Once your offer on a home or other property has been accepted by the seller, your transaction is then placed into escrow.
Escrow is a term that describes the neutral third-party handling of funds, documents, and tasks specific to the closing, as outlined in the real estate purchase agreement. The purpose of escrow is to facilitate the transaction by managing the disbursement of funds and documents.
Why do I need escrow?
Whether you are a buyer, seller, lender or borrower, you want assurance that no funds or property will change hands until all of the instructions in the transaction have been followed. The escrow holder has the obligation to safeguard the funds and/or documents while they are in the possession of the escrow holder, and to disburse funds, and/or convey title only when all provisions of the escrow have been completed.
How does it work?
The principals to escrow—buyer, seller, lender, borrower—cause written escrow instructions to be created, signed and delivered to the escrow officer. If a broker is involved, they will normally provide the escrow officer with the information necessary for the preparation of your escrow instructions.
The escrow officer will create escrow instructions and process the escrow accordingly. When all conditions required in the escrow have been met, the escrow will be “closed.” Each escrow, although following a similar pattern, will be different in some respects, as it deals with your property and the transaction at hand.
The duties of an escrow holder include following instruction given by the principals and parties to the transaction in a timely manner, handling the funds and/or documents in accordance with the instruction, paying all bills as authorized, responding to the authorized requests from the principals, closing the escrow only when all terms and conditions have been met, distributing the funds in accordance with the instructions and providing an accounting for the same—the Closing or Settlement Statement.
How do I choose escrow?
The selection of the escrow holder is normally done by agreement between the principals. If a real estate broker is involved in the transaction, the broker may recommend an escrow holder. However, it is the right of the principals to use an escrow holder who is competent and who is experienced in handling the type of escrow at hand.
What can I do to expedite the process?
Please review and make sure you understand the terms of the escrow instructions. If you have questions, please ask your escrow officer. Keep in mind that your escrow officer is not an attorney and cannot practice law. You should consult your lawyer for legal advice. Do not expect your escrow officer to advise you as to whether or not you have a “good deal” or are doing things the right way. The officer is there to follow the instructions 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.
How long can I expect the process to take?
When the escrow officer closes the escrow, some of you may want the closing papers, check, title policies provided by the title company and statements made available immediately. There are many aspects to closing an escrow, and some of these cannot be processed on the day of the closing. If you have a special need, for example a cashier’s check on the day of closing, you should communicate that need to the escrow officer in advance so it's more likely they can make an accommodation.
What is a closing statement?
A closing statement is an accounting, in writing, prepared at the close of escrow, which sets forth the charges and credits of your account. The items shown on the statement will reflect the purchase price, the funds deposited or credited to your account, payoffs on existing encumbrances and/or liens, the costs for all services and determination of the funds due to you at the close of escrow. When you receive your closing papers, review the closing statement for accuracy; it is extremely logical and reflects the financial aspects of your transaction. If anything does not make sense to you, please ask your escrow officer for an explanation.