Selling or purchasing commercial real estate is no small matter. Both parties have significant financial interests during this transaction, so it’s worth taking the necessary steps to safeguard your investment along the way. States like Texas may require that commercial real estate transactions move through a process known as escrow to minimize risk, prevent potential disputes, and protect both buyers and sellers. For those who are unfamiliar with the escrow process, this step can seem like an unnecessary or cumbersome hassle that slows down the transaction and prevents you from finalizing the deal. However, it’s important to understand the purpose of escrow, as well as the various protections it offers to both buyers and sellers.
If you are contemplating or about to purchase commercial real estate in Texas or Alabama, it’s helpful to familiarize yourself with each step of this process so that you can move forward with greater certainty and confidence. Seeking the guidance of a highly experienced and knowledgeable Texas commercial real estate lawyer allows you to receive the customized support and trusted answers you need to move through the commercial real estate transaction feeling empowered and protected. Let’s take a look at the steps you can expect to take during the escrow process for Texas property sale and how partnering with a skilled Texas real estate attorney can improve your chances of a smooth and successful transaction.
What is Escrow in a Texas Commercial Real Estate Transaction?
Escrow refers to a “legal arrangement in which funds or assets are held with an independent third party agent on behalf of two or more parties that are in the process of completing an underlying transaction.” This means that a neutral third party, such as an escrow agent, title company, or bank, holds transaction-related documents (like deeds), funds, and assets on behalf of both the buyer and seller until all of the contractual obligations have been met. For instance, both parties will place the funds, documents, and assets into the escrow account, which will hold them until all of the contract conditions (i.e., inspections, financing, title transfer, etc.) have been completed. Once all of the conditions have been satisfied and confirmed as such, the escrow agent will disperse the funds to the seller and record the title transfer, bringing the commercial real estate transaction to a close.
Escrow Instructions For Texas Commercial Real Estate Transactions
The escrow process typically involves a series of steps that need to be completed before the commercial real estate transaction can be finalized. Below are just a few of the highlights that you can expect during a commercial escrow closing in Texas.
Opening Escrow
Once a purchase agreement for a commercial property has been signed, the parties may hire an escrow agent. Escrow agents are commonly used, but other neutral third parties (such as banks or title companies) can also serve in this capacity.
Depositing Funds Into an Escrow Account
Next, the buyer will deposit the earnest money into the escrow account. This signifies the buyer’s commitment and protects the seller in the event that the buyer suddenly backs out of the deal without cause.
Title Search and Resolution
The escrow agent will work with title companies to find and resolve any existing liens on the commercial property so that the buyer can move forward with the transaction knowing that there will not be any surprises or issues later on. Often the title company will act as escrow agent on the transaction if requested.
Closing and Disbursement
After all of the conditions of the commercial real estate transaction have been met, the escrow agent will record the deed and disburse the funds to the seller. This officially concludes the escrow process and finalizes the transaction.
What Can Delay or Complicate Escrow in Commercial Real Estate Deals in Texas?
Generally speaking, the escrow process lasts between 30 to 45 days from start to finish. This timeframe ensures title clearance, lien resolution, and legal compliance before the transaction is finalized. However, there are factors that can complicate the escrow process or cause significant delays, a few of which are explained below.
Missing Documents
Commercial real estate transactions that involve missing or inaccurate documents can delay the escrow process. Missing or incomplete tax documents, insurance certificates, and other items can slow down the entire transaction considerably.
Disputes During Inspections or Appraisals
If the inspection uncovers concerns like structural issues, environmental hazards, or building code violations, this can prompt renegotiations and prolong the escrow process. Similarly, discrepancies in appraisals or other findings can cause long delays.
Title Complications
During the escrow process, the agent will work with title companies to uncover any issues like existing liens, unpaid taxes, pending lawsuits, or easements. If an issue is brought to light, this can cause significant delays while the parties work to resolve the problem.
Why Legal Oversight Matters During the Commercial Escrow Process
Although states like Texas do not require buyers or sellers to hire legal representatives when completing a real estate transaction, doing so is highly recommended for both parties. The escrow process can be complex and challenging to understand without the guidance of a knowledgeable Texas commercial real estate lawyer to help you move through each step with greater confidence. Your highly experienced attorney can help to draft proper escrow instructions and ensure that your investment and rights are sufficiently protected at all times.
Frequently Asked Questions (FAQs) About Commercial Real Estate Transactions in Texas
Is Escrow Required For Commercial Property in Texas?
While not strictly mandated by Texas state law, lenders almost always require escrow for tax and insurance payments.
What Items Are Handled in Escrow?
Escrow accounts typically hold items like the purchase price, title documents, lender instructions, and environmental reports related to the commercial real estate transaction.
Learn More About Commercial Real Estate Escrow Today
At Sewell Sewell Beard LLC, we believe in pursuing innovative and effective legal solutions that are customized to address your specific needs and goals. Our highly experienced and knowledgeable commercial real estate attorneys are ready to help you navigate the escrow process, safeguard your investment, and move through the transaction with greater clarity and confidence. Please reach out to our Jasper, Alabama office at (205) 544-2350 or our Prosper, Texas office at (972) 777-5390 today to get started with a dedicated and highly skilled commercial real estate lawyer.