All About Escrow

Why use an Escrow Agent?

When real property changes hands, it is prudent and convenient for the buyer, seller, and lender to place the transaction in escrow to be closed. Going into escrow simply means depositing the earnest money and documents relating to the transaction in the hands of a responsible, experienced and impartial person. This person holds all money and documents until each party's written instructions are performed. These written escrow instructions include the requirements of the buyer, seller, and lender as to transfer of funds, condition of title, recording of documents, issuance of a title insurance policy, and other matters. An escrow agent represents neither the seller nor the buyer, and can only act on each party's behalf according to their written instructions.

Who benefits from escrow?

The seller depends on a qualified escrow agent to ensure that title will not pass to the buyer until the purchase price is fully paid and the terms of the purchase agreement are satisfied. The buyer relies on an escrow agent to ensure that their interests are also protected and that purchase funds will not be released to the seller until escrow has received a valid deed conveying title.

Who else benefits from escrow services?

Lending institutions top the list of escrow customers. Using a reliable title and escrow company guarantees the lender that its security interest in the property is insurable, all financing documentation will be properly and completely signed and recorded, and monies will be disbursed as directed.

Responsibilities of each party

The Buyer:

Deposits funds to pay the earnest money and property and closing costs.

Executes deed of trust or mortgage needed to secure the loan.

Arranges for borrowed funds to be deposited into escrow.

Provides, if required, documents such as inspection reports, insurance policies, and lien information to verify compliance with the instructions.

The Seller:

Deposits the deed to the buyer with the escrow company.

Provides evidence to meet the buyers conditions of sale, such as proof of repair work and inspections.

The Lender:

Deposits loan funds, lender instructions, and other loan documents with escrow holder.

The Escrow Holder:

Orders the preliminary title report and distributes appropriately.

Serves as a central depository for funds and documents.

Obtains a title insurance policy, when required.

Fulfills the lender's requirements, if applicable.

Secures approval from the buyer on requested documents.

Prorates insurance, taxes and rents, as instructed.

Fulfills buyer and seller's instructions.

Allocates funds for closing costs, and verifies that required funds from each party are deposited into escrow.

Prepares closing documents.

Ensures that the necessary documents are recorded once conditions are met.

Forwards executed documents to the lender.

Keeps record of transaction.

How much does escrow cost and who pays for it?

There are two basic types of escrow transactions sale and refinance. In a sale transaction, the escrow fee is based on the price agreed upon by the parties in the earnest money agreement. Ordinarily, the cost of escrow is split equally between the buyer and seller in a sale situation. However, this cost may be allocated in any manner pursuant to written instructions to the Title Company.

The above information was provided by the Key Title Company.

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