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What is Escrow?
• Why is Escrow Needed?
• What Happens in Escrow?
• What Duties Does an Escrow
Officer Handle?
• How is the Escrow Holder
Chosen?
• What is My Role in the
Escrow Process?
• Your Loan and Escrow
• Closing Statement
• What Costs Will I Incur?
• Cancellations
• Title Insurance
• Property Taxes
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What is Escrow?
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| Escrow is a deposit of funds,
a deed or other insrtument to a neutral party for
delivery to another party upon completion of a particular
condition or event. |
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Why is Escrow Needed?
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| Escrow is assurance that no funds
or property will change hands until all the instructions
for the transaction have been followed and completed.
The holder of the Escrow is obligated to protect
all funds and documents while in his/her possession
and expend only when all conditions of the escrow
have been achieved. |
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What Happens in Escrow?
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| The buyer, seller, lender, borrower
(the primaries to the escrow) will create escrow
instructions, generally in writing, to be signed
and delivered to the escrow officer. Normally, if
a broker is involved, she/he will provide the Escrow
officer all necessary information for the creation
of your escrow instructions and documents. |
| The Escrow officer will process
the escrow according to the prepared instructions.
After completion and when all conditions required
by the escrow have been achieved, the escrow will
be closed. Escrows are all handled in a similar
fashion with the differences tailored to your property
and transaction. |
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What Duties Does an Escrow Officer Handle?
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| The Escrow Officer performs many
duties, which may include, but not limited to: |
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Adhering to the instructions
set forth by the principles and all parties
to the transaction |
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Processing the Escrow
in a quick and efficient manner |
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When all terms have
been complied with, closing the Escrow |
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Paying all authorized
bills |
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Disbursing funds in
accordance with instructions and providing
an account of her/his actions |
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Providing the Closing
or Settlement Statement |
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How is the Escrow Holder Chosen?
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| An Escrow Holder is normally chosen
by an agreement between the principles. If
a real estate broker is involved in the transaction
they may recommend an escrow holder. The
principles in the transaction have every right to
use an Escrow holder they feel is best suited for
their type of transaction. Laws prohibit the payment
of fees for referrals, giving the consumer the best
escrow services without any compromise caused by
a person receiving a referral fee. |
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What is My Role in the Escrow Process?
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| Read and understand your escrow
instructions. Any questions regarding your instructions
should be directed to your escrow officer for an
explanation. This is the key for any transaction
as important as your sale, purchase or loan. |
| Always remember your escrow officer
is not an attorney, cannot practice law, cannot
offer legal advice and cannot relate personal opinions
about the deal you are getting. Your Escrow officer
is there to follow the instructions set forth by
the principles in the escrow. Always consult your
lawyer for legal advise. Contact your Escrow Officer
to find out specific items that will help expedite
the closing of the escrow. Always respond to correspondence
quickly to assure the timely closing of the transaction.
Deliver funds into the escrow in the form required
by the Escrow Officer. Procedures differ, depending
on the company. Be sure to check with your Escrow
Officer for specific instructions the handling of
such. Personal checks used for delivery of funds
may severely slow the closing process, possibly
a week or more. |
| Your Escrow Officer will need
to know early in the escrow process of any immediate
or special needs you may have on the day of the
closing such as closing papers, checks, cashier's
check, title policies and statements. Some of these
items are impossible to process on the day of the
closing and may take several more days. |
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Your Loan and Escrow
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| If a new loan is being obtained,
your Escrow Officer will be contacting you lender.
The lender will need copies of the escrow instructions,
the preliminary title report and additional documents
as requested. When processing and closing of the
escrow, the escrow holder is required to comply
with the lender's instructions. |
| Most lenders forward their loan
documents to the escrow holder for signing. These
documents are lender documents and cannot be interpreted
or explained by the escrow officer. You may request
a representative from the lender's office to be
present to answer any question you may have regarding
the documents or make arrangements with the lender
to sign documents in their office. |
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Closing Statement
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| The closing statement is a written
record, compiled at the close of escrow that itemizes
the charges and credits of your your account. Items
shown on the statement will include: |
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The purchase price |
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Funds deposited or
credited to your account |
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Payoffs on existing
encumbrances and/or liens |
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The costs for all services |
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The funds you are entitled
to at the close of the escrow |
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| When you receive your closing
papers, carefully examine the closing statement.
