The History of Escrow

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.