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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:
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serves as the neutral
"stakeholder" and the communications link to all parties in the
transaction;
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prepares escrow
instructions;
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requests a preliminary title search to determine
the present condition of title to the property;
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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)
THE ESCROW HOLDER DOES NOT:
Your local title company should be happy to provide additional
information.
Article by CLTA
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