What Is Escrow?

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What Is An Escrow and Why Is It Needed?

An escrow is an arrangement in which a neutral third party called an escrow holder, holds legal documentation and fund on behalf of a buyer and seller.  Escrow then distributes them according to the buyers and sellers instructions.  Both the buyer and the seller rely on the escrow holder to carry out faithfully their mutually consistent instructions relating to the transaction.  Escrow holder is bound by law to notify both parties if the instructions given are not mutually consistent or cannot be carried out.  These instructions are in the form of “Escrow Instructions”, which are drawn by the Escrow Officer, and signed by the buyer and seller.  Since the escrow instructions are not as detailed as the Purchase Contract, the information contained in the instructions is intended to direct the Escrow Officer in the specific steps that are to be completed through the escrow transaction.

 What Happens in an Escrow?

Your Escrow Officer carries out the following procedures;

  1.  DRAW ESCROW INSTRUCTIONS: As directed and reviewed by the Real Estate Agents.  Escrow draws instructions as directed by the principals (as well as the real estate agents as all transactions do not have real estate agents).
  2. ORDER A PRELIMINARY TITLE REPORT: The preliminary title report is order from the title company for the property you are buying or selling.  This report reveals liens of public record and is the guideline escrow uses to assure that title is conveyed with only the liens and matters the buyer has agreed to accept.
  3. ORDER PAYOFF STATEMENTS (DEMANDS): Order demands from the lender of record the current mortgage(s) on the property), the homeowner’s association statement and documents and any other lien information that effects the title to the property.
  4. THE ESCROW HOLDER COMPLIES WITH THE ESCROW INSTRUCTIONS: Regarding termite inspection, city inspection or reports, as may be applicable, obtaining homeowner’s association documents, as may be applicable, obtaining hazard disclosure reports, as may be applicable, obtaining home protection policies, as may be applicable and generally determining that all conditions of the escrow have been or will be met prior to its closing date.
  5. PREPARED      ESTIMATED CLOSING STATEMENT: As soon as loan documents are delivered to escrow, an estimate of the closing costs is drawn and the buyer is called to arrange for an appointment to sign the loan documents and bring in closing funds.
  6. ORDER INSURANCE: Upon receipt of the loan documents, escrow will order the insurance policy from the buyer’s insurance agent, per the requirements for the buyer’s new lender.
  7. SET UP FUNDING: When the buyer has signed all loan documents, they are then sent to the lender with a request that the loan funds be released (“funding”).  Your escrow has not yet closed at this point; “recording” of the Grant      Deed is the final transfer of the property.  Lenders have different time schedules.  Some fund their loans locally and need only one days notice, while others will need up to two full days to review the loan package and fund.
  8. FUNDING:  When then lender verifies that they are in a position to release the loan funds, the Escrow Officer calls the title company to “set up” the recording.  The title company will re-check public county records prior to having the documents recorded, to assure that no new liens have been recorded.  Occasionally, a new lien will appear and the recording is “pulled” until a clearance of the new lien is obtained.
  9. RECORDING:  The title company will call to “confirm” all documents have been recorded and give escrow the final title and payoff of existing lender costs.  Escrow will then balance your file, type closing statements and disburse funds.

Your Escrow Has Now Closed!