The Functions of an Escrow

 

Buying or selling real property involves transferring large sums of money and documents. The escrow process was developed to handle this transfer in a neutral, secure, and knowledgeable manner, ensuring all conditions of sale are met before property and money change hands.

Technically, escrow is a transaction where one party 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 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 (buyer, seller, and lender).

The escrow must be provided with necessary information, including loan documents, tax statements, insurance policies, title insurance policies, terms of sale, and requests for payment for various services. If new financing is involved, the buyer’s or agent’s responsibility is to make the necessary arrangements, and the new loan documentation must be in the hands of the escrow holder before the transfer of property can occur.

When all instructions are carried out, the closing takes place. All outstanding funds are collected, and fees (commissions, inspection charges, title insurance premiums) are paid. Title to the property is transferred, and the appropriate title insurance is issued. Payment of funds at closing should be in a form acceptable to the escrow (avoiding personal or out-of-town checks to prevent delay).

• 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).

• Offer legal advice.
• Negotiate the transaction.
• Offer investment advice.

Your local title company should be happy to provide additional information.

Article by CLTA