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WHAT IS ESCROW?
Escrow is the depositing of funds and documents by the parties with an impartial third party for delivery upon completion of the terms of the escrow instruction. It is also commonly said that buyers and sellers have "opened escrow." Each of the principals of the escrow (seller, buyer, and lender) will give to the escrow holder written instructions setting out the conditions which must be met prior to the close of the transaction. These instructions are usually drawn up by the escrow officer from the purchase agreement, and/or any other agreements, signed by both the buyer and seller.
THE PURPOSE OF AN ESCROW
The common use of an escrow is to ensure all of the contractual agreements for a real estate transaction are completed prior to the seller being relieved of their interest in the property and the buyer acquiring interest in the property.
The escrow holder acts as:
1. Custodian for funds and documents.
2. A clearing house for payment of all demands.
3. An agency to perform the clerical details for the settlement of the accounts between the parties.
TYPICAL ESCROW TRANSACTION
Typically, an escrow begins with the REALTOR delivering the purchase contract and the buyer’s earnest money deposit to the escrow company from which they prepare and send out the initial escrow instructions and other important paperwork. The title company prepares a preliminary report that provides the customer with an analysis of the present status of title to the property as revealed by the public records filed or recorded in the county in which the property is located. The escrow officer makes sure there is agreement between all parties that the terms or the contract are fulfilled. That could mean having a Certificate of Completion from the Termite Company or ordering and delivering to the buyer a copy of the Homeowners Association Documents. The escrow officer will also contact the buyers’ lender, order loan documents and arrange for the buyer to sign them and bring in their downpayment. Once all is in order, the escrow officer will request that the loan fund. Once it does, the Title Company will take the grant deed, trust deed and all other documents that need to be recorded to the County Recorder’s Office. Once the new title has been recorded, escrow prepares and delivers closing statements to both the buyer and seller. The closing statement is a financial record of the transaction and will be needed for tax purposes. At this point, escrow is considered closed.
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