In Today’s tight-lending market, individuals looking to invest have the opportunity to capitalize on some great deals and benefits when making an “all cash offer” on a property.  An “all cash offer” is an offer that does not require a third party lender.  Cash offers also make for one of the smoothest escrow processes possible.

So how does a cash offer affect escrow?

As mentioned in a previous blog posting (Life of an Escrow – Buyer’s Perspective) there are three stages of the escrow process: the opening, the processing, and the closing.  The opening and processing stages of an “all cash” escrow are no different than those of a normal escrow; however, the closing process differs slightly since there is no lender involved.  During the closing process, once the escrow officer has received the buyer’s and seller’s signed initial paperwork and has received all demands, bills and/or reports required under the contract, the escrow officer will prepare the closing amendments and any additional documents necessary for signatures.  In addition, the estimated closing statements are prepared for signatures and the buyer is made aware of the funds needed to close the transaction.  Depending on how quickly the signatures and appropriate paperwork can be collected, the escrow could potentially close in as quickly as a week!

If a buyer is considering investing in a property, they should speak with their agent to learn how paying cash can be beneficial to both parties.  These benefits might include:

• A seller possibly accepting the “all cash offer” rather quickly, even if it’s not the highest offer, or one of many
• A seller finding an “all cash offer” more attractive because a buyer who is purchasing “all cash” is generally highly motivated to close escrow quickly
• No appraisal inspection/appraisal review issues or delays
• No loan or underwriting issues or delays
• Parties having the option to waive certain reports or inspections that they are not interested in paying for, that a lender may require as part of the loan process
• The buyer paying less money in closing costs

Upon the escrow officer’s receipt of all conditions of the purchase contract being met, the buyer’s final wired closing funds, and the final signed paperwork from the buyer and seller, the escrow is ready to close. Escrow then coordinates the recording with the Title Company.  (Though all counties have different guidelines for recording times; most recordings take place the following business day.)  The real estate transaction is considered closed when the Grant Deed is stamped and recorded in the County Recorder’s Office.  Because there is no lender involved in an “all cash escrow”, the escrow tends to close faster and is considered a much smoother process.

If you have any furhter questions about all cash escrows, feel free to contact us.

For some, the escrow process can be perceived as confusing, perhaps even overwhelming at times.  Buyers and sellers are dealing with deadlines, mounds of paperwork, and signatures galore. It is not uncommon to feel anxious and have questions during the process.   As the neutral third party at the center of the transaction, escrow’s goal is to facilitate the transfer of property from the seller to the buyer. To help give buyers and sellers a better understanding of the entire process, we put together a Life of an Escrow overview flowchart.

Life of an Escrow

As the chart illustrates, the escrow company is the neutral third party that facilitates the closing process when real estate is purchased or sold.  Escrow is involved in many of the details regarding the purchase or sale transaction. It is common for there to be myriad of details, and escrow works with many different parties, such as a title company, mortgage banker, seller’s agent, etc., during the escrow process. It is important to also understand that escrow holds the money associated with the transaction until the requirements of the contract are accurately completed. Once escrow has facilitated the completion of the legal and contractual items, the transaction is recorded at the county and the buyer becomes the new legal owner of the property.

There are many details buyers and sellers should become aware of to facilitate a smooth escrow process.  Many of these details are items we discuss on our blog in an effort to help demystify this complicated process.  The chart above serves as the foundation for most transactions and can be used as a basis for further discussion or questions you may have with your escrow officer.

One of the many important documents received by Escrow from a lender is the Truth in Lending Disclosure Statement (TIL).  The TIL disclosure statement is one of the most misunderstood documents required for closing, and Escrow Officers are often faced with many questions from the borrower regarding this document. This post is designed to educate the borrower (purchase or refinance) as to how to best understand the Truth in Lending Disclosure Statement. 

A lender is required to give the borrower a Truth in Lending “statement” containing information on the loan’s annual percentage rate (APR), the finance charge, the amount financed, schedule of payments, and the total payments required. The statement may also contain information on security interest, late charges, prepayment provisions, and whether the mortgage is assumable.  The lender will require that the TIL disclosure statement is signed by the borrower along with many other loan documents, all of which must be received back into Escrow.

What is a TIL?

It is important to understand that the TIL statement is not an agreement between the borrower and the lender. It is a federal-required disclosure document (Regulation Z) under The Truth-in-Lending Act (TILA), which is an important part of the federal Consumer Credit Protection Act. The TIL disclosure statement requires complete disclosure of all credit terms, conditions and consumer costs of obtaining credit. Unlike the “Good Faith Estimate” document which discloses an entire sale transaction’s cost, Truth-in-Lending deals only with the cost of the loan.

Understanding the APR Calculation in the TIL Statement

One of the most common questions Escrow receives regarding the TIL statement often has to do with the annual percentage rate.  This piece of information in the TIL statement often confuses borrowers, as the APR calculation is prominently displayed on the document. It is not uncommon for a borrow to panic when they are presented with the statement during Escrow and loan document signing, as the APR is usually higher than the agreed contract interest rate of the loan.

To many borrowers APR, or “annual percentage rate”, sounds a lot like “interest rate.” The APR is not an interest rate. It is a measure of the total cost of credit, expressed as a percentage rate. The contract interest rate is defined in the promissory note. The purpose of the APR is to provide the borrower with a uniform measure of the total cost of a loan.  The APR calculation includes the contract interest rate in addition to the other costs of the loan, including any prepaid costs (points and fees) that are part of the cost of borrowing. The contract interest rate in the note is only one part of the finance charges. The APR is a representation of the total finance charges.

Though it is important to understand how the APR is calculated, it is equally important to thoroughly understand the other elements of the TIL statement, as the lender requires the statement is signed by the borrower and given to Escrow.  For more specific questions related to a borrower’s loan, Escrow will assist the borrower in contacting the lender representative.