Escrow and title search and common sense.

Dave Anderson

Dave Anderson

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Help me understand why my lender is forcing me to use an escrow and title search?

The title search, I can at least understand. But the company I contacted charged $95 for a rush and $75 for a standard. However, I put a full good faith deposit down on my aircraft simply because we added some avionics so I thought that was fair.

For escrow and title search, they want $650?? They get $500 just to hold a check and transfer it to my seller who is a business?

I'm I missing something
 
I think the two things you’re missing are 1) the bank that’s going to lend you probably a large sum of money for a toy wants you to do something pretty simple, and 2) $500 or so in the grand scheme of your purchase is a drop in the bucket.
 
They probably are also assisting with the new FAA registration, ensuring the bank’s lien is properly recorded, reviewing the policy of insurance to make sure the bank is the payee and otherwise protected, and that any sales tax or property is collected and paid so there will be no tax lien. Yep - it’s all about the bank but then they are the ones lending the money.
 
Jumpmaster said:
They probably are also assisting with the new FAA registration, ensuring the bank’s lien is properly recorded, reviewing the policy of insurance to make sure the bank is the payee and otherwise protected, and that any sales tax or property is collected and paid so there will be no tax lien. Yep - it’s all about the bank but then they are the ones lending the money.
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At least some fair points I missed or overlooked
 
Does that include title insurance as well? Even if not, you're paying them for the headache and potential liability of being in the middle of a transaction between strangers. You're paying them to reduce your risk and in the process, take some of that risk themselves.

And the bank wants bit because the plane in your hands is its collateral. If you pay the seller and don't wind up with the plane, the bank is screwed.
 
I thought it was pretty standard to have an escrow in any large purchase especially involving lenders.
 
Easy solution, pay cash.

In the mean time you are borrowing a substantial sum and the bank is requiring a third party to protect their collateral.

If the purchase was a home they would require a title company.
 
If I bought something as expensive as an airplane, yeah, I'm going to pay a title company to do the transaction, escrow, etc. Is it expensive for what they do? Besides "sounding expensive", what frame of reference is there to say that is too much or too little? I doubt other title companies will do it for a lot less. Why do lawyers and accountants get paid what they do? Because people need the service they provide.
 
Dave Anderson said:
I've bought a boat of similar cost in the past and don't recall an escrow involvement. It is what it is just surprised me
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Perhaps a plane's registration and title is a bit more complex. Didn't know that boats even had titles and liens, etc. I guess I haven't watched enough of those "repo reality TV shows".
 
luvflyin said:
Short of cash or a private lender who doesn’t care, how?
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I think "cash" IS the "very obvious way".

Whether it's realistic or not is a different story, but it certainly is one way to avoid those fees.

I was recently involved (as the pilot) of a sale of a ~$500k airplane, cash. It just seemed WAY too easy, with way too little paperwork for something costing that amount of money.
 
I sense that you may not have the proper relationship with money that aircraft ownership requires!!
 
Remember the golden rule: he who has the gold rules.
 
Because banks are required by federal regulations to take steps to confirm and document that they have a valid security interest in collateral they are lending against. It's a good idea which makes sense even without the regulations.
 
luvflyin said:
Short of cash or a private lender who doesn’t care, how?
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Have good enough credit for a personal unsecured loan. Use money available from an existing home equity loan. Borrow agains investments. Can probably think of others if I try to.
 
Neat side story. There was a guy at our field looking to purchase a Citation5 I think. Using a broker He found one semi locally he liked. Everybody was gungHo to move this plane. Bank asks if plane has ever been based overseas and seller says no-but there were some logs missing for a few years while back. Bank digs in more reverse image searched the plane on Google- they find a pic of the plane buried in the ether in Venezuela with the tail off it and tarped. Apparently a prop plane gnawed the back end up. Nothing in the logs.
 
AA5Bman said:
I sense that you may not have the proper relationship with money that aircraft ownership requires!!
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Considering I just sold a boat worth 2x that is doubtful But since this is my first aircraft purchase there may be some truth to that statement.

I just don't like when at face value anything seems like a waste. The quote I got from the escrow company basically was very vague and only called out title search and holding funds.
 
Their money, their rules. The escrow fee when I bought my plane was $600 which the seller and I split. No bank involved, I paid cash.
 
How much is the purchase price? I assume we talking six figures, in which case I can’t imagine buying something for that kind of money *without* a title search and escrow whether or not a bank requires it. How else do you not leave your deposit at risk while you do a prebuy and what not? What keeps the seller from taking your deposit and selling the plane to someone else? Using and escrow service (and title, but for other reasons) seems like a no brainer to me.
 
I've bought/sold around 10 airplanes, and every time used an escrow company. Why? Because it's easier and less risk involved. It's worth the $500 alone for them to deal with the registration. If you even cough on it wrong they'll send it back... probably three or four times. It's more than worth the money for them to deal with all the paperwork an you can just sign on the dotted line.

You're buying a very expensive asset, and the bank wants to make sure it is protected as well in case they need to come get their asset.
 
Z06_Mir said:
I've bought/sold around 10 airplanes, and every time used an escrow company. Why? Because it's easier and less risk involved. It's worth the $500 alone for them to deal with the registration. If you even cough on it wrong they'll send it back... probably three or four times. It's more than worth the money for them to deal with all the paperwork an you can just sign on the dotted line.

