What is "escrow", and what do they actually do
I think my escrow officer is great! - no one works harder on my deals than he does. Except maybe me, maybe?
What is it? Escrow is a service which provides buyers and sellers and others with a means of protection in the handling of funds and/or documents. It facilitates the buyer and the seller to transact their “deal” through a neutral party, minimizing risk. Sort of like the bridge you see when the movies show a prisoner exchange.
Most, if not all title insurance companies provide escrow settlement services or you may choose the services of an independent escrow company licensed by the Department of Corporations.
I always tell this story about how I think escrow might have been invented.
A buyer and seller agreed on a deal, they even signed a contract.
The buyer said, “Give me the keys and the deed & I’ll give you the money.”
The seller replied, “No way, give me the money first, THEN I’ll give you the keys and the deed.”
So they decided to both put all their items with instructions with a trusted third party and escrow was born.
Of course it’s more complicated than that as you’ll have inspection conditions, vendor and service provider invoices, lender instructions..... but hopefully you get the idea.
In the escrow, all parties involved give their instructions to this neutral intermediary, the "escrow holder" whose duty it is to assure that no funds or property will change hands until all instructions have been carried to completion
What do they do? Some of the things your escrow provider will do for your transaction are:
- Center of communication between all parties.
- Prepare escrow instructions.
- Receive earnest money and purchase funds from the buyer.
- Open a title order and request a preliminary title search to facilitate obtaining items needed to put title in the order requested in the escrow instructions.
- Prepare grant deed or other documents related to escrow.
- Request a pay-off statement for any required payoffs.
- Comply with lender's requirements, specified in escrow agreement.
- Prorate taxes, HOA dues, interest, insurance and rents, if any, according to instructions.
- Coordinate the recording of deeds and any other documents as instructed.
- Request issuance of the title insurance policy.
- Close escrow when all of the instructions of buyer and seller have been carried out.
- Disburse funds as authorized by instructions, including charges for title insurance, recording fees, real estate commissions and loan payoffs.
- Prepare final statements (HUD-1 Settlement Statement) for the parties accounting for the disposition of all funds deposited in escrow.