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It is customary and prudent
for a buyer and seller, or borrower and lender to request
a third, disinterested party to assist them in carrying out
the terms of their agreement to buy, sell, exchange, or make
a loan on property. This procedure is known as an escrow,
and the third party is known as the escrow holder.
By definition, escrow means "an agreement
between two or more parties providing that certain instruments
or property be placed with an impartial third party for safekeeping,
pending the fulfillment or performance of a specified act
or condition."
An escrow company is responsible for preparing
the escrow instructions which each of the parties to the transaction
sign. These instructions incorporate the terms and conditions,
which both buyer and seller have agreed to before opening
the escrow (usually via the purchase/sale contract). Then,
more importantly, the escrow company sees that these instructions
are complied with by all concerned parties before the close
of escrow; or transfer of ownership.
In order to successfully bring an escrow
to close, the escrow company must do several things:
· The escrow officer searches the
public records for pertinent information about the property.
Who is the owner of record? What deeds of trust have been
recorded against the property? Are there any judgements or
other liens that might have to be dealt with before title
can be transferred? Any such defects are corrected during
the escrow period to insure that the buyer receives clear
title to the property.
- Obtain demands (the payoff figures
from existing lien holders).
- Coordinate with the new or existing
lender to obtain loan documents.
- See that the insurance required by
either the owner or lender has been obtained.
- Make sure termite inspections and/or
completions (if required) are submitted.
- Contact the buyer to sign the loan
documents submitted to the escrow holder by the new lender
and to deposit the remainder of the cash required to meet
the terms of the transaction (per the escrow instructions).
California's Good Funds Law requires that the buyer utilize
a cashier's check or otherwise immediately available funds
(no personal checks) to close an escrow.
- Contact the seller to sign the escrow
instructions and the grant deed that will be recorded at
close, granting the property to the new owner.
- Issue a policy of title insurance that
protects the buyer against such possibilities as forgery,
confusion due to similar names, errors in the records and
other specific hazards. There are two general types of title
insurance policies. The CLTA policy is issued to protect
the new owner. The ALTA policy is issued to protect any
lenders who hold a deed of trust on the property. The buyer
is generally required to pay for an ALTA policy when there
is a lender involved in the transaction.
- The escrow holder prorates and adjusts
such items as real estate taxes, rental income, interest,
and condominium dues, as appropriate, based on instructions
from the buyer and seller. Other charges such as the title
insurance premium, escrow fee, transfer tax and recording
fees are also assigned to the buyer and seller. In Northern
California, the buyer customarily pays the title insurance
premium and escrow fee and the seller pays the real estate
transfer tax. All of the above items, however, can be negotiated.
After all escrow instructions have been
complied with, the seller has deposited the document that
will transfer title and the buyer has deposited their required
cash, the escrow officer requests the lender's funds and instructs
the title department to record the transaction at the County
recorder's office, thereby closing the escrow.
After receiving confirmation of the recording
indicating that title has passed, the final settlement statements
are prepared and the funds are disbursed to the proper parties
(proceeds of sale to seller, lender's charges to the lender,
title and escrow fees to the title company, sales commissions
to the brokers, etc.), the property then has a new owner.
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