In the very early days of our country,
property was transferred from the seller directly to the buyer. Often the
parties knew one another. The seller handed over the deed when the buyer paid
the money. This process worked well as long as the seller was sure the buyer’s
consideration such as cash or bank check was good, and the buyer knew the
seller’s deed was valid. However, as communities grew, more and more strangers
arrived until buyer and seller were no longer acquainted. A system was needed
to put the trust back into the transaction.
Even before California became a state,
buyers began to hire attorneys to search the public records for proof the
seller owned the land but there were no ownership guarantees. Sellers began
giving buyers a written history of the recorded documents affecting a piece of
land, called an Abstract of Title, with an attorney’s legal opinion attached.
Abstract companies began to appear close to the courthouse to assist attorneys
with their search.
In the 1870’s, abstract companies
began issuing a brief summary of the history of the property called a
Certificate of Title. However, the courts ruled that abstractors were not
liable if the Certificate of Title contained errors or omissions. A guarantee
or form of insurance was needed to protect consumers. In 1886, California
Title Insurance and Trust Company was incorporated; they issued their first
policy of title insurance on March 17, 1887.
Reasons for Escrow: Escrow
practitioners perform a very important function, yet there is no state law
requiring all property transfers go through escrow, nor are escrow
practitioners licensed by the State of California to perform escrow duties. The
law does require certain types of transactions use an escrow, namely probate
sales, liquor license transfers, new Dealer manufactured homes and securities
or stock sales.
It is recommended that all property
transfers use escrow services for the following reasons:
• Escrow serves as a neutral
depository for money and documents. The escrow practitioner acts in a fiduciary
or trust capacity. The escrow practitioner does not favor any one party and
acts impartially towards all.
• An escrow practitioner assures that
all conditions are satisfied before the deeds are recorded or other transfer
documents filed or distributed.
• Escrow practitioners provide
expertise in escrow practices, document preparation and in understanding the
title insurance process.
• Escrow provides a clear, concise
accounting of all funds involved in the escrow process.
• The escrow practitioner arranges for
safe delivery of all funds and documents to their proper recipient.
• The consumer is protected by the
secure and impartial nature of the escrow process.
