In private lending, the difference between a deal that closes on schedule and one that collapses at the finish line often comes down to a single relationship: your escrow officer. While borrowers and lenders focus on underwriting, terms, and documentation, the escrow and title process quietly carries enormous risk. A misstep in this phase can unwind months of work, expose a lender to uninsured losses, and trigger legal liability that far exceeds the original loan amount.
Understanding what your escrow officer does, how to build a productive working relationship with that professional, and what warning signs to watch for is not optional knowledge in 2025. It is a core competency for any private lender operating at scale.
The Strategic Value of a Dedicated Escrow Relationship
Private lenders who treat escrow as a transactional afterthought leave significant efficiency on the table. The lenders who close deals faster and with fewer complications are almost always the ones who have cultivated long-term relationships with a reliable escrow officer and a title company that understands the specific demands of private credit transactions.
That relationship pays dividends in multiple ways. An escrow officer familiar with your lending criteria, your documentation standards, and your funding timelines can proactively flag issues before they become deal-killers. They know which title exceptions your team will require resolved before closing, which types of liens need special handling, and how to coordinate payoff demands from multiple lien holders without derailing the funding wire.
Trust is the foundation here. When your escrow officer knows your standards and you know their process, the back-and-forth that slows down unfamiliar transactions gets compressed into a streamlined workflow. That compression translates directly into faster closings and fewer last-minute surprises.
Red Flags You Cannot Afford to Miss
Not every title company or escrow arrangement is created equal. Private lenders need to be alert to several warning signs that can indicate structural problems with a transaction or with the parties managing it.
Uninsured deeds in the chain of title. If a title search surfaces a deed that lacks title insurance coverage, that gap represents a genuine risk to your lien position. The absence of insurance on a prior conveyance means that if that deed is later challenged, your security interest may be exposed. This is not a technical footnote. It is a material underwriting concern.
Settlement agents pushing a specific title company. A settlement agent who steers the parties toward a particular title insurer without a clear justification should prompt scrutiny. The selection of a title company should be based on coverage quality, underwriting capacity, and the specific needs of the transaction. Pressure to use a particular provider, especially when it comes from someone positioned to benefit from that referral, is a conflict of interest worth examining.
Erroneous payoff demands. Payoff demand letters from existing lien holders are sometimes inaccurate. Per diem calculations may be wrong. Balances may not account for recent payments. Fees may be inflated or improperly categorized. An experienced escrow officer will catch these discrepancies and push back. A less experienced one may simply accept what they receive, leaving your borrower exposed to an incorrect payoff and potentially leaving your lien clouded by an improperly discharged obligation.
Unremoved exception items. Title commitments routinely list exceptions that must be cleared before a policy can be issued in the form required by the lender. When those exceptions are still present at closing because no one tracked them to resolution, the transaction is in jeopardy. Your escrow officer should maintain a running checklist of open exception items and confirm their clearance before the closing date approaches.
Building a Closing Schedule That Works
One of the most underappreciated functions of a capable escrow officer is managing the closing timeline with precision. Private lending transactions often involve multiple parties, multiple lien holders, and deadlines imposed by regulatory requirements or borrower constraints. A closing schedule that accounts for all of these moving parts is not a luxury. It is a necessity.
Several categories of liens require particular attention when constructing that schedule.
IRS tax liens. Federal tax liens attach broadly and must be resolved through a specific discharge or subordination process with the Internal Revenue Service. That process takes time and requires documentation. Waiting until the week before closing to address an IRS lien is a reliable way to miss your funding date.
Government agency liens. State and municipal agencies may hold liens for unpaid taxes, code violations, environmental remediation costs, or other obligations. Each jurisdiction has its own process for resolving these encumbrances, and timelines vary considerably. Your escrow officer should identify all government-held liens early and begin the resolution process immediately.
Payoff demand letters. Coordinating payoff demands from first lien holders, junior lien holders, and any other creditors requires careful sequencing. Demand letters expire. Per diem accruals continue. Wire cutoff times on the East Coast and West Coast differ. Missing a wire cutoff by thirty minutes can push funding to the next business day, which triggers a new per diem calculation and may violate rate lock commitments. Your escrow officer needs to have a clear picture of every payoff letter in play, its expiration date, and the funding sequence required to retire each obligation in the right order.
