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Escrow
– What is it?
Very simply defined, an escrow is a
deposit of funds, a deed or other instrument by one party for the
delivery to another party upon completion of a particular condition or
event. The California Escrow Law – Section 17003 of the Financial
Code – provides the legal definition.
Why Do I Need an
Escrow?
Whether you are the buyer, seller,
lender or borrower, you want the assurance that no funds or property
will change hands until ALL of the instructions in the transaction
have been followed. The escrow holder has the obligation to safeguard
the funds and/or documents while they are in the possession of the
escrow holder, and to disburse funds and/or convey title only when all
provisions of the escrow have been complied with.
Escrow – How Does
it Work?
The principals to the escrow – buyer,
seller, lender, borrower – cause escrow instructions, most usually
in writing, to be created, signed and delivered to the escrow officer.
If a broker is involved, he will normally provide the escrow officer
with the information necessary for the preparation of your escrow
instructions and documents.
The escrow officer will process the
escrow, in accordance with the escrow instructions, and when all
conditions required in the escrow can be met or achieved, the escrow
will be "closed." Each escrow, although following a similar
pattern, will be different in some respects, as it deals with your
property and the transaction at hand.
The duties of an escrow holder include;
following the instructions given by the principals and parties to the
transaction in a timely manner; handling the funds and/or documents in
accordance with the instruction; paying all bills as authorized;
responding to authorized requests from the principals; closing the
escrow only when all terms funds in accordance with instructions and
provide an accounting for same – the Closing or Settlement
Statement.
Who Chooses the
Escrow?
The selection of the escrow holder is
normally done by agreement between the principals. If a real estate
broker is involved in the transaction, the broker may recommend an
escrow holder. However, it is the right of the principals to use an
escrow holder who is competent and who is experienced in handling the
type of escrow at hand. There are laws that prohibit the payment of
referral fees; this affords the consumer the best possible escrow
services without any compromise caused by a person receiving a
referral fee.
What Do I have to do
while in Escrow?
The key to any transaction as important
as your sale, purchase or loan is to read and understand your escrow
instructions. If you do not understand them, you should ask your
escrow officer to explain the instructions.
Your escrow officer is not an attorney
and cannot practice law; you should consult your lawyer for legal
advice. Do not expect your escrow officer to advise you as to whether
or not you have a "good deal" or are doing things the right
way. The escrow officer is there to follow the instructions given by
the principals in the escrow.
In order to expedite the closing of the
escrow, you should check with your escrow officer as to what specific
items you could do to assist. Ask the question – "What can I do
to expedite the closing of this escrow?"
Respond quickly to correspondence. This
will assist in the timely closing of the transaction.
If you are required to deliver funds
into the escrow, make sure that you provide "good" funds in
the form required by the escrow officer. Company procedures differ in
this regard, and there are many ways you can help at the time of
closing; check with your escrow officer. Do not give the escrow
officer a personal check and expect the escrow to close immediately;
the escrow can only close on cleared funds, and the processing of a
personal check can take days, possibly even a week or more.
When the escrow officer closes the
escrow, some of you may want the closing papers, checks, title
policies, statements, etc. Made available immediately. There are many
aspects to the closing of the escrow, and some of these cannot be
processed on the day of the closing; they may take several days. If
you have a special need, for example, a cashier’s check on the day
of closing, you should communicate that need to the escrow officer
early in the processing of the escrow.
Escrow and Your New
Loan
If you are obtaining a new loan, your
escrow officer will be in touch with the lender who will need copies
of the escrow instructions, the preliminary title report and any other
documents escrow could supply. In the processing and the closing of
the escrow, the escrow holder is obligated to comply with the
lender’s instructions.
It has become a practice of some
lenders to forward their loan documents to escrow for signing. You
should be aware that these papers are lender’s documents and cannot
be explained or interpreted by the escrow officer. You have the option
of requesting a representative from the lender’s office to be
present for explanation, or arrange to meet with your lender to sign
the documents in their office.
The Perfect Escrow;
Does it Exist?
Perfection is sometimes difficult to
achieve, especially in dealing with the complexities of the escrow,
the desires of the parties and other matters that are sometimes far
beyond the control of the escrow officer. It is human nature to err on
occasion, but your escrow officer has the background, training,
education, support and systems in place necessary in order to
accomplish the objectives of the escrow instructions.
In the event you have any problems in
the handling of your escrow, you should first contact the escrow
officer.
If you problem is not resolved, you
should next contact the management or owner of the company.
If the matter requires additional
attention, you can call the proper regulatory agency.
Prepared by the Escrow
Institute of California, P.O. Box 5792, Orange, CA 92613-5792
(The information presented here was taken from a pamphlet prepared by
the Escrow Institute of California to be handed out by escrow
companies to their clients.)
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