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.

Understanding Escrow

What is Escrow?

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.

Purpose

The escrow holder impartially carries out the written instructions given by the principals, which includes:

• Receiving funds and documents
• Completing required forms
• Handling final delivery of items
• Ensuring all conditions are met

The Escrow Process

Required Information

The escrow must receive:

• Loan documents
• Tax statements
• Insurance policies
• Title insurance policies
• Terms of sale
• Seller-assisted financing details
• Payment requests for various services

Financing Arrangements

• Buyer or buyer's agent responsible for new financing
• Loan documentation must be provided to escrow holder
• Property transfer depends on loan documentation

Closing the Transaction

Final Steps

When all instructions are carried out:

1. Outstanding funds are collected
2. Fees are paid
   • Title insurance premiums
   • Real estate commissions
   • Termite inspection charges
3. Title is transferred
4. Title insurance is issued

Payment Considerations

• Use acceptable forms of payment
• Out-of-town checks may cause delays
• Personal checks may delay processing

What Escrow Does and Doesn't Do

Escrow Holder Responsibilities:

1. Acts as Neutral Party

   • Serves as stakeholder
   • Maintains communication link

2. Documentation

   • Prepares escrow instructions
   • Requests title search
   • Requests loan payoff information
   • Complies with lender requirements
   • Prepares or secures deed

3. Financial Management

   • Receives purchase funds
   • Prorates taxes and interest
   • Handles disbursements
   • Records deeds
   • Requests title insurance

4. Closing Activities

   • Secures releases
   • Closes escrow
   • Prepares final statements

What Escrow Does Not Do:

• Offer legal advice
• Negotiate the transaction
• Offer investment advice

Working with Escrow

Best Practices

1. Provide requested information promptly
2. Read all documents carefully
3. Respond to inquiries quickly
4. Use appropriate payment methods
5. Ask questions when unclear

Communication

• Stay in touch with your escrow officer
• Keep all parties informed
• Report any changes immediately
• Maintain copies of all documents

Conclusion

The escrow process, while sometimes complex, serves the vital purpose of protecting all parties in a real estate transaction. Understanding its functions and limitations helps ensure a smooth transaction.