ESCROW – WHAT IS IT?
Most parties enter the escrow process with little or no understanding of what it is or what to expect. The dictionary will tell you that an escrow is defined as a secure and neutral holding place for the documents and funds that are used to complete the transfer of real property. That secure and neutral holding place is your escrow officer who acts much like the hub of a wheel, bringing together all the pieces of your transaction by managing the complex web of documents and funds. The goal of a good escrow officer is to move the parties smoothly, comfortably, and securely through the process and, in the end, to provide the Seller with a check and the Buyer with a deed to his new home.
In more technical terms, the escrow holder acts as an impartial third party who is entrusted with the safekeeping of the documents and funds until all of the conditions of the contract have been fulfilled. This means that your escrow officer is an unbiased party who can be trusted to assist you through the process with neutrality. The Buyer and Seller give the escrow officer written instructions that define the terms and conditions under which he or she is authorized to distribute funds and record legal documents.
WHAT IS THE DEFINITION OF ESCROW?
Money, property, a deed, or a bond put into the custody of a third party for delivery to a grantee only after the fulfillment of the conditions specified.
HOW DOES AN ESCROW WORK?
The principals to the escrow, or agents, will provide the escrow officer with a copy of the purchase contract, deposit and any necessary information for the escrow officer to prepare escrow instructions or supplemental escrow instructions. These instructions reiterate the specific requirements that have been agreed upon in order to close. Upon review and execution by both buyer and seller, the escrow holder will proceed in accordance with the escrow instructions. When all conditions of the escrow are met, the escrow holder will then have all necessary documents recorded and close the escrow. As escrow is a neutral third party, the escrow holder can only operate on written instructions. Therefore, it is important to be concise in instructing the agent and/or escrow holder.
WHO CHOOSES AN ESCROW AND WHEN?
The escrow company is normally chosen by the Buyer or Seller, but is often directed by either agent involved in the transaction, as they may already have a working relationship with an escrow company. Be aware that it is ultimately your choice in selecting your escrow company, based on your needs and wants.
HOW CAN WE PREPARE FOR ESCROW?
Communication is the key to limiting the stress and pressure of obtaining loan approval, processing escrow and planning a move. Common closing delays are caused in the following areas:
- If any of the Buyers or Sellers will be out of town prior to the escrow closing date, contact your loan processor and Escrow Officer to discuss scheduling.
- Do not incur additional debt, change your employment status, etc. Your credit and employment may be verified again as late as the escrow closing date.
- Valid picture ID required for closing document notarization (i.e., current drivers license, State ID, passport)
- Apply for homeowner insurance coverage right away; don’t wait to the last minute, as coverage availability may be limited.
- All closing funds must clear the escrow trust account before escrow closing (wire transfers usually clear with 2-6 hours of origination;California cashier’s checks usually clear 24-48 hours after deposit; official, corporate or personal checks may take longer and cause closing delays).
WHAT ARE CLOSING COSTS?
Closing costs differ depending on the type of transaction involved. Escrow fees are based on the value of the escrow; for example sales price, refinance loan amount, etc., but may vary based on the complexity or additional services required. Other fees that may be incurred during the escrow are new loan financing charges, title fees, commissions, payoff to existing lender and notary services. The escrow holder has no control over the fees that are charged by outside parties. It is your right to request a closing statement to review prior to the close of escrow.
WHY IS A “REFUNDABLE PAD” LISTED ON MY ESTIMATED CLOSING STATEMENT?
Although the escrow holder completes an estimate prior to closing escrow, items such as fees and interest may change daily. A refundable pad is used to avoid any shortages when closing escrow. Any unused portion of the pad will be refunded at the close of the transaction.
CAN ESCROW ACCEPT A PERSONAL CHECK AT THE TIME OF CLOSING?
The escrow holder must have a cashier’s check drawn on a California bank or funds wired in order to close escrow in a timely manner. This is because escrow funds must be “good” or cleared prior to the close of escrow. Personal checks can be accepted however, it will take up to 10 (ten) days to verify funds and for the check to clear.
AT CLOSING, WHEN CAN THE SELLER EXPECT TO RECEIVE THE NET PROCEEDS?
Once documents have been recorded, the Escrow holder must wait for the wire transfer from the Title Company. This is usually received the day after recording. Upon receipt of said funds, the Escrow holder must balance the file and can then issue checks and closing statements.