The Escrow Process

Escrow is a process handled by an independent third-party individual or company having no interest in the real estate transaction. This is detailed work that requires meticulous documentation and tracking. During escrow, all conditions of the transaction are satisfied and documented by an escrow officer (such as repairs a seller is required to make), and payments to all parties are carefully calculated and made at the close of the transaction.

Here is a look at what takes place in the escrow /closing process:

Step 1: Buyer and seller submit signed documents to the escrow company, usually through their agents. If the purchase agreement requires the buyer to make a deposit against the purchase (called “earnest money”), these proceeds are held in escrow. A senior member of the escrow company, called the escrow officer, prepares a detailed set of instructions listing the things that need to be completed before the close of escrow.

Step 2: Buyer and seller sign documents that signify agreement with the escrow instructions and authorize the escrow company to complete their assignment. The seller also signs a grant deed transferring title to the property to the buyer, and the escrow company safeguards this document until the close.

Step 3: The escrow officer coordinates with the buyer’s lender throughout the escrow process. The escrow officer orders loan documents and checks them carefully to ensure they are accurate before sending them to the buyer for signature (Step 3a). Once the loan has been approved, the escrow officer verifies the terms of the loan (Step 3b) before ordering loan closing documents for the buyer’s signature (Step 3c).

Step 4: Meanwhile, the escrow officer will contact the seller’s lender to arrange for the pay-off of the seller’s loan. The officer will request details needed to pay the remaining balance in a beneficiary statement (Step 4a) and determines payment status and transfer terms (Step 4b).

Step 5: During escrow, the seller should be complying with all of the conditions the buyer has imposed on the sale, including pest inspections, environmental disclosures and any repairs that have been determined by the buyer as necessary. The escrow officer will receive certification from the various companies providing the services that they have been satisfied, and will, in turn, remove these as conditions to the sale.

Step 6: Early in the escrow process the escrow officer will contact the title company, which has been selected to conduct a title examination and provide title insurance and order a title search. The title company will quickly provide a preliminary title report (Step 6a), which identifies all known liens and encumbrances against the property. Each of these is carefully researched by a title examiner (Step 6b) and the seller may have to resolve liens before title can safely be conveyed to the buyer. The title examiner will also conduct a search of all local property tax authorities to determine the tax payment status of the property (Step 6c).

Step 7: When the buyer’s loan has been approved, the seller’s loan pay-off has been calculated, and all conditions and disclosures relating to the property have been satisfied and a title company has examined the transfer of title, the transaction is ready to close. The escrow officer will calculate all of the payments due the parties to the transaction and prepare closing documents.