What Happens In Escrow?
If the purchaser agrees to purchase a property for cash to be obtained by a loan, the deposit of the deed in escrow enables the purchaser to borrow money, using the property being acquired as security for the loan. This transaction would generally proceed as follows:
The process will be completed when all of the following occur:
The escrow holder at this point would divide the charges according to the instructions and prepare final statements to account for all monies deposited.
Division of Charges
The method of dividing the charges for the services performed through escrow or as a result of escrow varies from county to county. The fees and service charges to be divided might include, for example, title insurance policy premium, escrow fee, any transfer taxes, recordation fees, and all costs in connection with any loan being obtained. Local custom will dictate to the escrow holder how these charges are to be divided, unless the buyer and seller make a special agreement as to who will pay what.
Closing the Escrow
Once all of the terms and conditions of escrow of both buyer and seller have been fulfilled, and all closing conditions satisfied, the escrow can be closed. In many cases, the closing will depend on an instruction by one or the other of the parties which specifically indicates at what point and under what conditions the escrow holder may consider escrow closed. For example the seller may instruct that upon receipt of monies, escrow may be closed. When these events have occurred, the escrow officer must complete the closing procedures of recording the documents and settling the accounts.
The escrow process was developed to help you facilitate the sale or purchase of your home. The escrow holder accomplishes this by:
These examples and explanations are based on relatively simple escrows. There are many variations, and should you encounter them, the escrow officer can explain any differences in the escrow procedures.
The Purpose of Escrow
When opening an escrow, the seller and buyer of a piece of property establish terms and conditions to facilitate a transfer of ownership of that property. These terms and conditions are given to a third, disinterested party known as the escrow holder. The escrow holder in turn has the responsibility of seeing that the terms of the escrow are carried out.
The Escrow Holder
The escrow holder could be any disinterested, third party, although some states require that certain escrow holders be licensed. Due to the technical nature of the transaction and because the escrow holder will be handling your money, it is advisable to select an established, independent escrow firm, an attorney or an escrow officer with a title insurance company. Generally, the escrow officer is trained in real estate procedures, title insurance, taxes, deeds, and insurance.
Due to the necessity of remaining impartial throughout the entire escrow process, the escrow officer, while courteous, will limit comments to the business at hand. 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 are written documents, signed by both parties, which direct the escrow officer in the specific steps to be completed in order that the escrow can be closed.
Typical instructions would include the following:
Since the escrow holder can only follow the instructions as stated, and may not exceed them, it is extremely important that they be stated clearly and be complete in all details.
Once the instructions are completed and signed, the escrow process has begun.
Escrow Holder (Per instruction of parties)
The Escrow Process
In a relatively simple escrow, the procedure is as follows:
The escrow officer thus acts for both parties and protects the interests of each within the authority of the escrow instructions.
The escrow process enables the purchaser's money to obtain delivery of the title. Upon delivery of the deed, the money becomes the property of the seller, who has previously authorized the escrow holder to pay the necessary amounts to clear title.
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