Kim White - Santa Clarita Real Estate

An escrow is an arrangement in which a disinterested third party, called an escrow holder, holds legal documents and funds on behalf of a buyer and seller, and distributes them according to the buyer's and seller's instructions.

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 to the buyer until the seller's requirements, including receipt of the purchase price, are met. Both rely on the escrow holder to carry out faithfully their consistent instructions relating to the transaction and to advise them, if any of their instructions are not mutually An escrow is convenient for the buyer and seller because both can move forward separately but simultaneously in providing inspections, reports, loan commitments funds, deeds and many other items, using the escrow holder as the central depositing point. If the instructions from all parties to an escrow are clearly drafted, fully detailed and mutually consistent, the escrow holder can take action on their behalf without further consultation. This saves much time and facilitates the closing of the transaction.

Who May Hold Escrow's?

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, or 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 be able to be handled smoothly. The other is that the escrow holder will generally be responsible for safeguarding and properly distributing the purchase price funds.

What Is The Escrow Procedure In California?

Who does closings in California? What types of deeds are used? Who pays title insurance? When are property taxes due? Find out the answers to these questions and more!

Not only do escrow procedures differ between Northern and Southern California, they also vary somewhat from county to county. Title companies handle closings through escrow in Northern California, whereas escrow companies and lenders handle them in Southern California. Conveyance is by grant deed.

Deeds of trust with private power of sale are the security instruments used throughout the state. Foreclosure requires a three-month waiting period after the recording of the notice of default. After the waiting period, the notice of sale is published each week for three consecutive weeks. The borrower may reinstate the loan at any time prior to five business days before the foreclosure sale. All in all, the procedure takes about four months.

Californians have both ALTA and CLTA policies available. In Southern California, sellers pay the title insurance premium and the transfer tax. Buyer and seller split the escrow costs. In the Northern California counties of Amador, Merced, Plumas, San Joaquin, and Siskiyou, buyers and sellers share title insurance and escrow costs equally. In Butte County, sellers pay 75%; buyers pay 25%. In Alameda, Calaveras, Colusa, Contra Costa, Lake, Marin, Mendocino, San Francisco, San Mateo, Solano, and Sonoma counties, buyers pay for the title insurance policy, whereas sellers pay in the other Northern California counties.

Each California county has its own transfer tax; some cities have additional charges. Property taxes may be paid annually on or before December 10th, or semiannually by December 10th and April 10th. California is a community-property state.

What Is Involved In an Escrow Closing? Escrow Instructions

Escrow instructions are written documents, signed by the buyer and seller giving the escrow officer specific steps to follow through to completion, so escrow can then be closed.

Typical instructions would include the following:

The method by which the escrow holder is to receive and hold funds 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 instructions 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 pro-ration of insurance and taxes.
Instructions to the escrow holder on the payment of prior liens and charges against the property and distribute 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

Signs the executed deed to the buyer with the escrow holder.
Deposits evidence of a pest inspection and all other required repair work.
Deposits other required documents such as addresses of mortgage holder, 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.
Signs 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

Deposits proceeds of the loan to the purchaser.
Directs the escrow holder on the conditions under which the loan funds may be used.
Provides escrow instructions and loan documents to escrow holder.

The Escrow Holder

Opens the order for title insurance.
Obtains approvals from the buyer on preliminary title report, pest and other inspections.
Receives funds from the buyer and/or lender.
Prorates insurance, taxes, rents, etc.
Disburses funds for title insurance, recording 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.
Prepares and records deed and loan documents, delivers the deed to the buyer, loan documents to the lender and funds to the seller, 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.

Division of Charge

The method of dividing the charges for the services performed though escrow vary from place to place. The fees and service charges to be divided might include, for example, the title insurance policy premium, escrow fee, recording 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 San Diego County it is customary that the seller pay for title insurance, and all the rest of the fees are split between them 50/50.

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 "stake holder," 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 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.