Buying or selling a home (or some other interest in real property) usually involves the transfer of large sums of money. It is imperitive that the transfer of these funds and related documents from one party to another be handled in neutral, secure and knowledgeable manner. For the protection of Buyer, Seller, and Lender, the escrow process was developed.
As a Buyer or Seller, you want to be certain all conditions of sale have been met before property and money change hands. The technical definition of an escrow is a transaction where one party engaged in the sale, transfer of lease of real or personal property with another person delivers a written instrument, money or other items of value to a nuetral third person, called an escrow agent or escrow holder. This third person holds the money or items for disbursement upon the happening of a specified event or the performance of a special condition.
Simply stated, the escrow holder impartially carries out the written instructions given by the principals. This includes receiving funds and documents necessary to comply with those intructions, completing or obtaining required forms and handling final delivery of all items to the proper parties upon successful completion of the escrow.
The escrow must be provided with the necessary information to close the transaction. This may include loan documents, tax statements, fire and other insurance policies, title insurance policies, terms of sale and any seller-assisted financing, and requests for payment for various services to be paid out of escrow funds.
If the transaction is dependent on arranging new financing, it is the responsibility of the buyer to make the necessary arrangements for application, qualification, etc. Documentation of the new loan agreement must be in the hands of the escrow holder before the transfer of property can take place. A real estate agent may help to identify appropriate lending instructions.
When all the instructions in the escrow have been carried out, the closing can take place. At this time, all outstanding funds are collected and fees such as title insurance premiums, real estate commisions, termite inspection charges, are paid. Title to the property is then transferred under the terms of the escrow instructions and appropriate title insurance is issued.
Payements of funds at the close of escrow should be in the form acceptable to the escrow agent. Usually the escrow agent will require cashiered or wired funds since out-of-town and personal checks can cause deys of delay in processing the transaction.
The following items represent a typical list of what an escrow holder does and does not do:
THE ESCROW HOLDER:
Serves as the nuetral "stake holder" and the communications link to all parties in the transaction
Prepares escrow instructions
Requests a preliminary title search or title commitment to determine the present condition of the title to the property
Requests a beneficiary's statement if debt or obligation is to be taken over by the buyer
Complies with lender's requirements, specified in the escrow agreement
Receives purchase funds from the buyer
Prepares or secures the deed or other documents related to escrow
Prorates taxes, interest, insurance and rents according to instructions
Secures releases of all contingencies of other conditions as required by the particular escrow
Records deeds and any other documents as instructed
Requests issuance of the titel insurance policy
Closes escrow when all the instructions of buyer and seller have been carried out
disburses dunds as authorized by instructions, including charges for title insurance, recording fees, real estate commisions and loan payoffs
Prepares final statements for the parties accounting for the disposition of all funds deposited in escrow (these are useful in the preparation of tax returns)
THE ESCROW HOLDER DOES NOT:
Offer legal advice
Negotiate the transaction
Offer investment advice
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