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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:
- serves as the neutral "stakeholder" and the communications link to all
parties in the transaction;
- prepares escrow instructions;
- requests a preliminary title search to determine the present condition
of title to the property;
- 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:
- offer legal advice;
- negotiate the transaction;
- offer investment advice.
Your local title company should be happy to provide additional
information.
Article by CLTA |
