Trish Fedewich, Notary Public with Fedewich & Witt came to our HomeLife Benchmark Realty sales meeting today to share some tips on dealing with Escrow Closing Agreements.
Escrow Closing Agreements come into play when a real estate contract cannot be completed because all the terms agreed upon can't be met. In some cases, the contract can be extended to allow more time for those conditions to be fulfilled, if all parties are in agreement. Here are some examples of when an Escrow Agreement might be used:
1) Sale of a New Residential Property from a Developer to a Buyer when no Registered title is Available on the agreed Completion Date.
If a strata plan or subdivision hasn't been registered in time for the contracted completion, the Seller may want to mitigate his risks and ensure the Buyer is satisfied and with an escrow agreement. This allows the Buyer to move into the property and the Seller doesn't receive payment until title is transferred. Some contracts for new homes already include the terms for an escrow agreement in case it may be necessary. Both parties' legal representatives draft an Agreement that will protect both sides of the contract. Special care needs to be given in cases where lenders are providing a mortgage for the purchase. The Buyer needs to ensure the mortgage won't expire prior to the deal being completed and the Seller needs to ensure there is appropriate insurance taken out on the property seeing as the Buyer doesn't actully own the property outright.
2) Sale of a New Residential Property from a Developer/Builder to a Buyer where there is no Occupancy Permit issued by the Completion Date:
Sometimes there is no final occupancy permit but the Buyer wants to take possession of the property. This is extremely risky and generally not recommended. If the City or Fire Department is not satisfied with the property, they can order the Buyer to vacate the property.
3) Sale of Home from an Estate where Propbate hasn't been granted by the Completion Date or the Seller becomes incompetent and has no valid Power of Attorney.
Title cannot be transferred after a single owner's death or a couple who hold the property as Tenants in Common without Grant of Letters Probate. If that owner has a partner in ownership in Joint Tenancy, the surviving partner can sell without Probate.
If a Seller becomes ill and/or incompetent between the time the contract is written and completion, and has no power of attorney, the Completion Date may have to be delayed while an applicaiton for Committee of the Seller is obtained.
3) Sale of Home and A Mortgage Cannot be Released by Completion Date:
Occasionally a Seller may have a very old mortgage on title to the property that is paid out but has never been discharged. If the lender was a corporation no longer in business or a private individual no longer alive, there's nobody to sign the discharge by the Completion Date.
There are definitely risks involved in entering into an Escrow Agreement as well as advantages. Seeking strong legal advice is the best way to proceed in decision making.
The most important thing I took away from this morning's discussion was the importance placed in looking even more carefully at the Title of a property prior to listing it. I always look for easements, covenants and charges. From here on in, I'll also be looking for older mortgage charges and checking them out with the Seller. I'll also be asking the Seller(s) and Buyer(s) if they have a Power of Attorney.
The best way to help my clients solve problems is to do my best to help avoid them in the first place.