Escrow

Escrow Information

What happens in Escrow

An escrow is an arrangement in which a disinterested third party, called an escrow holder, holds legal documents and funds on behalf of a buyer and seller, and distributes them according to the buyer's and seller's instructions.

People buying and selling real estate often open an escrow for their protection and convenience. The buyer can instruct the escrow holder to disburse the purchase price only upon the satisfaction of certain prerequisites and conditions. The seller can instruct the escrow holder to retain possession of the deed to the buyer until the seller's requirements, including receipt of the purchase price, are met. Both rely on the escrow holder to carry out faithfully their mutually consistent instructions relating to the transaction and to advise them if any of their instructions are not mutually consistent or cannot be carried out.

An escrow is convenient for the buyer and seller because both can move forward separately but simultaneously in providing inspections, reports, loan commitments and funds, deeds and many other items, using the escrow holder as the central depositing point. If the instructions from all parties to an escrow are clearly drafted, fully detailed and mutually consistent, the escrow holder can take many actions on their behalf without further consultation. This saves time and facilitates the closing of the transaction.

The escrow process was developed to help facilitate the sale or purchase of your home. The escrow holder accomplishes this by:
Acting as the impartial "stake-holder," or depository of documents and funds
Processing and coordinating the flow of documents and funds
Keeping all parties informed of progress on the escrow
Responding to the lender's requirements
Securing a title insurance policy
Obtaining approvals of reports and documents from the parties as required
Prorating and adjusting insurance, taxes, rents, etc.
Recording the deed and loan documents
Maintaining security and accountability of monies owed and owing
It all begins with the offer and acceptance skillfully negotiated by the real estate agents representing Buyer and Seller.

Life of an Escrow

The Buyer(s)

Tenders a written offer to purchase (or accepts the Seller's counter-offer) accompanied by a good faith deposit amount. Approves and signs the escrow instructions and other related instruments required to complete the transaction. Approves the preliminary report and any property, disclosure or inspection report called by the purchase and sale agreement. (Deposit Receipt) Approves and signs new loan documents and fulfills any remaining conditions contained in the contract, lender's instructions and/or the escrow instructions. Deposits funds necessary to close the escrow. Approves any changes by signing amendments in the escrow instructions.
The Lender (when applicable)
Accepts the new loan application and other related documents from the Buyer(s) and begins the qualification process. Orders and reviews the property appraisal, credit report, verification of employment, verification of deposit(s), preliminary report and other related information. Submits the entire package to the loan committee and/or underwriters for approval. When approved, loan conditions and title insurance requirements are established. Informs Buyer(s) of loan approval terms, commitment expiration date and provides a good faith estimate of the closing costs. Deposits the new loan documents and instructions with the escrow holder for Buyer's approval and signature. Reviews and approves the executed loan package and coordinates the loan funding with the escrow officer.

The Escrow Officer

Receives an order for escrow and title services. Orders the preliminary report and examination on the subject property from the USA National Title unit. Acts as the impartial "stakeholder" or depository, in a fiduciary capacity, for all documents and monies required to complete the transaction per written instructions of the principals. Prepares the escrow instructions and required documents in accordance with terms of the sale. With the authorization from the real estate agent or principal, orders demands on existing deeds of trust and liens or judgments, if any. For assumption or subject to loan, orders the beneficiary's statement or formal assumption package. Reviews documents received in the escrow: preliminary report, payoff or assumption statements, new loan package and other related instruments. Reviews the conditions in the lender's instructions including the hazard and title insurance requirements. Presents the documents, statements, loan package(s), estimated closing statements and other related documents to the principal(s) for approval and signature, and requests the balance of the buyer's funds. Reviews the proceeds of the loan(s) from the lender(s). Determines when the transaction will be in the position to close and advises the parties. Assisted by title personnel, records the deed, deed of trust and other documents required to complete the transaction with the County Recorder and orders the title insurance policies. Closes the escrow by preparing the final settlement statements, disbursing the proceeds to the Seller, paying off the existing encumbrances and other obligations. Delivers the appropriate statements, funds and remaining documents to the principals, agents and/or lenders.

The Seller(s)

Accepts Buyer's Offer to Purchase and initial good faith deposit to open escrow. Submits documents and information to escrow holder, such as: addresses of lien holders, tax receipts, equipment warranties, home warranty contracts, any leases and/or rental agreements. Approves and signs the escrow instructions, grant deed and other related documents required to complete the transaction. Orders inspections, receives clearances and approves final reports and/or repairs to the property as required by the terms of the purchase and sale agreement (Deposit Receipt).
Fulfills any remaining conditions specified in the contract and/or escrow instructions; approves the pay off demands and/or beneficiary's statements. Approves any final changes by signing amendments to the escrow instructions or contract.
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Who May Hold Escrows

The escrow holder may be any disinterested third party (although some states require that certain escrow holders be licensed).
There are two important reasons for selecting an established, independent escrow firm, an attorney, or an escrow officer with a bank, S& L or title insurance company. One is that real estate transactions require a tremendous amount of technical experience and knowledge. The other is that the ESCROW holder will generally be responsible for safe-guarding and properly distributing the purchase price.
Escrow officers with established firms, such as Chicago Title, generally are experienced and trained in real estate procedures, title insurance, taxes, deeds and insurance.

Impartiality

An escrow officer must remain completely impartial throughout the entire escrow process. He or she will normally adopt a courteous but rather formal manner when dealing with parties to the escrow, keeping conversation to the matters at hand in the escrow. This formal behavior is meant for the benefit of all concerned, since the escrow officer must follow the instructions of both parties without bias.