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;
•Pro-rates 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.
Copyright © 2004-2007 Mary Warren All Rights Reserved