You're buying a very expensive asset, and the bank wants to make sure it is protected as well in case they need to come get their asset.
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Yes. Again the title search makes sense but they aren’t clearly laying out what they did for the other 500$ was my initial question. I certainly want to derisk the purchase
 
AA5Bman said:
How much is the purchase price? I assume we talking six figures, in which case I can’t imagine buying something for that kind of money *without* a title search and escrow whether or not a bank requires it. How else do you not leave your deposit at risk while you do a prebuy and what not? What keeps the seller from taking your deposit and selling the plane to someone else? Using and escrow service (and title, but for other reasons) seems like a no brainer to me.
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That is my question. My good faith deposit was the 15% the bank required to the broker. I’m absolutely not against the title search and understand the value it beings to me and the bank. I just didn’t understand the $500 extra was not for just transferring the bank funds to the broker. Their quote didn’t specify they also do the FAA registration etc and that is why I was asking
 
Z06_Mir said:
I've bought/sold around 10 airplanes, and every time used an escrow company. Why? Because it's easier and less risk involved. It's worth the $500 alone for them to deal with the registration. If you even cough on it wrong they'll send it back... probably three or four times. It's more than worth the money for them to deal with all the paperwork an you can just sign on the dotted line.

You're buying a very expensive asset, and the bank wants to make sure it is protected as well in case they need to come get their asset.
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This is exactly why I was asking what am I missing their basic quote said title search and escrow and since I already did the 15% deposit I was asking why.
 
Dave Anderson said:
That is my question. My good faith deposit was the 15% the bank required to the broker. I’m absolutely not against the title search and understand the value it beings to me and the bank. I just didn’t understand the $500 extra was not for just transferring the bank funds to the broker. Their quote didn’t specify they also do the FAA registration etc and that is why I was asking
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I guess anything is possible, but doing that is the whole idea of the escrow in a titled property transaction, whether airplane or real estate. The buyer's and the bank's money is not released to the seller until these things happen:
  1. Existence of good funds is confirmed.
  2. Title is clear.
  3. Paperwork is correct and in order (you have no idea how many registrations get kicked back because of this with "self-help" transactions. I had one last year where they went back and forth for over a year before coming to me).
  4. Bill of sale, registration application, and security instruments are filed with and received by the registry while #2 is still true.
Pretty much the definition of "escrow" in a transaction like this. Escrow is meaningless without registration.

Check with them to confirm. Not with us.
 
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Buying it from a business means absolutely nothing. Lots of used car salesman out there. A business near me has a reputation for less than stellar aircraft sales. Sold an F33 with no data plate after it was in a flood. Petitioned to get a new plate, no dice. So he put it as experimental exhibition and sold it. Great, can fly a plane that was in a flood once a year. Same guy bought a gear up lance may or may not have fixed it correctly and off it went. Was sued at least once in the past over a sale...and lost his arse
 
Dave Anderson said:
That is my question. My good faith deposit was the 15% the bank required to the broker. I’m absolutely not against the title search and understand the value it beings to me and the bank. I just didn’t understand the $500 extra was not for just transferring the bank funds to the broker. Their quote didn’t specify they also do the FAA registration etc and that is why I was asking
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So you are saying they are saying the $650 is for title search and another $500 is for the escrow? (“Just to hold a check and transfer it to the seller”). As Mark just pointed out, it’s not simply holding and transferring money. They have to ensure all the conditions are met first. You are paying for their years of experience, their time, their brick and mortar establishment, their Internet bill, etc., everything a business needs to perform the service.

You are not wrong though to question what you’re getting for your money. It’s good to be on top of everything with a transaction like this. There is a scam for example, where you might get an email spoofed from your title company instructing you to wire the money to a certain account, which turns out to be overseas and has nothing to do with the title company. Whenever instructed to send money, confirm the identity of the party giving you the account number. Criminals can find out about transactions through hacking or other means and insert themselves like this to capture the funds.

We bought a property using a closing attorney who did the title search and escrow services. A few years later it was discovered she had been swindling customers by taking the fee but never buying the title insurance or doing the search. It happened we were not among the victims but we could have been. I called the title insurance company and our policy was good. But it wouldn’t have occurred to me to do that back when we bought the house. That attorney went to prison.

So your instinct to question everything might serve you well, but I’m sure you’re figuring out why escrow is needed in the first place. You say the seller is a business but I doubt that reduces risk. Businesses can be just as crooked as individuals. It might not be an outright loan on the item or property but a court judgement in a lawsuit for example where the business’s assets are claimed by some party.

You’re paying a total of $1150 for the title and escrow? That’s one to two percent or less of the value of the plane? Seems reasonable to me. But I confess I don’t know what today’s market rates are.
 
The problem is the bank doesn't want to release the funds without the signed title/bill of sale. Most sellers won't sign over the title without the money. There you have a chicken and egg.

If you have a seller that's willing to forgo his security, you can probably skip the escrow. $500 for escrow is egregious. We had a local bank where the broker already had a relationship handle it. That was good enough for the AOPA (MBNA/NationsBank/BofS) finanincing disaster people.
 
Racerx said:
Buying it from a business means absolutely nothing. Lots of used car salesman out there. A business near me has a reputation for less than stellar aircraft sales. Sold an F33 with no data plate after it was in a flood. Petitioned to get a new plate, no dice. So he put it as experimental exhibition and sold it. Great, can fly a plane that was in a flood once a year. Same guy bought a gear up lance may or may not have fixed it correctly and off it went. Was sued at least once in the past over a sale...and lost his arse
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Our posts crossed but yes, this.^^^^ Anything could be out there, a personal suit like divorce can lay claim to business assets (pretty sure they’re not always protected, especially in a sole proprietorship? Not a lawyer though.)
 
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