What Is An Escrow?
An escrow is a neutral third party.
The escrow is a legal procedure for handling the details of the real estate transaction from the time the purchase agreement is ratified, until the title is transferred and the sale is completed. The escrow is typically managed by a title company.
The escrow officer, a neutral third party in the transaction, must complete specific instructions, received from the buyer's and seller's agents, before title is transferred and funds are disbursed. The buyer's and seller's instructions must match in order for the escrow to move forward.
The escrow is usually opened by the next business day after mutual acceptance of the purchase agreement and the buyer's earnest money is deposited into the escrow.
Preliminary title Report
The title company searches the public records for pertinent information about the property. Who is the owner of record? What liens exist against the property? What easements affect the property? Are there any judgment that might have to be cleared before title can be transferred? Any such items must be resolved during the escrow period.
Title Insurance
The title insurance policy is protection for the buyer against forgeries, errors in public records and other specific items. An ALTA (American Land Title Association) title insurance policy is issued to protect the lender. Generally the buyer is required to pay for the ALTA policy when a lender is involved.
What is the Escrow Process?
The following is a brief overview of the Escrow process:
The Seller:
• Clears matters on preliminary report
• Deposits statutory warranty deed
• Signs Escrow instructions
The Buyer:
• Reviews preliminary report
• Signs loan documents
• Signs escrow instructions
• Receives owner's title insurance policy
• Secures financing with lender
• Provides hazard insurance for the lender
• Deposits funds
The Lender:
• Reviews preliminary report
• Issues loan commitment and lender's escrow instructions
• Arranges hazard insurance with Buyer
• Receives and reviews executed loan documents
• Receives lender's title insurance policy
• Qualifies buyer
• Discloses closing costs
• Prepares loan documents for escrow
The Escrow Officer:
• Reviews preliminary report
• Provides copies of report to all parties
• Receives and prepares Seller's and Buyer's escrow instructions
• Receives Buyer's funds for escrow and deposits
• Arranges new loan funding with lender
• Records document for public record
• Prepares final closing statement for Buyer and Seller
• Works with Seller to clear liens, judgment, etc.
• Complies with Lender's escrow instructions
• Prepares document/special instructions
• Disburses monies/documents to appropriate parties
Lynn Robertson
Steve Glover