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.