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WHAT’S A PRE-ESCROW?

Normally the buyer gets to choose the escrow/title insurance company which means they also pay all those costs. Oftentimes, the listing agent will set up a “pre-escrow” where the title work is done prior to putting the home on the market. The seller CAN require the buyer to use a particular company, as long as the seller also offers to pay for the owner’s policy of title insurance.

Why would a seller want to do this? Maybe they took ownership through a complicated process and wants to use the same company as last time to ensure there are no problems. Or maybe it’s a bank-owned property, or there is a relocation company involved, and they want to use their title company for income tax or chain of title reasons.

If a seller requires the buyer to use a particular company but they still expect the buyer to pay all the title company fees, this may be a violation of the federal law known as RESPA. So, buyers have the right to either choose their preferred company for the title insurance or ask the seller to pay for at least the owner’s policy of title insurance. The problem comes when there are multiple offers on a property and the buyer is worried about “rocking the boat” so they just accept the situation.

What we often do at our office is open a pre-escrow but then tell the buyer they are welcome to, but not REQUIRED to use that company. We like to see the title work ahead of time to confirm ownership, look for any unexpected liens or other restrictions on selling. I just had a situation where the home was purchased under an affordable housing program which limits who can buy the home when it is resold, and the seller had forgotten about it.

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Brian Sharp

(925)998-9712

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