These are done on the escrow holder’s printed forms. All principals – the buyer and seller — sign the instructions, which set forth the parties’ understanding of the transaction. An initial deposit usually accompanies the instructions. For a home purchase, the instructions must include:
Purchase price and terms;
Agreement as to mortgages;
How buyer’s title is to appear (called “vesting”);
Matters of record subject to which buyer is to acquire
title;
Inspection reports to be delivered into escrow;
Proration adjustments (involves taxes and insurance);
Date of buyer’s possession of the property;
Documents to be signed by the parties, delivered into escrow, and recorded;
Disbursements to be made, costs and charges and
who pays for them; and
Date of closing.
This title search is performed on the subject property, resulting in a “Preliminary Report” from a title company. The escrow holder examines this report for items not contemplated in the instructions. For example, is there a lien (or additional loan) on the property that wasn’t reported? The seller must clear any such item or it must be brought to the attention of the buyer.
This request for information goes to any lenders of record. The document will be either:
a “Demand for Pay-off,” if the seller’s existing loan is to be paid in
full through escrow; or
a “Beneficiary Statement,” if buyer is purchasing the property
“subject to” or assuming a loan.
These reports might include plumbing or roofing reports. They all pertain to the property’s condition, and are kept in escrow. The escrow holder might also obtain any necessary approvals from the seller or buyer due to information in a report. For example, whether the home needs to be sprayed for insects. The reports are delivered at close of escrow.
This happens if the buyer is obtaining new financing for the home. The escrow holder also obtains the buyer’s approval/execution of the documents. The escrow agent must also satisfy all lender’s instructions before using the lender’s funds to complete the transaction.
By this step, it’s almost time to close the transaction. Here, following the buyer’s and seller’s instructions, the escrow holder:
accepts and delivers any fire insurance policy and transfers the
insurance;
makes all payments on property taxes and insurance (called
“prorations”);
completes the accounting (settlement) details; and
informs the principals that escrow is ready to proceed.
The escrow holder cannot disburse any funds until all items, such as checks or drafts, have cleared and become available for withdrawal.
In this step, the escrow holder:
accounts for all funds and documents; and
determines that the parties have complied with all escrow
instructions.
At this point, the escrow holder authorizes the title company to run the seller’s title and to record the necessary documents. This can happen provided no change has occurred in the seller’s title since the preliminary title report was issued.
This is what you’ve been waiting for! Closing the deal. The escrow holder can “close escrow” after confirming recording, by:
preparing settlement statements for buyer and seller;
disbursing all funds; and
delivering documents to the party or parties involved.
