The Escrow Process
Both buyer and seller deserve the assurance that no funds or property
will change hands until all of the instructions in the Purchase
Contract have been satisfied. Buyers and sellers submit signed
documents and buyer’s deposit money to be held by an independent
neutral third party (Escrow). After the conditions agreed upon
by both buyer and seller (in the Purchase Contract)
are satisfied, Escrow then distributes the documents and
the funds.
The escrow holder is
an independent neutral third party; works for both the buyer and
the seller, and is authorized to follow the specific written instructions
provided by both parties. Escrow functions:
Receives and deposits
(into escrow’s account) buyer's initial deposit and prepares
escrow package. Requests "demands" (pay-off statements)
from existing lenders and/or lien holders. Obtains seller's notarized
signature on grant deed. Safeguards grant deed until all terms
and conditions are met and buyer’s remaining certified
funds are on deposit. Orders title search and receives and distributes
preliminary title report. Calculates prorations pertaining
to property taxes, rents, insurance, interest, and other expenses
as required. Coordinates with
buyer's lender throughout the escrow process. Orders and processes
buyer's loan documents. Coordinates buyer’s signing of
loan documents and their return to buyer’s lender. Receives
buyer's final down payment funds and coordinates funding with
buyer's lender.
Orders recordation
of grant deed conveying title to buyer and distributes all funds:
pays-off existing loans; pays other required costs, such as termite
completion, home protection policy; etc. Releases net proceeds
to seller.
Simultaneously, the
buyer and the buyer's lender are engaged with the loan approval
process. Lender duties:
Orders a credit report
and other credit documentation as required (mortgage ratings,
landlord ratings). Reviews the buyer's credit and when necessary
obtains satisfactory explanations from the buyer regarding any
negative credit history. Verifies the buyer's sources of income.
Verifies that the buyer has adequate liquid funds for down payment,
closing costs, and reserves. Requests an appraisal of the property,
and verifies that the property's value is equal to the contract
sales price. Submits the loan
to underwriters for final approval.
Coordinates delivery
of the buyer's loan documents to the escrow officer
And in the meantime... While the escrow officer,
lender, and buyer are diligently working, the seller also has responsibilities.
The seller and the
listing agent must now prepare detailed disclosures that are
required by law (smoke detector, lead based paint, earthquake,
environmental hazards, zone disclosures, water heater, transfer
disclosure, etc.) Provide escrow officer
information on existing loans to check against title search findings. With their Realtor,
make the home available for physical inspection and other trades
people as required by the purchase contract, such as licensed
Termite Company and lender's appraiser.
Make any repairs
agreed upon in purchase contract.
In order for your escrow
to proceed smoothly, your Realtor’s job is to coordinate
and oversee the above chain of events. Similar to dominos – each
event must occur in a timely fashion; delays in any event may result
in the postponement of escrow’s scheduled closing date.
