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Who
May Hold Escrows
The escrow holder may
be any disinterested third party (although some states require that certain
escrow holders be licensed).
There
are two important reasons for selecting an established, independent escrow
firm, an attorney, or an escrow officer with a bank, S&L or title
insurance company. One is that real estate transactions require a tremendous
amount of technical experience and knowledge to proceed smoothly. The other
is that the escrow holder will generally be responsible for safeguarding and
properly distributing the purchase price.
Escrow
officers with established firms generally are experienced and trained in
real estate procedures, title insurance, taxes, deeds and insurance.
Impartiality
An escrow officer must
remain completely impartial throughout the entire escrow process. He or she
will normally adopt a courteous but rather formal manner when dealing with
parties to the escrow, keeping conversation to the matters at hand in the
escrow. This formal behavior is meant for the benefit of all concerned,
since the escrow officer must follow the instructions of both parties
without bias.
Escrow
Instructions
Escrow
instructions are written documents, signed by the parties giving them, which
direct the escrow officer in the specific steps to be completed so the
escrow can be closed.
Typical
instructions would include the following:
The method by which the escrow holder is to receive and
hold the purchase price to be paid by the buyer.
The conditions under which a lapse of time or breach of
purchase contract provision will terminate the escrow without a closing.
The instruction and authorization to the escrow holder
to disburse funds for recording fees, title insurance policy, real estate
commissions and any other closing costs incurred through escrow.
Instructions as to the proration of insurance and taxes.
Instruction to the escrow holder on the payment of prior
liens and charges against the property and distribution of the net sale
proceeds.
Since
the escrow holder can only follow the instructions as stated, and may not
exceed them, it is extremely important that the instructions be stated
clearly and be complete in all details.
What
Each Party Does in the Escrow Process
The
Seller
Deposits the executed deed to the buyer with the escrow
holder.
Deposits evidence of pest inspection and any required
repair work.
Deposits other required documents such as tax receipts,
addresses of mortgage holders, insurance policies, equipment warranties or
home warranty contracts, etc.
The
Buyer
Deposits the funds required, in addition to any borrowed
funds, to pay the purchase price with the escrow holder.
Deposits funds sufficient for home and title insurance.
Arranges for any borrowed funds to be delivered to the
escrow holder.
Deposits any deed of trust or mortgages necessary to
secure loans.
Approves any inspection reports, title insurance
commitments, etc. called for by the purchase and sale agreements.
Fulfills any other conditions specified in the escrow
instructions.
The
Lender (if applicable)
Deposits proceeds of the loan to the purchaser.
Directs the escrow holder on the conditions under which
the loan funds may be used.
The
Escrow Holder
Opens the order for title insurance.
Obtains approvals from the buyer on title insurance
report, pest and other inspections.
Receives funds from the buyer and/or any lender.
Prorates insurance, taxes, rents, etc.
Disburses funds for title insurance, recordation fees,
real estate commissions, lien clearance, etc.
Prepares a final statement for each party indicating
amounts to be disbursed for services and any further amounts necessary to
close escrow.
Records deed and loan documents, and delivers the deed
to the buyer, loan documents to the lender and funds to the seller, thereby
closing the escrow.
Closing
the Escrow
Once all the
terms and conditions of the instructions of both parties have been
fulfilled, and all closing conditions satisfied, the escrow is closed and
the safe and accurate transfer of property and money has been accomplished.
Division
of Charges
The method of
dividing the charges for the services performed through escrow or as a
result of escrow varies from place to place. The fees and service charges to
be divided might include, for example, the title insurance policy premium,
escrow fee, any transfer taxes, recordation fees and cost in connection with
any loan being obtained. Unless there is some special agreement between the
buyer and seller as to how these charges are to be paid, local custom will
generally be followed in drafting the instructions to the escrow holder as
to how they are to be divided.
In
Summary
The escrow
process was developed to help facilitate the sale or purchase of your home.
The escrow holder accomplishes this by:
Acting as the impartial "stakeholder," or
depository of documents and funds.
Processing and coordinating the flow of documents and
funds.
Keeping all parties informed of progress on the escrow.
Responding to the lender's requirements.
Securing a title insurance policy.
Obtaining approvals of reports and documents from the
parties as required.
Prorating and adjusting insurance, taxes, rents, etc.
Recording the deed and loan documents.
Maintaining security and accountability of monies owed
and owing.
It's
Not Always This Simple
The examples and
explanations described here are designed to acquaint you with the escrow
process and are based on relatively simple escrows. Every escrow is unique
and most are more complex than explained here. If you have questions about
the escrow process, we suggest you contact an escrow officer or attorney to
obtain detailed advice and further explanation.
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Copyright 1998 by
Chicago Title Insurance Co. All Rights Reserved.
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