WHAT IS
ESCROW?
(Click Here for a graphic display of the
process)
Escrow is a
transaction
where one
person
delivers
something of
value to a
third
person, to
be held
until the
happening of
a specified
event or
condition,
upon which
it is
delivered by
the third
person to
another.
Both parties
to a real
estate
transaction
entrust
legal
documents
and various
funds to the
escrow
holder,
which
transfers
the papers
and funds
upon closing
of the
escrow. As a
neutral
third party,
both buyer
and seller
are assured
that all
mutually
agreed to
terms are
met before
the
transaction
is
completed.
CONVENIENCE
Using the
escrow
holder as a
common
depository,
the buyer
and seller
can proceed
simultaneously
in providing
funds,
deeds,
inspection
reports,
insurance
information,
and other
required
documents.
Both parties
give written
instructions,
the
requirements
of which
must be met
before the
transaction
is complete,
to an
experienced
escrow
officer.
Lenders also
specify
their
conditions
for
completing
the loan
process.
Provided
that the
instructions
are clear
and mutually
consistent,
the escrow
officer, as
a limited
agent for
all parties,
saves time
in the
closing
process.
PROTECTION
The
authority
given to an
escrow
holder is
strictly
limited by
instructions
provided by
the buyer
and seller.
The escrow
officer is
authorized
by
instructions
to allocate
funds for
the items
during the
escrow
period, such
as real
estate
commissions,
title
insurance,
liens,
recording
fees, and
other
closing
costs.
Instructions
also specify
the method
of
collecting
funds,
proration of
insurance
and taxes,
and time
limitations
on settling
transactions.
The escrow
process
protects all
parties
involved by
retaining
money and
documents
until the
mutual
instructions
are met
Confidentiality
is another
important
aspect of
escrow. To
effectively
handle a
transaction,
your escrow
officer must
be
instructed
as to the
required
terms
necessary to
close. The
officer will
discuss
escrow
matters only
with the
parties
directly
involved,
specifically
the buyer,
seller,
lender and
real estate
agent. No
one else has
access to
this
information,
except
through
proper legal
procedures.
The escrow
officer
retains
impartiality
and
confidentiality
concerning
the real
estate
process.
CLOSING
ESCROW
Upon
closing, the
escrow
holder
causes the
required
documents to
be recorded
and
disburses
funds
according to
the
instructions
given to the
escrow
officer.
Escrow fees
are included
in these
costs, and
are based on
the sale
price of the
property,
the loan
amount, and
services
required.
RESPONSIBILITIES
OF EACH
PARTY
THE BUYER:
Deposit
funds to pay
for the
purchase
price, and
funds for
property and
closing
costs.
Provide deed
of trust or
mortgages
needed to
secure the
loan.
Arranges for
borrowed
funds to be
deposited in
escrow.
Provides, if
required,
documents
such as
inspection
reports,
insurance
policies,
and lien
information
to verify
compliance
to the
instructions.
THE SELLER:
Deposits the
deed to the
buyer with
the escrow
holder.
Provides
evidence to
meet the
buyer's
condition of
sale, such
as proof of
repair work
and
inspections.
Submits
other
documents,
such as tax
receipts,
mortgage
information,
insurance
policies,
and
warranties.
THE LENDER
(WHEN
APPLICABLE):
Deposits
loan funds,
lender
instructions
and other
loan
documents
with the
escrow
holder.
THE ESCROW
HOLDER:
Serves as a
central
depository
for funds
and
documents.
Obtains a
title
insurance
policy, when
required.
Fulfills the
lender's
requirements
if
applicable.
Secures
approval
from the
buyer on
requested
documents.
Prorates
insurance,
taxes, and
rents, as
instructed.
Fulfills
buyer and
seller
instructions.
Allocates
funds for
closing
costs, and
verifies
that
required
funds from
each party
are
deposited
into
escrow.
Once all
conditions
are met, the
escrow
holder
causes the
necessary
documents to
be recorded.
Executed
loan
documents
are
forwarded to
the lender.
The
Transaction
Closes. |