- What Is Escrow?
- How Does The Escrow Process Work?
- How Do I Open An Escrow?
- How Do I Know Where My Escrow Money Goes?
- What Information Do I Need To Provide?
- How Long Do The Funds Stay In Escrow?
An escrow, sometimes referred to as a closing, is an arrangement in which an impartial third party called an escrow holder becomes the depository for all monies, instructions and documents pertaining to the transaction on behalf of a buyer and seller and/or lender after you enter into an agreement with a lender or mortgage broker to refinance your home, sign a contract to buy or sell a home or any other property. The funds are distributed and documents are recorded only in accordance with the written instructions received from the parties. Once all the terms and conditions of the written instructions of all parties have been fulfilled, and all closing conditions satisfied, the escrow is closed and the transfer of property and money is accomplished People buying and selling real estate often open an escrow for their protection and convenience. The buyer can instruct the escrow holder to disburse the purchase price only upon the satisfaction of certain prerequisites and conditions. The seller can instruct the escrow holder to retain possession of the deed for the buyer until the seller’s requirements, including receipt of the purchase price, are met. Lenders regularly open an escrow to ensure that loan proceeds are not disbursed until the lender has a valid lien recorded against the borrowers property to secure their loan. All parties rely on the escrow holder to faithfully carry out their mutually consistent instructions relating to the transaction or to advise them if any of the instructions are contradictory or cannot be completed.
The escrow officer takes instructions based on the terms of your agreement, whether that is the Purchase Agreement or a lender’s requirements. The escrow officer makes sure that any “clouds” and liens shown on the Preliminary Report/Title Commitment issued by the title company are either approved by the party to be insured or removed before the escrow closes. In the case of a refinance or loan escrow, that party is the lender. In the case of a sales transaction, that party is the buyer. The escrow holder can also hold inspection reports and copies of bills to be paid through the escrow as required by a lender or as part of the purchase agreement. Escrow holders can also prepare the documents to be recorded as part of the transaction, obtain evidence of hazard insurance and obtain the title insurance. Escrow cannot be completed until these items have been satisfied and all parties have signed escrow documents.
In the case of a refinance transaction the lender usually opens the escrow. In the case of a home sale a real estate agent usually opens the escrow, or if no realtor is involved because the property is “for sale by owner”, the buyer and seller can open escrow. Land transactions are regularly opened by the buyer or seller. As soon as the parties involved have reached an agreement as to the terms of a sale, an initial earnest money is handed to the escrow holder, along with the purchase agreement. As a rule, in the case of a refinance, no money is deposited until the loan has been approved and the escrow is getting ready to close.
For a sale transaction, written evidence of the deposit is generally included in your copy of the sales contract. All monies paid to the escrow holder are deposited in a separate escrow or trust account. The escrow holder will then send you a receipt for the funds so deposited.
You may be asked to complete a Statement of Identity as part of the paperwork. Because many people have the same name, the Statement of Identity is used to identify the specific person in the transaction through such information as date of birth, social security number, etc. You might also be asked to provide a mailing address. All of this information is confidential.
The amount of time necessary to complete the escrow is determined by the terms of the Purchase Agreement or the time taken to process your loan. It is normally 45 to 60 days, but can range from a few days to several months.