Tuesday, August 13, 2013

When does escrow typically open and how does it work?


A common question from consumers is “When does escrow typically open and how does it work?”  The answer to that question varies, depending on the type of transaction, but the below guide can be used as an overview for the usual process.
 
In the typical escrow, the principals to the real estate transaction that requires an escrow (borrower, lender, buyer and/or seller) cause escrow instructions to be created, signed, and delivered to the escrow officer. In the case of a real estate sale/purchase, escrow usually opens when a fully executed purchase agreement has been delivered to an escrow holder. The good faith deposit or initial down payment may or may not be deposited at the same time. The delivery of the signed purchase agreement and/or accompanying deposit to an escrow company is usually facilitated by the listing or selling broker involved. Upon receipt of a fully executed purchase contract and/or good faith deposit, the escrow officer will normally assign the transaction an escrow number.  When calling your escrow officer with questions or concerns, it is helpful to have this escrow number handy because this will allow the escrow officer to locate your file more easily.
 
The applicable broker will typically provide the escrow officer with important information regarding the transaction, such as the names and contact information for the principals, lending and title information, selection of service providers, and other necessary details.  After escrow opens, the escrow officer will order a real property title search with the title company designated by the parties, if this has not already been done by the listing broker, and prepare escrow instructions. These instructions are normally pre-approved by the brokers involved in the transaction. Once they are deemed to be error free and finalized, the instructions are sent to the parties for signature. These instructions essentially tell the escrow officer what to do and when to do it, and basically give the escrow officer the authority to act. It is worth pointing out that there are some aspects of a real estate transaction that are not part of the escrow. For instance, the purchase agreement contains several items that are not handled by escrow holders, such as buyer and seller agreements regarding property fixtures, personal property, removal of contingencies, liquidated damages, arbitration and mediation. It is important to remember that if you have specific questions about the purchase agreement, you should contact your licensed real estate broker or licensed attorney.
 
Basically, the escrow officer can only process the escrow in accordance with the escrow instructions. Therefore, without signed instructions, the escrow officer cannot act or proceed. The escrow officer will then perform those functions that they were authorized to do in writing by the mutual agreement of the parties to a transaction, unless an instruction(s) is unlawful and/or against the policy of the escrow holder. The required conditions, processing, and facilitation of the escrow may differ depending on the type of transaction and property involved. However, regardless of the type of escrow being performed, it is only when all of the conditions required in the escrow instructions have been satisfied that the escrow will be complete. At the close of escrow, the escrow officer will release funds and documents in accordance with the escrow instructions, pay all bills as authorized, and prepare and deliver a final closing statement to the parties.