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The Functions of
an Escrow
Buying or
selling a home (or other piece of real property)
usually involves the transfer of large sums of
money. It is imperative that the transfer of these
funds and related documents from one party to
another be handled in a neutral, secure and
knowledgeable manner. For the protection of buyer,
seller and lender, the escrow process was
developed.
As a buyer or seller, you want to be certain all
conditions of sale have been met before property
and money change hands. The technical definition
of an escrow is a transaction where one party
engaged in the sale, transfer or lease of real or
personal property with another person delivers a
written instrument, money or other items of value
to a neutral third person, called an escrow agent
or escrow holder. This third person holds the
money or items for disbursement upon the happening
of a specified event or the performance of a
specified condition.
Simply stated, the escrow holder impartially
carries out the written instructions given by the
principals. This includes receiving funds and
documents necessary to comply with those
instructions, completing or obtaining required
forms and handling final delivery of all items to
the proper parties upon the successful completion
of the escrow.
The escrow must be provided with the necessary
information to close the transaction. This may
include loan documents, tax statements, fire and
other insurance policies, title insurance
policies, terms of sale and any seller-assisted
financing, and requests for payment for various
services to be paid out of escrow funds.
If the transaction is dependent on arranging new
financing, it is the buyer's or the buyer's
agent's responsibility to make the necessary
arrangements. Documentation of the new loan
agreement must be in the hands of the escrow
holder before the transfer of property can take
place. A real estate agent can help identify
appropriate lending institutions.
When all the instructions in the escrow have been
carried out, the closing can take place. At this
time, all outstanding funds are collected and
fees--such as title insurance premiums, real
estate commissions, termite inspection
charges--are paid. Title to the property is then
transferred under the terms of the escrow
instructions and appropriate title insurance is
issued.
Payment of funds at the close of escrow should be
in the form acceptable to the escrow, since
out-of-town and personal checks can cause days of
delay in processing the transaction.
The following items represent a typical list of
what an escrow holder does and does not do:
THE ESCROW HOLDER:
- serves as the neutral "stakeholder" and the
communications link to all parties in the
transaction;
- prepares escrow instructions;
- requests a preliminary title search to
determine the present condition of title to the
property;
- requests a beneficiary's statement if debt
or obligation is to be taken over by the buyer;
- complies with lender's requirements,
specified in the escrow agreement;
- receives purchase funds from the buyer;
- prepares or secures the deed or other
documents related to escrow;
- prorates taxes, interest, insurance and
rents according to instructions;
- secures releases of all contingencies or
other conditions as imposed on any particular
escrow;
- records deeds and any other documents as
instructed;
- requests issuance of the title insurance
policy;
- closes escrow when all the instructions of
buyer and seller have been carried out;
- disburses funds as authorized by
instructions, including charges for title
insurance, recording fees, real estate
commissions and loan payoffs;
prepares final statements for the parties
accounting for the disposition of all funds
deposited in escrow.(These are useful in the
preparation of tax returns)
THE ESCROW HOLDER DOES NOT:
- offer legal advice;
- negotiate the transaction;
- offer investment advice
Your local title company should be happy to
provide additional information.
Article by CLTA |
