What is an Escrow?
Escrow is a transaction in which a neutral third party acts upon instruction from both a buyer and seller (or borrower and lender) in carrying out instructions, delivering papers and documents, and disbursing funds. Escrows are used to enable the parties to deal with each other with less risk. The escrow holder acts as a custodian of funds and documents, a clearing house for payment of demands, and performs the clerical duties for settlement of escrow.
How Does the Escrow Process Work?
The escrow officer takes instructions based on the terms of your Purchase Agreement and the lender's requirements. The escrow officer can hold inspection reports and bill for work performed as required by the purchase agreement. Escrow also includes hazard and title insurance, and the grant deed from the seller to you. Escrow cannot be completed until these items have been satisfied and all parties have signed escrow documents.
How Do I Open An Escrow?
Your Realtor or the buyer's agent will open escrow after you execute the Purchase Agreement.
How Long Is the Escrow?
The amount of time necessary to complete the escrow is determined by the terms of the purchase agreement. It is normally 30 to 60 days, but can range from a few days to several months.
The Escrow Holder's Duties
The escrow holder is a required third party. Generally the escrow officer is trained in real estate procedures, title insurance, taxes, deeds and insurance. The escrow officer must follow the instructions of both parties without bias.
- Receiving and holding all monies, instructions and documents pertaining to the purchase.
- Serving as the communication link and liaison between all parties.
- Requesting a preliminary title search and report to determine the status of the title to the property.
- Requesting a beneficiary statement or payoff demand from existing lenders.
- Holding inspection reports, deeds, and insurance documents.
- Complying with the lender's requirements in its instruction to escrow.
- Preparing or obtaining the grand deed.
- Prorating taxes, interest, insurance, rents and other costs related to the property.
- Recording the deed and other documents.
- Closing the escrow according to the instructions of the buyer, seller, and lender.
- Disbursing funds as authorized by the instructions, including charges for real estate commissions, loan payoff title insurance, taxes, recording fees and other costs.
- Preparing final statements of disposition.
Closing escrow is a legal transfer of title to the property from the seller to the buyer and is the culmination of the transaction. Once all the conditions of the escrow have been satisfied, the escrow officer advises you of the date the escrow will close and takes care of the technical and financial details. Usually the Grant Deed and Deed of Trust are recorded within one working day of the escrow's receipt of loan funds. This completes the transaction and signifies the “Close of Escrow.”