Wednesday, May 31, 2006

Getting better advice

A reader’s question: My wife and I recently purchased a house. The purchase coincided with the sale of our condo. I have a real estate license and functioned as the listing agent. When we went to closing, we encountered multiple problems stemming from the escrow agent's desire to conduct a "dry settlement." The issues were finally resolved after three days. As a result of these delays, we had to pay our movers overtime and could not close on our new home on time nearly costing us the sale.

We have attempted to get the escrow company to reimburse us for the extra money their delay cost us, but to no avail. Is there any way short of going to small claims court to get this matter resolved?
Answer: I think you will have to go to Court, if that is really what you want to do. Your first mistake was acting as your own agent regardless of a license and the second was to schedule the sale of your house for the same day that you purchased your new property.

I recognize that this is done all the time, and usually everything works out. But there are always "glitches" in the settlement process.
Your best approach is to sell your house first, and have your buyer agree to let you stay in the house for a few days. You will sign a "post occupancy agreement," and will have to pay the buyer money for the days in which you stay in their house. Typically, sellers pay what is known as "PITI" -- which stands for principle, interest, taxes and insurance. Your buyer will have to start paying a mortgage on the house they just bought, so it is only fair that you reimburse the buyer for the time that you will continue to reside in their new house.
This should not be a problem for you. Keep in mind that you no longer have to pay this PITI on your old house, and you also will have all of the sales proceeds at your disposal.

You referenced a "wet settlement." This is a lending term which means that when a person goes to settlement, the lender's funds must be on the table. This doesn’t happen in California.
Compare this to a "dry settlement," where there is no money available at the closing. Usually, the escrow company will complete the paperwork, send the legal documents to the lender for review, and then the lender will fund the transaction.
As you can appreciate, this can cause a long delay before the seller will get his money. This will also cause the seller to pay additional interest on his loan, since the loan will continue to accrue interest until the lender is paid in full.
Many States have enacted "wet settlement" acts. The laws differ from state to state but it requires the escrow company to disburse all funds within two business days after all the funds are collected and deposited in the escrow/title company's trust account.

From the facts that you told me, I am not sure that your escrow company was in violation of any applicable wet settlement act. You did get your money on the same day that closing took place -- albeit several hours later.
If you had been more familiar with lending and escrow procedures you could have avoided making incorrect assumptions. Acting as your own agent may have saved you a commission but cost you further time and money. You could have ended up as a defendant in court as a defaulting party on your purchase. Next time get better advice.


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