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What is Payoff / Sub-Escrow?

August 17, 2017

You may know that an escrow company is responsible for the purchase and sale of a property. What you might not know is sub-escrow may be required.

A sub-escrow is a requirement of the funding lender (new lender). In some cases, the lender may be processing their escrow with a private company. This is so that the lender can be confident that the company receiving the funds has adequate Errors and Omission coverage in the event that there is any insolvency. Typically, the full escrow agent will be notified last minute that the lender requires a sub-escrow. From here, the sub-escrow is set up with the title company that is issuing the title insurance policy.

The sub-escrow agent is then responsible for receiving the new lenders’ funds and paying off any existing encumbrances on the title report, including taxes. The full escrow agent and sub-escrow agent work together and exchange information to make sure that all payoffs and taxes are paid. ¬†Any excess money from the lender’s wire is then turned over to the full escrow agent so that they can pay the seller etc. The escrow agents also communicate with the title department to make sure the documents are not recorded until all pieces of the equation are in place.

Once the documents are released for recording and all funds are in place the transaction is closed and the sub escrow agent then disburses the funds in accordance with the HUD settlement statement that was prepared by the full escrow agent.

To help you understand the ins and outs of this service, note the following brief definitions of commonly used terms.

Demands – Demands must include specific payoff information concerning the particular property and must be signed. It is the responsibility of the escrow to order and provide all necessary demands including any updates or changes on a timely basis.

Disbursement checks – Checks are delivered locally to lending institutions by a contracted messenger service. Checks to individuals and to out of area lenders are typically sent via an overnight delivery company.

Payoff – The receipt of funds from the buyer and the payment of the obligations of the seller in conjunction with a real estate transaction. The title company performs the payoff function.

Prefigures – Estimated payoff figures are calculated and given prior to closing upon request. These figures are only valid through the date given and are based on the information provided at the time.

Shortages – Fidelity National Title will be refunded to the escrow if there is a shortage of the necessary funds to cover the outstanding obligations. The shortages must be received prior to payoff

Do you have questions about title? Talk to our expert team at Fidelity National Title in Orange County for more information!