(Kerrie) We have been hearing a lot about “escrow” closings lately. Well, how about it? Can you give our readers a short explanation of the escrow closing process?

(Jim) Of course, but you could go to our website, stonebridge-title.com, and read a full explanation of escrow closings versus round table closings.

(Kerrie) Yeah, but I just did my nails and I can’t touch the keyboard. Just tell me.

(Jim) To understand an escrow closing, you must first know about round table closings and a bit of the history of closing practices in Southwestern Ohio.

(Kerrie) Another history lesson?

(Jim) Yes dear. Historically most real estate closings in our area were handled by local lending institutions. Many of these were small and these lenders did not sell the loans on the secondary mortgage market. Each lender had an attorney that searched the title, prepared the loan documents, that is, the note and mortgage, prepared the deed and sat down with the sellers and buyers at the same table. The attorney would have the parties sign the documents, pass out checks and record the deed and mortgage. The attorney would give an attorney’s opinion of title to the lender because back then title insurance was rarely used or requested. Because an attorney was involved in the entire process, everybody relied upon that involvement. If some title problem arose after closing, the attorney would be so embarrassed about the error that the attorney would fix it right away.

(Kerrie) Sounds like a good system.

(Jim) Yes it was, but the attorneys charged attorney’s fees to handle such transactions, which were sometimes based upon a percentage of the loan amount.

(Kerrie) So what’s wrong with charging attorney fees? Why did things change?

(Jim) Well, pressure started to reduce settlement fees and, to make a long story short, real estate closings are now handled by title companies with very little, if any, attorney involvement.

(Kerrie) Generally, most title companies take the position today that their sole function is to represent the lender at closing, so the whole point of buyer and seller reliance upon the attorney at the closing table is now gone. Right?

(Jim) Right, and the case law backs up that position.

(Kerrie) So how does an escrow closing change any of that?

(Jim) In a round table closing the title company acts as a “facilitator” for the seller and buyer, with no real express duties to them. In an escrow closing, the escrow agent serves as the unbiased "stake holder" and serves as the communication link to all parties in the transaction. The escrow agent holds all documents and money until all conditions of the sale are completed, at which time the escrow agent will impartially carry out the written instructions given by the principals (i.e., the seller, the buyer and the lender) in the transaction. Of course, with the increase in services and liabilities to all parties, there is an increase in settlement costs.

(Kerrie) So what you are saying is that in an escrow closing, the escrow agent becomes a fiduciary of the buyer and seller, continues to work for the lender, and is responsible to carry out all parties’ instructions.

(Jim) You got it.

(Kerrie) I can see how this would shift some of the responsibilities taken on by the real estate agents to the escrow agent. Now I know why real estate agents who come here from other states always talk about how much they preferred escrow closings.

(Jim) We even have the downloadable forms that enable the parties to convert their round table closing to an escrow closing. And, there are many other advantages, which you can read about on our website, www.stonbridge-title.com.

(Kerrie) My nails are still a bit tacky, so no keyboarding yet, but I can’t see any reason why lenders, sellers and buyers would not want to do anything but an escrow closing – but that’s my opinion.

(Jim) And mine.

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Jim and Kerrie Matre are married partners in the law firm of Matre & Matre Co., LPA. The firm generally limits its representation and practice to all legal issues related to real estate, construction law and corporate representation.

This article is written to introduce the reader to common real estate legal concepts. It is not intended to be legal advice to any specific party. As always, consult your attorney regarding your specific situation.

Have questions? Email them at either kmatre@matrelaw.com or jmatre@matrelaw.com