Do you know the difference between closing a title insurance transaction and closing a commercial real estate transaction? Sometimes the lines can get blurred, but there are distinguishing traits between these two services.
Most states in the United States have rules and regulations relating to the business of title insurance that is overseen by a state insurance commission or some other governmental body. Some states have promulgated forms, rules and title premium rates, while other states may have filed rates or no direct rate regulation. Title insurance is predicated on risk prevention, rather than risk assumption. Most of the title premium funds are predicated on the work performed by title professionals to examine title, cure defects, and the settlement/closing process.
Closing a commercial real estate title transaction relates to the investigation of the status of a title to the property, together with determining proper execution and delivery of papers and title instruments necessary to consummate the deal and issue a title policy. The title company is to determine certain acts that have occurred, but acts exclusively for itself, as the title company is considered a “neutral third party” to the transaction and does not act as an agent of any party. Additionally, the closer/escrow agent does not have a duty to police the affairs of the parties to the escrow agreement.
Closing the commercial real estate transaction, on the other hand, relates to the performance of the matters or services on behalf of others to complete the agreed-upon deal. The seller, buyer, its attorneys and/or lender involved in the real estate transaction have a vested interest in all activities performed by themselves (or their client), and they should act for their own benefit and protection in closing the real estate sales transaction. For instance, the title company would not have any duty to explain the legal effects of documents or notify each party of any facts or circumstances that he/she became aware of during the escrow process. The closer/escrow agent’s duties are strictly to safeguard the escrow property and to carry out the terms of the escrow agreement, and not take sides.
In most states, the law is clear that closing the title insurance transaction does not include the accountability of closing the underlying real estate transaction. While there are many cases as to what duty an escrow agent owes to the parties, most come down on the side of a limited fiduciary duty to solely carry out the terms of the escrow agreement.
A closer or escrow agent who handles the title transaction may also handle the escrow functions of a title closing, including review of the purchase and sale agreement, lender instructions, holding earnest money deposits, and preparing closing statements. These escrow services require the closer/escrow agent to act with the utmost good faith and avoid any acts of self-dealing to the parties.
For more information, have a look at GRS | Title’s Web site, or feel free to contact me.