Escrow is a deposit of funds, a deed or other instrument by one party for the delivery to another party upon completion of a particular condition or event.
Whether you are a buyer, seller or lender, you want assurance that no funds or property will change hands until all of the conditions and obligations of the parties have been met. The Escrow Agent (aka “Settlement or Closing Agent”) has the obligation to safeguard the funds and title transfer documents during the transaction and to disburse funds and convey title only when all provisions of the purchase agreement and escrow instructions have been complied with.
The parties to a typical escrow transaction are a buyer, seller and mortgage lender. After the buyer and seller sign a mutually agreed upon purchase and sale contract, that agreement and the buyer’s earnest money are deposited “into escrow.” This is normally referred to as “opening escrow.”
The escrow agent will then create escrow instructions and process the escrow, in accordance with terms of purchase agreement and escrow instructions. When all terms, conditions and obligations required in the escrow have been met or achieved, the escrow will be “closed.” The Closing Agent will then prepare and record the title transfer documents and disburse the proceeds of the escrow in accordance with the settlement statement.
The duties of an escrow agent include following the instructions given by the parties to the transaction in a timely manner, clearing “clouds” found on the title report, verifying payoff amounts for loans and liens against the property, handling the funds and documents in accordance with the instruction, paying all bills as instructed, responding to the authorized requests from the parties, closing the escrow only when all terms and conditions have been met, distributing the funds in accordance with the instruction and providing an accounting for the same—the Closing or Settlement Statement.
The selection of the escrow agent is normally done by agreement of the buyer and seller and is selected in the purchase and sale agreement. If a real estate broker is involved in the transaction, the broker may recommend an escrow agent to use. However, it is the right of the parties to select an escrow agent who they believe will be competent handling the transaction. There are laws that prohibit the payment of referral fees; this affords the consumer the best possible escrow services without any compromise caused by a person receiving a referral fee.
During escrow, the key to any transaction is to read and understand your escrow instructions. If you do not understand them, you should ask your escrow officer to explain the instructions. Your escrow officer is not an attorney and cannot practice law. Do not expect your escrow officer to advise you as to whether or not you have a “good deal.” The escrow officer is there to follow the instruction given by the principals in the escrow.
In order to expedite the closing of the escrow, you should check with your escrow officer as to what specific items you could assist with. Ask “What can I do to expedite the closing of this escrow?” and respond quickly to correspondence. This will assist in the timely closing of the transaction.
The most important thing you can do to ensure a smooth and quick escrow closing is be sure to respond to any questions or requests for information your escrow agent may have.
The “closing date” is set by mutual agreement in the purchase and sale agreement. All parties must be sure to perform their obligations as set forth in the purchase agreement to ensure that the closing takes place by the closing date. If the buyer or seller is unable to close by the closing date, the parties will have to mutually agree to an extension of the closing date to remain under contract.
A closing statement is an accounting, in writing, prepared at the close of escrow, which sets forth the charges and credits related to the transaction. The items shown on the statement will reflect the purchase price, the funds deposited or credited, payoffs of existing encumbrances and liens, the costs for all services and determination of the funds due from or to the parties at the close of the escrow. When you receive your closing papers, review the closing statement for accuracy. If anything does not make sense to you, you should ask your escrow officer for an explanation.