Real Estate Ins & Outs August 18, 2019

What is Escrow?

There has to be a neutral third party in every real estate transaction; someone who will take instructions only from the principals – the buyers and sellers. That is escrow’s job.

Once the contract is signed, and its terms and conditions, along with the buyers’ deposit, are submitted, the escrow officer begins her work.  After depositing the buyers’ earnest money into a trust account, the escrow holder will prepare escrow instructions that are in accordance with the original real estate contract. This is the first document buyers and sellers sign. If, for some reason, the terms of the original contract change during the term of the contract, amended escrow instructions are sent for signature, also.

During the term of the escrow, the escrow holder must maintain an impartial third party status. They never will offer any advise, nor will they disclose or discuss the terms of the original contract with anyone except the parties to the contract. If a conflict arises before the close of escrow, the holder will not complete the escrow. An agreement must be reached before the escrow holder will proceed to closing.

A preliminary title report is ordered, which will show that the sellers really do own the property and are entitled to sell it, that the taxes on the property are paid current, and that there is a first mortgage, or the property is free and clear of liens.  If there are liens against the property, perhaps a first or second mortgage or a mechanics lien, the escrow officer will order payoff amounts. These amounts will be paid by escrow from proceeds due to the sellers at closing. If the buyers are getting a  first mortgage on the property, then it’s a waiting game until the lender is ready with the new loan documents.

Just before the agreed-upon date of close of escrow, buyers sign all the loan documents, deposit their total down payment into escrow, receive a preliminary closing statement, showing loan costs, prorated interest, escrow and title fees, along with prorated taxes and homeowner’s dues, if included in the original sales contract. Usually, sellers sign the only the deed, and receive a preliminary closing statement showing their costs of the transaction; escrow fees, commissions, payoffs, and prorated amounts, if any. Then it’s finally time to record the deed and the new first mortgage. Money is disbursed, escrow is closed.