Friday, August 12, 2011

Life of an Escrow: Part One

This is the first in a series explaining the escrow process and how a real estate transaction works once the Buyer and Seller have come to terms on a purchase agreement.

An escrow begins the moment an Escrow Company receives a fully executed purchase agreement and earnest money deposit. This process is the culmination of a series of events that bring Buyer and Seller together to transfer ownership of a home, commercial building, business or many other types of transactions.

For the purposes of this discussion, we will use a traditional residential sale to describe the Life of an Escrow.

As mentioned above, escrow begins when a fully executed purchase agreement and earnest money deposit are delivered to escrow. With today’s technology, this can be within moments of pen hitting paper on the purchase agreement, but the process typically begins the following business day.

After receipt of the agreement and deposit, the Escrow Holder will review all of the paperwork, taking special care to note the terms of the transaction, the vendors to be used for inspections and other issues that will need to be addressed before escrow is closed. Following this review, Escrow Instructions will be prepared and issued with other supporting documents that are required and specific to the transaction.

Simultaneously with the issuance of the Escrow Instructions, the Escrow Holder will contact the Title Company chosen by Buyer and Seller and request that a Preliminary Report be prepared. This Report will disclose to all parties the various liens and encumbrances that are recorded against the property in question. Prior to close of escrow, any items specific to the Seller will need to be cleared by the Escrow Officer, who will obtain the proper documentation to determine what monies are owed or what documents must be prepared to remove these “Seller specific” items.

These preliminary steps are the foundation of a complex series of events that must take place prior to the close of escrow, but as the neutral third party to the transaction, your Escrow Holder will manage the transaction and guide everyone to that goal.

Stay tuned for part two of this series where we'll discuss the processing of an escrow, including how the Escrow Holder obtains the documentation mentioned above.