The processing of a real estate transaction is handled differently depending on which area of the United States you are in. Much of the eastern United States uses a formal closing process that requires the services of attorneys. The western part of the United States allows these services to be provided by escrow at a significant savings to your customer. Escrow Agents are not parties to a real estate closing. Their place in the transaction is fiduciary to all parties involved in the entire transaction. This fiduciary status involves not only the buyer and seller but also the lender and any realtors or brokers. The word "Fiduciary" is derived from Roman law and means a person having the duties of a trustee. The Escrow Agent is the "impartial third party" and must act only in accordance with instructions. If the instructions are unclear or silent as to certain matters, escrow officers must decline to make certain decisions in order to maintain impartiality.
What is Escrow? Escrow is defined as the holding of documents and funds by a neutral third party pending the fulfillment of a particular condition or event. The escrow holder has the obligation to safeguard the funds and/or documents until all provisions of the escrow have been satisfied and the contractual obligations by the Buyer and Seller have been met. Escrow is the disinterested third party, which makes them unbiased and impartial.
Opening a Transaction. When escrow receives a fully executed contract (and earnest money if applicable), escrow will immediately order the title work so that a thorough title search and examination can be done. When the title commitment, title or preliminary report is received, it is the Escrow Officer's job to review the commitment and then send them out to all appropriate parties.
Processing the Transaction. Once the Preliminary Report is received and reviewed, escrow then begins processing the file. Taxes, homeowner association dues, maintenance fees and payoffs for liens of records are checked and statements ordered. All applicable charges are assembled and a settlement statement is prepared.
Escrow then begins processing and coordinating the flow of documents. The escrow and conveying documents (Deed to transfer property) are drawn and sent to Buyer and Seller for proper execution. Although it is not the job of escrow agent to cure defects of title, performance, or other services extraneous to closing the transaction, Escrow Agent may assist in helping to determine what steps may be taken in order to clear any extraordinary circumstances that are disclosed by the Preliminary Title Report.
Upon receipt of properly executed documents, the Escrow officer will review all the documents involved in the transaction to make sure they fit the transaction as contracted for. A thorough investigation that everything needed to close the transaction has been satisfied. The analysis will include, but is not limited to the following; the proper execution of escrow and mortgage documents, checking that all taxes have been paid and prorated between buyer and seller when necessary, ensuring financial consideration has passed and all monetary consideration can be properly disbursed. After good funds are received, the escrow officer, balances the disbursement sheet, ensures the transferring documents are filed of record at the County Recorder's office and funds and closes the escrow file. Last, but certainly not least, the title policies are prepared and forwarded on to the owner and Lender.
Why is escrow so complicated? It really shouldn't be complex, but emotions get involved. The Escrow Agent's job is strictly to follow the instructions in the Purchase Contract or Agreement. But sometimes people change their minds, have misunderstandings, or things may not be disclosed. There might be issues that need cleared before escrow can go through and that adds time and frustration to the transaction.
Buying or selling property can be one of the most complicated and stressful experiences in life. Sometimes the process of buying or selling property is not understood by the consumer and not understanding can lead to anxiety, frustration and fear. Recognizing this and taking preventative measures can often not only prevent related stress but usually will serve to ensure a smoother and more efficient closing.
Helpful strategies
- The key to facilitating the process is communication- an open line of communication between agents, clients and escrow.
- Respond quickly to correspondence. A fast response can often prevent misunderstandings and error and will assist in timely closing.
- Establish a relationship with your Escrow Agent. Ensure you are updated on the progress of the transaction.
- Provide the Escrow company with as much information as possible. Open escrow with complete contracts, including full signatures, addresses and phone numbers for the parties involved.
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