YOUR GUIDE TO ESCROW
What is escrow?
An escrow is a deposit of funds, a deed, or any written instrument delivered by one party to another upon fulfillment of a specific condition or event.
In a real estate transaction, escrow opens when both the buyer and seller of a piece of property sign a sales contract or real estate purchase agreement containing terms and conditions for the change of ownership of the property. This agreement will then be handed over to a neutral third-party known as the escrow holder or officer, who has the responsibility to see to it that each term and condition is fulfilled.
Essentially, the escrow serves as “storage” for the funds, documents, and terms and conditions required for the transaction, including the down payment funds, the deed or title, and other necessary paperwork.
Why an escrow is needed
An escrow serves as a guarantee that the property and all funds in the transaction will not be transferred to any other party until all of the terms and conditions have been fulfilled. The escrow holder, who is tasked to safeguard all funds and documents, will ensure that every instruction is followed and funds and documents are given out according to the buyer’s and seller’s agreement.
How an escrow is opened
It is typically the buyer’s or seller’s real estate agent who opens the escrow. After the purchase agreement is completed, the agent will then deliver the buyer’s initial deposit into a title company’s escrow account or a broker’s account.
Requirements needed for signing escrow documents
All parties who sign escrow documents are required to present proper identification such as a valid driver’s license, current passport, or state identification card to the title company. This will then be used by a notary public in order to verify your identity.
What goes on during escrow
All parties involved in the transaction – the buyer, seller, lender, or borrower – determine and agree upon terms and instructions before delivering these to the escrow holder. The buyer deposits all required funds to the escrow holder, and instructs him or her to disburse the funds to the seller when the deed records and when a policy of title insurance is delivered.
Upon receiving all the requirements, the escrow holder will then proceed to process the escrow according to the instructions agreed upon by all parties. The escrow holder represents both parties, protecting each of their interests in accordance to the escrow instructions. An escrow holder is not there to provide any form of advice to either party, though he or she can be counted on to expedite the process, if necessary.
The escrow is declared “closed” when conditions and requirements are fully satisfied, and escrow documents are signed by all parties.
After the closing
After the closing escrow papers and other necessary paperwork have been signed by all parties, the escrow holder will deliver the buyer’s loan documents to the lender for a final review. After the completion of the review, the lender will then notify the escrow holder that they can now fund the buyer’s loan.