|And Now, A Word (or Three) About Escrow
It is customary and prudent for a buyer and seller, or borrower and lender to request a third, disinterested party to assist them in
carrying out the terms of their agreement to buy, sell, exchange, or make a loan on property. This procedure is known as an
escrow, and the third party is known as the escrow holder.
By definition, escrow means “an agreement between two or more parties providing that certain instruments or property be placed
with an impartial third party for safekeeping, pending the fulfillment or performance of a specified act or condition.”
An escrow company is responsible for preparing the escrow instructions which each of the parties to the transaction sign. These
instructions incorporate the terms and conditions which both buyer and seller have agreed to before opening the escrow (usually
via the purchase/sale contract). Then, more importantly, the escrow company sees that these instructions are complied with by
all concerned parties before the close of escrow, or transfer of ownership.
In order to successfully bring an escrow to close, the escrow company must do several things:
- The escrow officer searches the public records for pertinent information about the property. Who is the owner of record?
What deeds of trust have been recorded against the property? What easements affect the property? Are there any
judgments or other liens that might have to be dealt with before title can be transferred? Any such defects are corrected
during the escrow period to insure that the buyer receives clear title to the property.
- Obtain demands (the payoff figures from existing lien holders).
- Coordinate with the new or existing lender to obtain loan documents.
- See that the insurance required by either the owner or lender has been obtained.
- Make sure termite inspections and/or completions (if required) are submitted.
- Contact the buyer to sign the loan documents submitted to the escrow holder by the new lender and to deposit the
remainder of the cash required to meet the terms of the transaction (per the escrow instructions). California’s Good Funds
Law requires that the buyer utilize a cashier’s check or otherwise immediately available funds (no personal checks) to
close an escrow.
- Contact the seller to sign the escrow instructions and the grant deed that will be recorded at close, granting the property to
the new owner.
- Issue a policy of title insurance that protects the buyer against such possibilities as forgery, confusion due to similar
names, errors in the records and other specific hazards. There are two general types of title insurance policies. The CLTA
policy is issued to protect the new owner. The ALTA policy is issued to protect any lenders who hold a deed of trust on the
property. The buyer is generally required to pay for an ALTA policy when there is a lender involved in the transaction.
- The escrow holder prorates and adjusts such items as real estate taxes, rental income, interest, and condominium dues,
as appropriate, based on instructions from the buyer and seller. Other charges such as the title insurance premium,
escrow fee, transfer tax and recording fees are also assigned to the buyer and seller. In Northern California, the buyer
customarily pays the title insurance premium and escrow fee and the seller pays the real estate transfer tax. All of the
above items, however, can be negotiated.
After all escrow instructions have been complied with, the seller has deposited the document that will transfer title and the buyer
has deposited their required cash, the escrow officer requests the lender’s funds and instructs the title department to record the
transaction at the County recorder’s office, thereby closing the escrow.
After receiving confirmation of the recording indicating that title has passed, the final settlement statements are prepared and the
funds are disbursed to the proper parties (proceeds of sale to seller, lender’s charges to the lender, title and escrow fees to the
title company, sales commissions to the brokers, etc.). The property then has a new owner.
Follow-up During Escrow
- I will check with the title company to assess whether additional information is needed and whether there are any problems
that will affect obtaining title.
- I will ensure that both you and your buyers receive copies of all documents pertinent to the transaction. I will have the buyer
sign to acknowledge that they have received their copy.
- I will make sure that all contingencies are met and removed within the time limit provided or get an extension, if needed,
signed by both you and the buyer.
- I will keep you abreast of the buyer’s application for a loan and the progress of the appraisal on your home.
- I will cooperate with the appraiser to arrange for entry to the property and to answer any questions they may have about the
home or neighborhood. I will also provide them with the most recent comparable sales in the area.
- I will verify that the buyer’s deposit is increased as required by the contract.
- I will coordinate all inspections and keep you informed of their findings.
- I will cooperate with buyers and others involved to ensure that corrective work is completed according to the terms of the
contract, and if necessary, represent you in further negotiations that may result from inspections.
- I will ensure that all documents are ordered and drawn, as appropriate, including the pay-offs and buyers’ insurance.
- I will do my best to have your closing papers drawn in enough time before close of escrow (buyer’s also) so that if any
problems arise, we can solve them and still keep you within the time frame that you expect.
- I will assist you in complying with local ordinances/laws associated with the sale.