The Escrow Process

What Is Escrow?

Escrow is the period of time that begins when an offer to buy a house is accepted by the Seller, and ends when title to the house is transferred to the Buyer. During this period of time, called the escrow period, many different actions are taken in preparation for transfer of title, such as obtaining the new home loan and hazard insurance, and obtaining information to discharge any existing liens such as the previous mortgage. This is also the period of time when the buyer may complete any contractual contingencies, such as inspecting the property or approving disclosures.

In addition to being a period of time, the word escrow is also used to describe the neutral holding ground for monies and documents associated with the transaction. This escrow service is provided by an escrow company. So for example, when an offer is accepted and a Buyer makes an initial deposit, that deposit check is received by the escrow company, and the money is said to be “held in escrow.”

The primary purpose of an escrow is to enable the parties in a real estate transaction to deal with each other with less risk. Once an escrow has begun, the parties of the escrow (seller’s agent, buyer’s agent, lender) will give the Escrow Officer written instructions setting out the conditions under which title may transfer to the new owner. The Escrow Officer may only act on those instructions which are consistent with all parties.

Typically, an escrow begins with the Buyer’s agent “opening the escrow”.  That is, s/he gives the escrow company necessary information regarding the transaction, and requests a preliminary title report. This report contains a treasure trove of information, including the historic narrative description of the property, the plat map showing lot dimensions, the legal record of current ownership, and all recorded liens, easements, or other matters effecting title to the property. Upon receipt of this report, all parties, and especially the escrow officer, can map the necessary actions to safely transfer title to the Buyer.

Holly is not only knowledgable and informative, she’s also very easy to talk with and strategize. She’s not only friendly, she is a great negotiator. So for us she was the best of both worlds.
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The Life of An Escrow

Below is a summary of actions taken by respective parties in an escrow, from the point of view of the escrow company:

The Buyer…

• Submits a written offer to purchase (or accepts the Seller’s counter-offer) accompanied by a good faith deposit amount.
• Fulfills contractual contingencies, such as inspecting the property.
• Applies for a new loan, completing all required forms and often prepaying certain fees such as credit report and appraisal costs.
• Approves the preliminary report, any property disclosure, and inspection reports called for by the purchase agreement.
• Approves and signs the escrow instructions, new loan documents and other related instruments, required to complete the transaction.
• Fulfills any remaining conditions specified in the contract, lender’s instructions and/or the escrow instructions.
• Approves any final changes by singing amendments to the escrow instructions or contract.
• Deposits sufficient funds in the escrow to pay the remaining down payment and closing costs.

The Lender…

• Accepts the new loan application and other related documents from the Buyer and begins the qualification process.
• Orders and reviews the property appraisal, credit report, verification of employment, verification of deposit, 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 of loan approval terms and 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.

The Escrow Officer…

• Reviews and approves the executed loan package and coordinates the loan funding with the escrow officer.
• Receives an order from the agent for title and escrow services.
• Orders the title search and examination on subject property.
• 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.
• With authorization from the real estate agent or principal, orders demands on existing deeds of trust and liens or judgments, if any. For an 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.
• Prepares the escrow instructions and required documents together with a preliminary estimate of settlement charges, for the Buyer and Seller, in accordance with the terms of the sale.
• Presents the instructions, documents, statements, loan package (s) and other related documents to the principal (s), for approval and signature.
• Reviews and approves the executed loan package and coordinates the loan funding with the escrow officer.
• Reviews, the signed instructions and documents, returns the loan package, and requests the lender’s funds.
• Reviews the balance of funds required from the Buyer and/or proceeds of the loan from the lender.
• 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 the lenders.

The Seller…

• Accepts Buyer’s offer to purchase and initial good faith deposit to open escrow.
• Submits documents and information to the escrow holder, such as: addresses of lien holders, tax receipts, equipment warranties, home warranty contracts, any leases and/or rental agreements, etc.
• Orders inspections, receives clearances and approves final reports and/or repairs to the property as required by the terms of the purchase agreement.
• Approves and signs the escrow instructions, payoff demands, grant deed and other related documents required to complete the transactions.
• Approves any final changes by signing amendments to the escrow instructions or contracts.

The Title Company…

• Examines the title to 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.
• When authorized by the escrow officer, records the signed documents with the County Recorder’s office, formally transferring title into the name of the Buyer and “closing escrow.”