Why Escrow Is Neccesary

Escrow is simple paperwork transactions that the escrow officer executes. Escrow involves the escrow officer being a third party for holding all documents pertaining to the real estate transaction and following instructions by both the Buyer and Seller to distribute the paperwork.  The result is the legal transfer of property title between the Seller and Buyer.

There are various steps taken during the escrow period, most of which are transparent to the Buyer and Seller. It is the escrow officer’s duty to ensure that the steps are carried out. During the process, the escrow officer will be calling the buying and selling agents to obtain certain documents or information. The agents in turn requests information from the Buyer and Seller directly. In order to start escrow, the buyer must have already prepared a written offer to the Seller. There may be a series of counteroffers involved, but in the end the Seller has accepted the offer.  The Buyer and Seller need to have prepared a Statement of Information, which includes general information about themselves to help in the escrow process. The Buyer has already or is in the process of applying for a loan for the property transaction.  Within the set of paperwork to be given to the escrow officer, the Seller has prepared a Statement of Outstanding Loans and Liens that are currently tied to the property.

The Escrow Instructions is prepared by the Buyer, Seller and their respective Real Estate Agents. The Escrow Instructions can be prepared for each party involved (Buyer and Seller) or they can be prepared jointly for both parties involved. The Escrow Instructions are given to the Escrow Officer and this is where the escrow file for the transaction is opened. An escrow number is given at this time, which is referred to anytime the parties involved call the escrow officer for information regarding the transaction. A Preliminary Title Search is first ordered by the escrow company. Escrow has now officially begun.

Once the Title Report has been received for the property, the escrow officer’s duty is to review it for and liens or demands upon the property. Typically there are none, but if liens or demands are found, the report will help define what the Seller obligations will be in order to clear the title. The escrow officer compares the Title Report with the Statement of Outstanding Loans and Liens that the Seller had prepared. The escrow officer at this time notifies any Lien Holders that an impending transfer is to take place and orders Demands for Payoff, which is reviewed and approved by the Seller.

Inspection reports are ordered at this time, including the Termite Inspection Report. The Buyer and Seller are performing duties to fulfill the escrow requirements. The Buyer approves the Preliminary Title Report and any of the Loan Processor requests necessary. The Seller approves the Preliminary Title Report. Once the loan is approved, the Buyer signs all the required loan documents and the lender prepares the funding. During the escrow process, the Buyer deposits any necessary funds to continue escrow.

The Escrow Officer is constantly reviewing documents and requesting information.  Such items as the loan packages, Title Report, Termite Inspection Report, Demands for Payoff are reviewed. During this time, there may be delays in fulfilling the Escrow Instructions. It is not unusual for delays to take place due to so many elements of the transaction has to take place in a coordinated fashion. If there are exceptions to any of the Escrow Instructions, the Escrow Officer prepares Amendments. Both the Buyer and Seller need to sign the Amendments in order for escrow to continue.

Once all necessary documents have been completed, the Escrow Officer requires both the Buyer and Seller to review and sign the documents. The escrow company itself than becomes the Expediter, which means it follows up and reacts to all steps required to expedite the closing.  A target closing date is set for all  parties  involved. The mortgage company sends the proceeds of the loan to the escrow company, which is then possible for the Escrow Officer to coordinate the issuance of the Title Policy with the Title Insurance agent. To close the escrow, the escrow company prepares a final Statement of Settlement, orders the Recording of Title, pays off any liens and claims, delivers all contracts, statements and policies to appropriate parties involved. The final step is to deliver any funds to the Seller, and possible funds to the Buyer.

Lori English is a real estate broker and internet business woman. As a web expert, she writes about the LA Homes real estate market, as well as for other websites. With her experience, certificates, and degrees, she understands real estate, the internet business, and how to invest in properties.