Document Review: What Lenders Must Verify
A thorough document review before closing is the last line of defense against errors that become expensive problems after funding. Private lenders and their counsel should work through the following checklist on every transaction.
Settlement Statement. The settlement statement is the financial map of the transaction. It should correctly identify all parties, the property address and legal description, the loan amount, the interest rate, all fees charged by the lender and third parties, all payoffs being made from loan proceeds, and all insurance premiums collected at closing. Any discrepancy between the settlement statement and the loan documents should be resolved before signing begins.
Insurance Documentation. Lenders should verify that property insurance is in place and meets minimum coverage requirements. For most commercial and residential investment transactions, general liability coverage should carry limits of at least $1 million per occurrence and $2 million in aggregate. Hazard insurance should provide replacement cost coverage for the improvements. Properties in high-risk geographic areas may require additional coverage for floods, hurricanes, earthquakes, or other perils specific to the location. Construction loans require builders risk coverage. These are minimum standards. The specific transaction may require more.
Escrow Instructions. Escrow instructions govern what the escrow officer is authorized to do with the funds and documents deposited into escrow. They establish the conditions that must be satisfied before closing can occur and the order in which disbursements will be made. These instructions need to be reviewed carefully by lender’s counsel to confirm that the conditions align with the loan documents and that no conflicting provisions exist between the escrow instructions and any other agreement governing the transaction.
Title Insurance. The title commitment and the pro forma policy require careful review. Pay particular attention to the coverage amount relative to the loan amount. Standard ALTA policy language addresses the relationship between the Amount of Insurance and the Indebtedness in ways that can leave a lender underinsured if the coverage amount is set at par rather than above par.
The Case for 125% Title Coverage
The ALTA Loan Policy contains specific language governing the relationship between the policy coverage amount and the outstanding loan balance. That language has practical consequences that private lenders need to understand.
Consider a scenario where a lender makes a $1 million loan and obtains title insurance coverage in the exact amount of $1 million. If the borrower defaults, the property is lost to a title defect, and by the time a claim is resolved the outstanding loan balance has grown to $1.02 million due to accrued interest and default charges, the lender faces a $20,000 gap between the insured amount and the actual loss. That gap is uninsured and unrecoverable from the title insurer.
Geraci LLP consistently recommends that private lenders obtain title insurance coverage at 125% of the loan amount. On a $1 million loan, that means a $1.25 million policy. The premium differential is modest. The protection against the scenario described above is meaningful. This is standard practice in well-structured private lending transactions and should be a non-negotiable requirement in your closing checklist.
Endorsements also matter. ALTA endorsements extend coverage in ways that the base policy does not. The appropriate endorsements depend on the property type, the nature of the transaction, and the specific risks identified in the title search. Your title counsel should review the endorsement schedule against the pro forma and confirm that all required endorsements are in place before the policy issues.
Post-Signing Verification and Funding
Once documents are signed, the work is not finished. Before funding, your escrow officer and closing counsel should verify that all signatures are present and properly executed, that all notary acknowledgments are complete and correctly formatted, and that any documents requiring witness signatures have the required attestations.
Funding should be coordinated against confirmed wire cutoff times. East Coast financial institutions typically have earlier cutoff windows than West Coast institutions, and some lenders operate under hard cutoffs that, if missed, will delay funding regardless of the reason. Your escrow officer should have confirmed cutoff times from every institution receiving disbursements before the funding date arrives.
The payoff sequence matters. First lien payoffs must be confirmed and the release of lien obtained or committed before junior lien payoffs are made. Disbursements to other parties follow. Failure to observe the correct sequence can create gaps in the chain of title or leave prior encumbrances unresolved.
Working With Geraci LLP on Closing Compliance
The escrow and title phase of a private lending transaction is not where deals should die. With the right escrow officer, a well-structured closing timeline, and thorough document review, the vast majority of title and closing issues are resolvable before they become crises.
Geraci LLP advises private lenders, family offices, and institutional credit funds on the full spectrum of private lending compliance, from loan origination through enforcement. Our team has been handling private credit transactions since 2007 and brings more than 15 years of specialized experience to every engagement.
If you have questions about title insurance requirements, closing procedures, or escrow management for your lending platform, contact Geraci LLP at (949) 403-3488 or visit our offices at 90 Discovery, Irvine, CA 92618.
