Helping you buy and sell real estate in Lake Arrowhead and the surrounding areas.
What is an “Escrow”?
An “escrow” is any agreement between two or more parties (principals) where various kinds of instruments, monies, items of value, evidence of title to real or personal property, etc., are deposited with a ‘NEUTRAL’ third party, (the escrow agent). This agreement contains specific written instructions executed by all parties to the transaction. Escrows offer protection and convenience for buying and selling real estate.
Some of the functions performed by the escrow agent to close a real estate transaction are:
- Acting as the impartial “stake-holder,” or depository of documents and funds
- Processing and coordinating the flow of documents and funds
- Keeping all parties informed of progress on the escrow
- Responding to the lender’s requirements
- Securing a title insurance policy
- Obtaining approvals of reports and documents from the parties as required
- Prorating and adjusting insurance, taxes, rents, etc.
- Recording the deed and loan documents
- Maintaining security and accountability of monies owed and owing.
The Escrow Process:
Once a buyers’ offer for real estate in Big Bear or Lake Arrowhead has been accepted by a Seller, the process starts. The actions taken by the various people are:
- Sends the good faith deposit to escrow.
- Approves and signs the escrow instructions and any other documents to complete the sale.
- Approves the preliminary report and any property, disclosure or inspection report called by the purchase and sale agreement.
- Approves and signs new loan documents and fulfills any remaining conditions contained in the contract, lender’s instructions and/or the escrow instructions.
- Orders inspections, gets any clearances approves final reports and sometimes requests repairs to the property.
- Deposits funds necessary to close the escrow. Approves any changes by signing amendments in the escrow instructions.
- Deposits the down payment, and either the loan amount or additional money required to pay the purchase price with the escrow holder
- Signs deed of trust that might be required to secure loans.
- Fulfills any other conditions specified in the escrow instructions.
- Approves and signs any amendments to the escrow instructions or contract.
- Accepts Buyer’s Offer to Purchase and initial good faith deposit to open escrow.
- Submits documents and information to escrow holder, possibly including: contact information of any lien holders such as the bank that has the existing loan, tax receipts, and if there are any, leases or rental agreements.
- Approves and signs the escrow instructions, deeds need for the transfer of title to the buyer, and any other documents needed to complete the transaction.
- Does any repairs to the property as required by the terms of the sale contract or subsequently agreed to by the parties.
- Fulfills any remaining conditions specified in the contract or escrow instructions
- Approves the pay off demands and/or beneficiary’s statements.
- Approves and signs any amendments to the escrow instructions or contract.
When there is a lender, that lender:
- Receives the new loan application and any other documents required from the Buyer(s) to begins the qualification process (this may have been started before the offer is even made or accepted.
- Creates a “loan package” by ordering and reviewing the property appraisal, credit report, verification of employment, verification of deposit(s), preliminary report and any other documents required to complete the loan.
- Submits the entire package to underwriter for approval. After approval there will be loan conditions and title insurance requirements.
- Informs Buyer(s) of loan approval terms, loan lock expiration date and provides a good faith estimate (“HUD-1”) of the closing costs.
- Deposits the new loan documents and instructions with Escrow.
- Reviews and approves the executed loan package and coordinates the loan funding with the escrow officer.
The Escrow Officer
- The escrow holder can only follow the instructions as stated, and may not exceed them.
- Orders the preliminary report and examination on the subject property from Chicago Title.
- Acts as the neutral third party. In its fiduciary capacity, it acts as a depository for all documents and monies required to complete the transaction according to the written instructions of the parties of the sale contract.
- Prepares the escrow instructions
- Prepares some other appropriate and required documents as required by written terms of the sale.
- With the authorization of the Seller or their real estate agent, orders demands on existing deeds of trust and liens or judgments, if any. In some cases orders the beneficiary’s statement or formal assumption package.
- Reviews documents received in the escrow: preliminary report, payoff or assumption statements, new loan package and other appropriate document. Reviews the conditions in the lender’s instructions including the hazard and title insurance requirements.
- Presents the documents, statements, loan package, estimated closing statements (HUD-1) and other related documents to the Buyer or Seller for approval and signature.
- Requests the down payment or any other funds that come directly from the Buyer.
- Reviews the amount of any loan.
- Determines when the transaction will close.
- Prorates insurance, taxes, rents, etc.
- Orders the title insurance policies.
- Receives funds from the buyer and/or any lender.
- Coordinates with the title company the recording with the County Recorder of the deed, deed of trust and other documents required to complete the transaction.
- Disburses funds for title insurance, recording fees, real estate commissions, lien clearance, etc.
- Closes the escrow by preparing the final settlement statements, disbursing the proceeds to the Seller, paying off the existing loans, encumbrances and other obligations.
- Delivers the appropriate statements, funds and remaining documents to the Buyer and Seller, real estate agents, and lender.
Who can perform an Escrow?
In California there are different types of escrow companies, with different types of licenses.
Some escrow services are performed by real estate brokerages. They may have a different name or office than the brokerage, but they are really just part of that real estate sales office. The real estate brokers performing these escrow are regulated by the California Department of Real Estate, and there is little regulation or oversight over these types of escrows. Any real estate broker can perform escrow services, regardless of experience or business practices, and the escrow service is actually done by the real estate broker who is also the buyer or seller’s agent. Its a legal requirement that the real estate broker represent the buyer or seller as well as operate as the “neutral” third party for the escrow.
There are two important reasons for selecting an established, independent escrow firm. One is that real estate transactions require a tremendous amount of technical experience and knowledge. The other is that the escrow holder must act as a neutral third party fiduciary and will generally be responsible for safe-guarding and properly money, deeds, and other documents. An escrow officer must remain completely impartial throughout the entire escrow process. He or she will normally adopt a courteous but rather formal manner when dealing with parties to the escrow, keeping conversation to the matters at hand in the escrow. This formal behavior is meant for the benefit of all concerned, since the escrow officer must follow the instructions of both parties without bias.
It is very important to use an independent escrow company so there is a neutral third party looking out for your interests. Your real estate agent will be able advise you about this.
What are Escrow Instructions:
Escrow instructions are written documents, signed by the parties giving them, which direct the escrow officer in the specific steps to be completed so the escrow can be closed.
Typical instructions include:
- The method by which the escrow holder is to receive and hold the purchase price to be paid by the buyer.
- The conditions under which a lapse of time or breach of purchase contract provision will terminate the escrow without a closing.
- The instruction and authorization to the escrow holder to disburse funds for recording fees, title insurance policy, real estate commissions, and any other closing costs incurred through escrow.
- Instructions as to the proration of insurance and taxes.
- Instructions to the escrow holder on the payment of prior liens and charges against the property and distribution of the net sale proceeds.