Escrow

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.

Life of an Escrow

It all begins with the offer and acceptance skillfully negotiated by the real estate agents representing Buyer and Seller.

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 a Title company.

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.

The Title Company

Receives an order for title service.

Examines the public records affecting the real property and issues a preliminary report.

Determines the requirements and documents needed to complete the transaction and advises the escrow officer and/or agents.

Reviews and approves the signed documents, releases and the order for title insurance, prior to the closing date.

When authorized by the escrow officer, Chicago Title records the signed documents with the County Recorder's office and prepares to issue the title insurance policies.

Who May Hold Escrows

Escrow Instructions

Escrow instructions are written documents, signed by the parties giving them, which direct the escrow officer in the specific steps to be completed so the escrow can be closed.

Typical Instructions include:

• The method by which the escrow holder is to receive and hold the purchase price to be paid by the buyer.
• The conditions under which a lapse of time or breach of purchase contract provision will terminate the escrow without a closing.
• The instruction and authorization to the escrow holder to disburse funds for recording fees, title insurance policy, real estate commissions, and any other closing costs incurred through escrow.
• Instructions as to the proration of insurance and taxes.
• Instructions to the escrow holder on the payment of prior liens and charges against the property and distribution of the net sale proceeds.

Since the escrow holder can only follow the instructions as stated, and may not exceed them, it is extremely important that the instructions be stated clearly and be complete in all details.

What Each Party Does in Escrow

The Seller:

• Deposits the executed deed to the buyer with the escrow holder.
• Deposits evidence of pest inspection and any required repair work.
• Deposits other required documents such as tax receipts, addresses of mortgage holders, insurance policies, equipment warranties or home warranty contracts, etc.

The Buyer:

• Deposits the funds required, in addition to any borrowed funds, to pay the purchase price with the escrow holder.
• Deposits funds sufficient for home and title insurance.
• Arranges for any borrowed funds to be delivered to the escrow holder.
• Deposits any deed of trust or mortgages necessary to secure loans.
• Approves any inspection reports, the Preliminary Report for title insurance, etc., called for by the purchase and sale agreements.
• Fulfills any other conditions specified in the escrow instructions.

The Lender (If applicable)

• Deposits proceeds of the loan to the purchaser.
• Directs the escrow holder on the conditions under which the loan funds may be used.

The Escrow Holder

• Opens the order for title insurance.
• Obtains approvals from the buyer on the Preliminary Report, pest and other inspections.
• Receives funds from the buyer and/or any lender.
• Prorates insurance, taxes, rents, etc.
• Disburses funds for title insurance, recording fees, real estate commissions, lien clearance, etc.
• Prepares a final statement for each party, indicating amounts to be disbursed for services and any further amounts necessary to close escrow.
• Records deed and loan documents, delivers the deed to the buyer, loan documents to the lender and funds to the seller, closing the escrow.

Questions?

If you have questions about the escrow process, please call your local Title office or Contact me directly by clicking on the "Contact Us" menu option.

Closing the Escrow and Division of Charges

Closing the Escrow:

Once all the terms and conditions of the instructions of both parties have been fulfilled, and all closing conditions satisfied, the escrow is closed and the safe and accurate transfer of property and money has been accomplished.

Division of Charges:

The method of dividing the charges for the services performed through escrow or as a result of escrow varies from place to place. The fees and service charges to be divided might include, for example, the title insurance policy premium, escrow fee, any transfer taxes, recordation fees and cost in connection with any loan being obtained. Unless there is some special agreement between the buyer and seller as to how these charges are to be paid, local custom will generally be followed in drafting the instructions to the escrow holder as to how they are to be divided.