Escrow Thursday: Frequently Asked Questions About Escrow

When we inspect, which is about 15-25% of all sale orders, we look for the following:

A. Evidence of recent improvements (thus, potential mechanic’s lien rights)

B. Evidence of encroachments

C. Evidence of parties in possession

D. Evidence of unrecorded easements

E. Evidence of anything else that might impair our coverage

The inspection is “triggered” if:

– Tax values jump significantly (thus potential new improvements)

– The property has not been insured in many years

– We are told there is an encroachment/potential encroachment

– There is a recorded survey disclosing potential matters listed above

– It is a sale/refi/construction loan of new construction or new subdivision

We pay for the inspection, and do not pass the cost on to the customer.  If we do not inspect, and something that is covered would have been disclosed in an inspection, we are usually responsible for it.  The inspection is not a survey, but a pretty accurate snapshot of the above issues. To find out definitively, the client would need a survey.

That’s when a Power of Attorney can come in handy.  But, there are few different kinds and which one is most applicable?  Here are some brief descriptions of a few types:

Special Power of Attorney for a Sale
This type of power of attorney is used for the sale of a specific piece of property. It must include the legal description of that property, be notarized and recorded.  This type of power of attorney typically has a 6 month (or less) expiration date.

Special Power of Attorney for a Purchase/Encumber
This type of power of attorney is used for the purchase of a specific piece of property. And, with lender approval, can also be used to financially encumber the property with a security instrument. It also must contain the legal description of the property, be notarized and recorded.  It is only valid for that the particular designated property, and cannot be used to sign a purchase and sale for a different property.  This type of power of attorney typically has a 6 month (or less) expiration date.

General Durable Power of Attorney
This is typically a more broad-based document created by an individual giving power of attorney to a representative for a broad array of activities (medical, financial, etc.). It needs to specifically include the right to convey (sell) or purchase property in order to be valid for title insurance purposes. General durable powers of attorney also need to be recorded.

Creating a Power of Attorney
A durable power of attorney is typically created for the client by an attorney. The special power of attorney documents can be prepared by an attorney or by using approved generic forms (visit cwtitle.net, and click on “Recordable Documents” for a link to the Washington

State Bar Association website, which contains recordable documents).

What is an ID Affidavit and why do title companies request them?
When we search title on a sale, we search public records on both the sellers and buyers.  We look for judgments, liens, and any other complex issues that may affect the property.

We often need to have an ID Affidavit when  a buyer or seller with a common name (i.e. John Smith) is involved.  For example, if we run the name John Smith in King County, we would come up with around 5,000 complex issues that affect the property of parties with the name John Smith.  So the information provided in the affidavit allows us to determine which items do and do not affect the subject party and or property.

Although it is sometimes time consuming for clients to fill out this affidavit, it is crucial information. It is a confidential affidavit, so rest assured that the information is private and secure.

What are mechanic’s liens?
A mechanic’s lien isn’t for a car-repair gone bad.  It applies to a lien that’s been placed on a property for contractor’s fees, sub-contractor’s fees, construction materials, or any other items that have been used to improve a property.  When laborers and product suppliers don’t get paid or dispute arises over amount paid, they can place a lien against the specific property.  At that point, if the lien still has potential to be legally enforced, it must be dealt with prior to closing.

So, what to do if a property is the “liening” tower of Pisa?

1. The lien can be paid off with sale proceeds at closing.

2. If the lien is being disputed or if it impacts an entire condo building (and you’re selling just one unit), a Release of Lien Bond can be purchased from a bonding company and recorded.  This does not cure the lien, it simply allows for closing while the lien is being disputed.

3. If the above solutions do not apply, you can contact your title company to discuss the potential option of a “holdback” securing an indemnity agreement.  Like a Release of Lien Bond, this does not cure the lien, it simply allows for closing while the lien is still being disputed.