What is it?
Very simply defined, an escrow is a deposit of funds, a deed or other instrument
by one party for the delivery to another party upon completion of a particular
condition or event. The California Escrow Law – Section 17003 of the Financial
Code – provides the legal definition.
Why Do I Need an Escrow?
Whether you are the buyer, seller, lender or borrower, you want the assurance
that no funds or property will change hands until ALL of the instructions in
the transaction have been followed. The escrow holder has the obligation to
safeguard the funds and/or documents while they are in the possession of the
escrow holder, and to disburse funds and/or convey title only when all provisions
of the escrow have been complied with.
Escrow – How Does it Work?
The principals to the escrow – buyer, seller, lender, borrower –
cause escrow instructions, most usually in writing, to be created, signed and
delivered to the escrow officer. If a broker is involved, he will normally provide
the escrow officer with the information necessary for the preparation of your
escrow instructions and documents.
The escrow officer will process the escrow, in accordance with the escrow instructions,
and when all conditions required in the escrow can be met or achieved, the escrow
will be "closed." Each escrow, although following a similar pattern,
will be different in some respects, as it deals with your property and the transaction
The duties of an escrow holder include; following the instructions given by
the principals and parties to the transaction in a timely manner; handling the
funds and/or documents in accordance with the instruction; paying all bills
as authorized; responding to authorized requests from the principals; closing
the escrow only when all terms and funds in accordance with instructions have been completed and provide
an accounting for same – the Closing or Settlement Statement.
Who Chooses the Escrow?
The selection of the escrow holder is normally done by agreement between the
principals. If a real estate broker is involved in the transaction, the broker
may recommend serveral escrow holders. However, it is the right of the principals to
use an escrow holder who is competent and who is experienced in handling the
type of escrow at hand. There are laws that prohibit the payment of referral
fees; this affords the consumer the best possible escrow services without any
compromise caused by a person receiving a referral fee.
What Do I have to do while in Escrow?
The key to any transaction as important as your sale, purchase or loan is to
read and understand your escrow instructions. If you do not understand them,
you should ask your escrow officer to explain the instructions.
Your escrow officer is not an attorney and cannot practice law; you should
consult your lawyer for legal advice. Do not expect your escrow officer to advise
you as to whether or not you have a "good deal" or are doing things
the right way. The escrow officer is there to follow the instructions given
by the principals in the escrow.
In order to expedite the closing of the escrow, you should check with your
escrow officer as to what specific items you could do to assist. Ask the question
– "What can I do to expedite the closing of this escrow?"
Respond quickly to correspondence. This will assist in the timely closing of
If you are required to deliver funds into the escrow, make sure that you provide
"good" funds in the form required by the escrow officer. Company procedures
differ in this regard, and there are many ways you can help at the time of closing;
check with your escrow officer. Do not give the escrow officer a personal check
and expect the escrow to close immediately; the escrow can only close on cleared
funds, and the processing of a personal check can take days, possibly even a
week or more.
When the escrow officer closes the escrow, some of you may want the closing
papers, checks, title policies, statements, etc. Made available immediately.
There are many aspects to the closing of the escrow, and some of these cannot
be processed on the day of the closing; they may take several days. If you have
a special need, for example, a cashier’s check on the day of closing,
you should communicate that need to the escrow officer early in the processing
of the escrow.
Escrow and Your New Loan
If you are obtaining a new loan, your escrow officer will be in touch with
the lender who will need copies of the escrow instructions, the preliminary
title report and any other documents escrow could supply. In the processing
and the closing of the escrow, the escrow holder is obligated to comply with
the lender’s instructions.
It has become a practice of some lenders to forward their loan documents to
escrow for signing. You should be aware that these papers are lender’s
documents and cannot be explained or interpreted by the escrow officer. You
have the option of requesting a representative from the lender’s office
to be present for explanation, or arrange to meet with your lender to sign the
documents in their office.