previous

Buyer Process: Page 11

next

What Is An Escrow?

The purpose of an escrow
Escrow is the depositing of funds and documents by the parties with an impartial third party for delivery upon completion of the terms of the escrow instructions.

The escrow holder impartially carries out the written instructions given by the principals (seller, buyer, lender). 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.

The common use of an escrow is to enable the parties in a real estate transaction to deal with each other with less risk since the escrow holder acts as:

  • Custodian for funds and documents
  • A clearinghouse for payment of all demands
  • An agency to perform the clerical details for the settlement of the account between the parties

A typical escrow transaction
An escrow begins with the customer giving the necessary information regarding the transaction and requesting the title company to order a preliminary title report.

A preliminary title report provides the customer with an analysis of the present status of the property as revealed by the public records filed or recorded in the county in which the property is located.

Upon receipt of the preliminary title report, an analysis is made to determine the steps to be taken to close any and all outstanding debts and liens. At that time the escrow holder shall order any required demand. Upon receipt of loan documents further analysis is done to make sure the escrow holder can comply with said instructions.

When all title company and financial instruction requirements are deemed to be in order, the escrow officer will then draw the required instructions and statements.

You may be asked to complete a Statement of Identity as part of the escrow process. Due to the fact that many people have the same name, the Statement of Identity is used to identify the specific person in the transaction through such information as date of birth, social security number, etc. This information is considered confidential.

During the escrow process, you are required to make your payments on existing loans so that you do not incur any late fees or damages to your credit rating.

The Escrow Holder Duties

  • Serve as the neutral “stakeholder” and the communication link to all parties in the transaction
  • Requests a preliminary title search to determine the present condition of title to the property and in turn orders any required demands.
  • Prepares escrow instructions and statement to include prorated taxes, interest, insurance and rents according to instructions.
  • Complies with lender’s requirements per their instructions
  • Receives required funds to close from buyer and seller and funding by the lender
  • Records all required documents, ie. Grant Deeds and Deeds of Trust to successfully transfer title.
  • Prepares final statements for the parties accounting for the disposition of all funds deposited and disbursed from escrow.

The Escrow Holder Does Not

  • Offer legal advice
  • Negotiate the transaction
  • Offer investments advice