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What is escrow?
Escrow is the final process of a real estate transaction in which a neutral and disinterested third party, known as the “Escrow Officer”, has the responsibility to see that the terms and conditions set forth in the contract by the buyer and seller are completely executed. These conditions include, but are not limited too, the transfer of ownership from seller to buyer and holding of any funds and documents until the terms of the contract agreed by all parties have been settled. Additionally, it entails signing loan documents, disbursing funds, paying outstanding bills/ invoices to the appropriate parties at the proper time.
Escrow is an important part of a real estate transaction. It ensures that neither funds, nor property will be exchanged until all requirements of the transaction have been fulfilled. Lastly, it facilitates the successful closing and protects the interests of the buyer, seller, lender and the borrower.
What is the escrow process?
The Escrow Officer draws up a set of documents entitled, “escrow instructions” based on the dually executed contract. These instructions must be fully completed, initialed, signed and returned to the escrow officer. The Escrow Officer processes the escrow according to the escrow instructions. During the escrow process, the escrow officer is responsible for serving as a neutral third party and a liaison between all parties involved, handling the transfer and disbursement of funds, transfer of documents, paying outstanding bills/ invoices, opening a preliminary title report, requesting hazard insurance, preparing the grant deed from the seller to the buyer, securing other documents related to the escrow, complying with the lender’s requirements, responding to requests made by the parties involved, and prorating taxes, insurance, rent, and interest. Along with other elements such as, setting up deeds and documents to be recorded and preparing a final settlement statement showing an accounting of all the monies that were exchanged to the parties involved in the transaction. When all these conditions have been met, the escrow officer may close escrow.
What is the closing date and how is it established?
The closing date is typically agreed upon in the contract. The buyer may request a 30, 45, 60 or a 90-day escrow period. The seller may agree with this period or request alternate closing options. To select a reasonable closing date, all parties must understand what their individual responsibilities are before closing can take place.
For example, the buyer might be faced with a “financing contingency”, which gives him/her a specified amount of time to secure a loan commitment from the lender. Or, the buyer may make the closing date contingent upon the sale of his/her current property. The seller may have unexpected liens or other encumbrances on the title that must be cleared before ownership may be transferred. Both parties should consider minor events that may arise; therefore, they should elect a date that is best suited for both parties. If any dates, contingencies or terms are changed, the escrow officer must be notified immediately. The Escrow Officer will draw up an addendum addressing these changes. Customarily, these developments should not cause a delay in escrow, as long as all parties have an understanding of their role in escrow.
What are the escrow charges and how are they divided?
An escrow fee is the cost for the services provided during your escrow. This includes fees for a title insurance premium, hazard insurance, homeowner’s warranty plan, escrow fees, transfer tax, property tax, recording fees, costs related to obtaining financing, appraisal, inspection, interest, paying off existing liens, etc. Generally, local custom will be followed unless some other agreement has been settled between the parties involved.
How do I have a successful closing date?
The successful closing of an escrow largely depends on the full cooperation of all parties involved in the transaction. Since the escrow officer is the liaison between all parties, he/she needs to be in direct contact with the parties at all times. Furthermore, all documents such as loan documents, deeds, amendments, etc., required need to be executed completely and notarized if applicable. All final closing funds and invoices must be submitted. All inspections, conditions and contingencies must be satisfied and or removed. At this time the escrow officer will send the signed loan documents back to the lender, the deeds to title. In addition, the Escrow Officer will balance the file and request the final funds to close escrow. Cooperating in a timely manner with the Escrow Officer will guarantee a smooth and efficient closing.
What services does Best Coast Escrow offer?
- Residential Single Family Dwellings
- 2-4 units
- Commercial multiple units
- 1031 Tax- deferred exchange
- Customized Escrow Transaction
What if I want more information?
The examples given are designed to familiarize clients with the simplest type of escrow. Most escrows are more complex than one can imagine. It is, therefore, recommended that clients contact escrow directly for further information.