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Buying or
selling a home (or other piece of real property) usually involves the transfer
of large sums of money. It is imperative that the transfer of these funds and
related documents from one party to another be handled in a neutral, secure and
knowledgeable manner. For the protection of buyer, seller and lender, the escrow
process was developed.
As a buyer or seller, you want to be certain all conditions of sale have been
met before property and money change hands. The technical definition of an
escrow is a transaction where one party engaged in the sale, transfer or lease
of real or personal property with another person delivers a written instrument,
money or other items of value to a neutral third person, called an escrow agent
or escrow holder. This third person holds the money or items for disbursement
upon the happening of a specified event or the performance of a specified
condition.
Simply stated, the escrow holder impartially carries out the written
instructions given by the principals. This includes receiving funds and
documents necessary to comply with those instructions, completing or obtaining
required forms and handling final delivery of all items to the proper parties
upon the successful completion of the escrow.
The escrow must be provided with the necessary information to close the
transaction. This may include loan documents, tax statements, fire and other
insurance policies, title insurance policies, terms of sale and any
seller-assisted financing, and requests for payment for various services to be
paid out of escrow funds.
If the transaction is dependent on arranging new financing, it is the buyer's or
the buyer's agent's responsibility to make the necessary arrangements.
Documentation of the new loan agreement must be in the hands of the escrow
holder before the transfer of property can take place. A real estate agent can
help identify appropriate lending institutions.
When all the instructions in the escrow have been carried out, the closing can
take place. At this time, all outstanding funds are collected and fees--such as
title insurance premiums, real estate commissions, termite inspection
charges--are paid. Title to the property is then transferred under the terms of
the escrow instructions and appropriate title insurance is issued.
Payment of funds at the close of escrow should be in the form acceptable to the
escrow, since out-of-town and personal checks can cause days of delay in
processing the transaction.
The following items represent a typical list of what an escrow holder does and
does not do: |
- serves as the neutral
"stakeholder" and the communications link to all parties in the transaction;
- prepares escrow
instructions;
- requests a preliminary
title search to determine the present condition of title to the property;
- requests a
beneficiary's statement if debt or obligation is to be taken over by the
buyer;
- complies with lender's
requirements, specified in the escrow agreement;
- receives purchase
funds from the buyer;
- prepares or secures
the deed or other documents related to escrow;
- prorates taxes,
interest, insurance and rents according to instructions;
- secures releases of
all contingencies or other conditions as imposed on any particular escrow;
- records deeds and any
other documents as instructed;
- requests issuance of
the title insurance policy;
- closes escrow when all
the instructions of buyer and seller have been carried out;
- disburses funds as
authorized by instructions, including charges for title insurance, recording
fees, real estate commissions and loan payoffs;
- repares final
statements for the parties accounting for the disposition of all funds
deposited in escrow. (These are useful in the preparation of tax returns)
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