Escrow is an agreement brokered through a neutral third party.

An escrow is an agreement between a buyer and a seller, which directs a neutral third party to prepare and hold documents and funds until all parties have fulfilled the terms of the purchase and sale agreement. The escrow holder impartially carries out the written instructions provided by the principals. The escrow holder cannot offer legal or investment advice or help a buyer or seller negotiate obstacles in the transaction.

The escrow procedure.

Typically, the buyer or seller's agent will open the escrow within a day of the final acceptance of the purchase contract. During escrow the buyers inspect the title and condition of the home and pursue financing as agreed upon between the parties involved.

When all the buyer's contingencies are satisfied and the loan is approved, the lender delivers loan documents to the escrow officer, who then has all the additional documents necessary to complete the sale prepared. The escrow officer also orders the paperwork needed for the seller to pay off any existing liens against the property so that clear title can be passed to the buyer.

When all the instructions have been carried out and outstanding funds have been collected, closing can take place. Escrow is "closed" after title to the property passes from the owner to the purchaser. The escrow officer accomplishes this by recording the deed, which is the document that transfers title. Disbursement of funds is generally the following day. This can vary in certain counties.

Duties the escrow holder performs.

  • Serves as communications liaison to all parties in the transaction
  • Prepares escrow instructions from the purchase contract and delivers them to the buyer and seller
  • The title officer opens the order for title insurance and examines the title evidence. The title officer sees that clear title is shown in the name of the buyer.
  • Approval is obtained from the buyer on the title insurance, and pest inspections, etc.
  • The lender or buyer provides the funds needed to close the transaction, to the escrow officer.
  • Funds are distributed for real estate commissions, recording fees, title insurance, and inspections.
  • The escrow officer prorates rents and taxes.
  • Instructs title to issue title insurance policies
  • A final closing statement is prepared, for the buyer(s) and seller(s), by the escrow officer that discloses all monies being distributed and to whom.
  • The escrow officer has the Deed and Lender's loan documents recorded.
  • The escrow officer then delivers the deed to the buyer, the loan docs to the lender and the funds to the seller, closing the escrow.