I remember when I first got into law practice, the partner that I worked for, he was mostly a real estate transactional lawyer, he put something on my desk and he said, “This is a title commitment, and I need you to clear the exceptions from this title commitment.” I nodded, “You got it, Boss.” This was actually, I think Google existed back then, I’m not totally sure. Maybe it was Altavista, we might have gone to Altavista back in those days.
What is a title commitment and how do I clear exceptions from it? Nobody had ever told me about that in law school. A title commitment is something that you get from a title insurance company. I called up someone who worked for the title company and they told me what I needed to do. I thought if i ever really wanted to understand real estate, I would go to work for a title company. That’s what I did. I spent a number of years in-house counsel at a title agency here in Arizona.
Title insurance is something that is hard for people to see any value in. It seems like a waste to them until they need it, and then they’re really happy to have it. I won’t go into a long dissertation right now into the virtues of title insurance, but I will say this. Get title insurance. If you’re purchasing property, get an owners’ policy of title insurance. If you are lending on property, get a lender’s policy of title insurance. Your lawyer can help you make sure that you’ve got the right type of coverage. It’s not that expensive, and it can help you to avoid disasters. If you have problems with the title on property that you’re purchasing or that you’re lending on, it can truly be financially disastrous. Title insurance virtually eliminates most of that risk.
I’ll also say a quick word about escrow. An escrow agent is basically a neutral stakeholder in a transaction. When you are purchasing real property, you would have an escrow agent that was an intermediary, really, between the buyer and the seller. The purchaser would give the money to the escrow agent. The seller would give the deed to the property to the escrow agent. There are several other things that would happen in the escrow process as well, those are the big ones.
After all of the conditions have been satisfied that the parties have agreed to, then the escrow agent closes the transaction, records the deed in the name of the buyer, releases the funds to the seller. If there’s a lender involved, then there’s some things that the escrow agent will do in paying off the old loan and putting the new loan in place, as well. Escrow agents help to make a transaction run much more smoothly and escrow agents have duties to the parties to the transaction. It’s an area that can get messy because sometimes escrow agents do not perform all of the duties they were supposed to perform. Sometimes you’ll see an escrow agent that’s buddies with one side of the transaction and is delivering all of the information needed to one party of the transaction and maybe keeping other information secret to another party to the transaction.
I’m a big fan of escrow, but I also like to monitor what’s happening in escrow to make sure that the job is being done properly. In Arizona, almost always the title insurance and escrow functions are performed by the same company, but that’s not the case everywhere in the country. In some places in the country, when you have a real estate transaction, there will be a title insurance agent who is issuing title policies and then you have an escrow agent who is performing escrow functions and they’re two different companies and two different people.