My Escrow Insights So Far
Jason Cochard for Land Academy
I wanted to write this week about dealing with escrow companies and what I’ve learned in my limited experience as I’ve begun to use escrow for the majority of my deals. You may have more or less experience than I do, and your mileage may vary from my thoughts, and I’d love to hear about your experiences too, if you email me. For now, here’s some of my experiences with escrow officers and things that have come up when running deals through escrow instead of doing it myself.
The first deal that I ran through escrow and title was a deal in a Southwestern state that borders Mexico. I was conscious of (but had no real comprehension of) the area having disputed Native American and Mexican land grants, and because I didn’t want to get scammed by an opportunistic seller, I decided to run my first deal in this county through escrow and get title insurance. It was pretty rural, so I picked one of two local companies I could find, after getting a recommendation from a fellow Land Academy member. Towards the middle of the process, I noticed that this small town escrow company was painfully slow to do anything and everything. I hope that doesn’t come off as a harsh judgment, but it’s just something to be aware of. They wanted me to get a survey because there was no legal access to the parcel, so, being my first deal being done “the right way,” I did sink a small amount of money into a survey in hopes of uncovering some access or easement. But ultimately, I had to just check the box on the title form to exclude coverage surrounding access issues. Fortunately, my buyer, who was lined up from the beginning, didn’t care about access (best kind of buyer!). But even at the end of the excruciatingly long escrow process, there were errors on the deed. I was at a loss for words, because I know that closing a cash deal is very straightforward and getting the names right is important and not difficult. I should mention that the original recorded deed was never mailed to me — I had to verify the recording using online tools. That’s not the best experience with escrow, but I’m deliberately not characterizing it as a horror story because everything worked out in the end — the land was sold and everyone was happy.
After that experience and others, I consider the length of an escrow to be in direct relationship with the errors that I may catch. The longer it takes, the more carefully I inspect the wording on the deed and all associated documents. There have been some bonehead errors I’ve noticed.
My second deal closed with escrow & title was on the sales side, with the property in a state north of California. This time, I had acquired via a notary close, but did not obtain an affidavit of uninsured deed, which is a notarized document that certain title companies in certain states require from all sellers of previously uninsured properties (ie, all of our notary-assisted self-closed deals). My buyer wanted title insurance, so this escrow became all about me being nervous that I’d get rejected for a policy because of the uninsured acquisition.
At the time I was doing my acquisition on the property, I had never heard of that affidavit. In fact, I had already opened escrow on the sale transaction when I learned about what it was, in connection with a different deal in California, where title is very strict. (In fact, the person who taught me about that affidavit is an escrow officer. She is very investor friendly and understands our issues and concerns — I’ll use her for most of my California deals). I got nervous that I’d need to go re-visit my sellers who might want more money, but to my surprise, it turned out that the insurance carrier (or the state insurance commissioner) was lenient on the affidavit requirement, and I never heard anything about needing to go back to my seller. They insured it with no questions asked, and the buyers were satisfied. It’s possible that the escrow officer obtained it from them on my behalf, but I didn’t hear about it at all. So my takeaway is that some states and/or some carriers are going to be happy to insure a previously uninsured property, while California properties will always be very strict about it.
My other impressions from that sale were that the escrow officer was very busy, non-communicative, completely surprised to hear from me when I did eventually get her on the phone, and simply told me that they’d call when they needed something from me. Seems like silence was her love language, because a few weeks later I got a call to schedule a closing. It was pretty painless, and I signed all the papers they wanted and got a check in the mail a few days later.
After errors and silence, the other experience I’ve had from small-town escrow/title companies has been outright rejection. When talking to an escrow officer trying to get an idea of pricing in a moderately rural county, I got rejected by three companies (“we’re too busy”) prior to making progress with a fourth. However, with the fourth company, I made the mistake of mentioning that I know how to close a real estate transaction myself. Big mistake! That comment seemed to trigger something deep, and she seemed to immediately lose all respect for me, which precluded any chance of working together — I basically lost respect for her too.
It took me a while to find someone else willing to work with me, owing partly to the low purchase price. House transactions tend to be higher priced and higher margin, and take precedence. Thus, when you’re in a super rural area with few houses, you might have someone willing to work with you on a low dollar deal, but the more houses in the area, the more your small land deal will get lost in the mix. In the end, that deal was closed by a very capable escrow officer who I will work with again on all my deals in the area — no errors, no guile, and very communicative despite other deals undoubtedly on her desk.
On my current deals, I am starting to get better at finding really good escrow officers local to the parcel, to the extent they exist. After all the deals that took forever, I finally can say that I received a preliminary title report back within 2 hours of submitting my contract. I thought I was dreaming! Fast, communicative, and I even had some weird specifics that I had to conform to because of my seller being a hard guy to deal with, but they got everything done, and lightning fast. Honestly it’s such a good experience that I’ll probably mail more offers to that area, specifically because of how much I like working with this escrow officer.
I hope this post gives you some useful insight into another land investor’s experience with the escrow process. And if you’re moving into the direction of larger deals, maybe some of my experience can help you. I’d love to hear your experiences too if you email me. Thanks again for reading!