What Is Escrow?


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It is customary and prudent for a buyer and seller to have a third, disinterested party to assist them in carrying out the terms of their agreement. In California, this procedure is known as an escrow. When opening an escrow, the buyer and seller establish terms and conditions for the transfer of ownership of property. Your escrow is created shortly after you execute the contract to purchase your home. The escrow becomes the depository for all monies, instructions and documents. The Escrow Officer has the responsibility of seeing that all terms of the escrow are carried out.

NOTE: In some states, the process of completing the purchase of a home is known as the "Settlement" process. Often the seller and buyer will come together at the Settlement table where documents are signed and exchanged. There may be a settlement attorney who facilitates this process. In California, the term "Escrow" is used to describe the process of completing the sale of property.

How does the escrow process work?
The escrow holds all monies, instructions and documents for the purchase of your home, including your down payment funds and your lender’s funds and documents for the new loan. The escrow officer takes instructions based on the terms of your purchase agreement and your lender’s requirements. The escrow officer can hold inspection reports and bills for work performed as required by your purchase agreement. Other elements of the escrow include hazard insurance, title insurance and the grant deed from the seller to you. Escrow cannot be completed until the instructions (requirements) have been satisfied, and all parties have signed escrow documents.

The escrow holder’s duties include:

  • Serve as the neutral agent and the liaison between all parties involved.
  • Prepare the escrow instructions.
  • Request a Preliminary Title Search to determine the status of title to the property.
  • Comply with the lender’s requirements as specified on its instructions to escrow.
  • Receive and handle purchase funds from the buyer.
  • Prepare or secure the deed and documents related to the escrow.
  • Prorate taxes, interest, insurance and rents.
  • Secure releases of all contingencies or other conditions imposed on the escrow.
  • Record the deed and any other documents.
  • Request title insurance policy.
  • Close the escrow pursuant to instructions supplied by the seller, buyer and lender, if any.
  • Disburse funds as authorized by the instructions, including charges for title insurance, recording fees, real estate commissions and loan payoffs.
  • Prepare final statements for all parties involved that account for the disposition of all funds held in the escrow account.
How do I open an escrow?
Your real estate agent will open the escrow for you. As soon as you execute your purchase agreement, your deposit is given to the title company for deposit into the escrow account. How will you know where your money has gone? Written evidence of your deposit generally is included in your copy of your purchase contract. Your funds will then be deposited in your separate escrow or trust account and processed through your local bank.

Escrow Instructions
Escrow instructions define all the conditions that must occur before the transaction can be finalized. Your escrow instructions specify, in a debit and credit format, the disposition of your purchase funds. They also provide for title protection for your home.

What information will I have to provide?
You may be asked to complete a statement of identity. Because many people have the same name, the statement of identity is used to identify the specific person in the transaction through such information as date of birth, social security number, etc. This information is kept confidential.

How long is the escrow?
The length of an escrow is determined by the terms of the purchase agreement and can range from a few days to several months. On average, it takes 30 to 45 days.