It is straight forward and reflects all financial
aspects of your transaction. Any questions or concerns
should be directed to your Escrow Officer for an
explanation. |
| Thoroughly examine ALL of the
closing papers since they may contain a refund check.
Quickly cash/deposit the check, making sure it is
endorsed by all payees. You do not want the checking
being returned, unpaid, due to irregular or missing
endorsements. |
| Safely store your closing statements
and all other escrow papers for income tax purposes.
The closing statement will assist your accountant
with needed information about the sale or purchase
of the property. The IRS and other agencies may
require you to prove your costs and/or profit on
the sale of any property. Also you cannot rely on
your escrow holder to always be there to make copies
of the closing statement and there may be a nominal
fee charged for the copies. Escrow holders generally
destroy the files after the 5-year statutory retention
period. |
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What Costs Will I Incur?
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| The State does not regulate escrow
fees. Like other businesses, Escrow Holders charge
fees commensurate with the costs of providing the
service, the involved liability and overhead expenses
including a profit factor. Fees for these services
will vary between companies and in different counties.
Generally a basic fee schedule will be charged and
extra charges based on special elements of your
escrow. Additional fees may be incurred for unusual
amounts of time spent on a given transaction. |
| Charges the Escrow holder has
no control over are: |
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The title insurance
policy |
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The lender's charges |
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County recording and
transfer tax charges |
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Upon your request, your Escrow
officer can provide you with an estimate of escrow
Fees and costs and additionally, fees charged by
others if available. |
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Cancellations
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| There are occasions when a condition
cannot be met or a disagreement during the finalization
of the escrow. General Provisions of the escrow
generally incorporate a typed or printed instruction
in the event of a cancellation. Most commonly, Escrow
Holders will not refund any funds on deposit until
receiving mutual cancellation instructions signed
by the principals. The Escrow Holder is not a judge
and normally cannot make a determination as to the
rightful party in a dispute on a cancellation. Funds
will not be returned until the principals agree. |
| Expect a fee to be charged for
cancellation. This is a charge for professional
services rendered and quite often for several out-of-pocket
expenses that have been incurred on the client's
behalf. Cancellations fees vary between companies,
depending upon their policies. |
| Sometimes during a dispute, the
Escrow Holder may allow a court to decide which
party receives what documents or funds. This is
referred to as an Interpleaded Action. Costs for
such legal actions are extreme and are normally
paid from the funds on deposit in the escrow. |
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Title Insurance
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| The title insurance policy insures
the owner and/or the lender, ownership of the property.
Title insurance is most often obtained when real
property is purchased. Various coverage's are offered,
but basic policies insure that the buyer is the
owner and that any lender shown on the policy is
an insured lender. Extended coverage's of many different
types are available. For example, an ALTA policy
is often required by institutional lenders to afford
them additional protection under the title insurance
policy. Only after an extensive examination of the
public records and the required documents are recorded
will the title policy be written. |
| Fees for a title insurance policy
is a one-time fee paid at the close of the escrow.
Determining whom pays for this policy in not uniform
among California counties. Most frequently, payments
for the closing costs is an agreement between the
parties, generally based on the standard county
or are practices. FHA or VA transactions, the escrow
officer must follow guidelines set forth by the
lender and/or government. |
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Property Taxes
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| Transaction terms and the resulting
escrow instructions determine how the property taxes
are handled. Your Escrow Officer will not deal with
any credits or charges for prorated of taxes, are
handled. Your Escrow Officer will not deal with
any credits or charges for prorated taxes; there
is no mention of prorating in the escrow instructions.
If your escrow calls for a prorating of taxes, there
will be an item in your closing statement that will
reflect either a charge or credit to your account.
If the taxes have not been paid even though there
has been a charge or credit against your account,
the buyer is required to obtain a tax bill and pay
the taxes. A tax bill may be requested from the
tax collector by sending a photocopy of the deed. |
| Shortly after the close of an
escrow involving the conveyance of real property,
a supplemental tax bill is generated. This is accomplished
in cooperation with the County Assessor and the
County Tax Collector. The County Assessor will request
information about the property from the buyer to
assist in determining the value of the property
for taxation purposes. Some of this information
may have been previously supplied by the Escrow
Holder via a Preliminary Change of Ownership form
that should accompany each deed when it is recorded.
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