Real estate differs from country to country, and comparing Canada to the US is no exception. Despite the close proximity between the two countries, the real estate industry operates somewhat differently.
Let’s take a look at the terminology that encompasses some of the differences between the two countries, as we examine the following real estate terms: escrow, short sale, and title insurance – all terms used commonly within the real estate industry in the United States, but not as common to Canada.
The term “escrow”, used in US real estate, refers to the process of the title company facilitating the real estate transaction. After the buyer and seller provide the title company with the contract, written instructions, documents, and funds, escrow is opened.
The title company typically acts like a neutral third party, verifying the property is clear and everything in the contract and instructions has been appropriately fulfilled. Once completed, the title company transfers the ownership. Escrow opens when the contract is completed, the seller has accepted the offer, and the deposit and contract are given to the title company.
The term “short sale” is not commonly used in Canada, and refers to pre-foreclosure situations, where the property owner may be about to be foreclosed upon, and in a last-ditch effort to avoid a foreclosure and the resulting unpleasantness on their credit history, the homeowner is attempting to sell the property.
In a short sale, the home is worth less than what is owed on the home, and the homeowner has to receive the okay from their bank to sell it for less than the mortgage amount, asking the bank to forgive the balance. In addition, all liens must be cleared or approve the price of the home, which can induce a very complication scenario in which the home rarely sells. In fact, up to 80% of short sales do not close, primarily due to the economic climate in the US. It can take three months to receive a response from a bank for an offer, and in the end, most banks won’t go for it, unwilling to accept an offer below market price.
While title insurance does exist in Canada, it has existed in the US for years, referring to an insurance policy offered to a buyer by his or her lawyer to protect against a variety of situations. In short, title insurance insures against financial loss from defects in title to real property and from issues resulting from liens.
Title insurance has grown in the US partially because of poor land registration systems in certain states, in addition to the rise of the secondary mortgage market that involves the sale of title and equitable mortgages in the marketplace. Title insurance is meant to simplify real estate transactions, potentially eliminating the need for services such as surveys, providing savings to the homebuyer and avoiding delays.