm you. For instance, it is illegal in many counties to turn garages into living spaces. Before continuing with your purchase, you may want to require that the seller undo these changes before the sale goes through or plan to rectify the situation yourself.

Completing a Proper Inspection

Inspections are important for an assortment of reasons in regards to safety, true habitability, and legality. What inspections you need differ between residential and commercial properties.

• Home Inspection: As the name implies, this is for residential properties. This is where an inspector makes sure that your home is up to code and safe to live in. If it passes with flying colors, this could mean that it is without defects or weaknesses. If there are defects or weaknesses, you’ll have legal support to pull out of the purchase or negotiate for a lower price. In the rare case that this happens, if an inspector says it is unlivable, that can be grounds for a lawsuit against the seller.
• Commercial Inspection: This is the equivalent of a home inspection for commercial properties. Inspectors have to consider that this is not a living space, but a business, potentially with customers. This includes looking into electrical, mechanical, heating, plumbing, and air conditioning/ventilation systems on/in the property. They will look at these systems in a residential environment, but mechanical and air conditioning are not required in residential homes where they are in businesses in certain areas. There are also different standards for each system of the property to meet in comparison to those in/on a residential property.
• Pest Inspection: Both residential and commercial properties will receive inspections to make sure there are no pests that could potentially damage the property. Pests include rats, termites, carpenter ants, roaches, and more.
• Environment Inspection: There are multiple environmental inspections. Inspections are done inside the property check to make sure nothing is leaking, or there are no bacteria infections like mold. If there are local sites like landfills, dry cleaners, or gas stations, an inspection will also find any contaminations in the property. There are also inspections for the property outside of the house itself and the land it sits on. This is to make sure it will remain structurally safe. This includes weather problems such as flooding issues.

Inspections are also not required by law in the state of Tennessee, but for the sake of your safety, financials, and living space, we recommend that you get one.

Getting Insurance

Insurance is necessary to finalize property purchases, but residential properties need homeowner’s insurance where commercial properties don’t. Homeowner’s insurance protects private residencies, and if the property is prone to flooding, you also need flood insurance. You need to get proper coverage from flood insurance to get homeowner’s insurance, which you need to get a mortgage.

During the process, you will also need title insurance to get a title report. Tennessee law does not require that you get title insurance, which protects you from issues with the deed and the property’s ownership documents. Most lenders still require it, though. This will protect you throughout the purchasing process, and even after if you find that a title issue was missed during the title search.

HUD-1 Form Review

A HUD-1 form is one you receive at least a day before closing. It’s best to compare it to your good faith estimate with your attorney to make sure everything agreed upon is there. An attorney will make sure that you are not receiving any excessive fees and there are no mistakes in the document.

Contact Tressler & Associates For Escrow Management

Escrow contains many essentials that you will need to purchase a new property. Without proper management, you can end up without the documents or funds you need to complete it. There’s no good reason to go into this purchasing process alone. With a real estate attorney, we can help you every step of the way, including through the escrow process.

Contact the attorneys at Tressler & Associates for help with your escrow management, and any other legal help you need during your real estate transaction.