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Opening Escrow...what exactly is an escrow?
An escrow is an independent “stakeholder” account
and is the vehicle by which the interests of all parties to the
transaction are protected. Your escrow is created shortly after
you execute your contract to purchase your home. The escrow becomes
the depository for all monies, instructions and documents pertaining
to the purchase of your home.
Some aspects of the purchase are not part of the escrow. For example,
the buyer and the seller must decide which fixtures or personal
property items are included in the purchase. Similarly, loan negotiations
are between the buyer and the lender. Your real estate agent can
guide you in these non-escrow matters.
How does the escrow process work?
The escrow is a depository for all monies, instructions and documents
necessary for the purchase of your home, including your funds
for the down payment and your lender’s funds and documents
for the new loan. The escrow officer takes instructions based
on the terms of your purchase agreement and your lender’s
requirements. The escrow officer can hold inspection reports and
bills for work performed as required by your purchase agreement.
Other elements of the escrow include hazard insurance, title insurance
and the grant deed from the seller to you. Escrow cannot be completed
until the instructions (requirements) have been satisfied, and
all parties have signed escrow documents.
How is the escrow opened?
Either your real estate agent or the buyer’s agent may open
the escrow. As soon as you execute the Sales Agreement, the buyer’s
agent will place the initial deposit into an escrow account at
the selected title company or into the real estate broker’s
trust account.
How will I know where the buyer’s money has gone?
Written evidence of the deposit is generally included in your
copy of your sales contract. The funds will then be deposited
in a separate escrow or trust account.
What information will I have to provide?
You may be asked to complete a statement of identity as part of
the necessary paperwork. Because many people have the same name,
the statement of identity is used to identify the specific person
in the transaction through such information as date of birth,
social security number, etc. This information is kept confidential.
Depending on the method by which you currently hold title to the
property, you may also be asked to provide copies of Trust Agreements,
Partnership Agreements or corporate documents.
How long does it take to complete the escrow?
The length of an escrow is determined by the terms of the purchase
agreement and can range from a few days to several months. An
escrow often takes an average time of 30 to 45 days. Now that
you have selected your home, executed your purchase agreement,
made your purchase deposit and an escrow has been opened, your
next step is to apply for a mortgage loan. Your real estate agent
will be able to assist you in selecting a lender.
What happens next?
Unless he/she is paying cash, the next step will be that the buyer
will apply for a mortgage loan. Your real estate agent will be
able to keep you informed about the progress of the loan application.
During the escrow process, you are still required to make your
payments on existing loans so that you do not incur any late fees
or damage to your credit rating.
Paying off Your Existing Loans
Unless the buyer takes over your existing loan(s) on the property,
the loan(s) will be paid off during the escrow process. You will
need to furnish complete information to your escrow officer and
real estate agent on each loan against your property. Please be
prepared to provide the name of the lender, the loan number, address
and phone number of the lender. Your escrow officer will need
this information to order the loan payoff demands so the loan(s)
may be paid off correctly during the escrow. Homeowners’
Association information may also be required if you are selling
a condominium, townhouse or property located in a planned unit
development (P.U.D.). All of this information will help to ensure
the timely closing of the escrow.
Disclosures and Contingencies
During the process of selling your property, you will be asked
to fill out a property disclosure form (known as a Transfer Disclosure
Statement), which is now required by law. In this document, you
will inform the buyer of any significant facts you have about
the condition of the property. If you are moving out of California,
other disclosures may be necessary. Your real estate agent or
escrow officer will assist you with these.
There will, no doubt, be various contingency dates in your real
estate sales contract. You should be very aware of these and be
sure that the actions required are performed in a timely manner.
Such contingencies include the buyer’s loan approval, approval
of the Preliminary Title Report, approval of structural pest control
and other inspections. Stay closely in touch with your real estate
agent regarding these important dates.
After the buyer’s loan is approved, what’s
next?
When the loan is approved and the loan documents are sent to the
escrow officer or the escrow assistant handling your transaction,
“escrow instructions” and the Grant Deed will be prepared.
Escrow Instructions
Escrow instructions define all the conditions that must occur
before the transaction can be finalized. The escrow instructions
represent your written statement to the escrow holder (the title
company) protecting your interests and specify, in a debit and
credit format, the disposition of the sales proceeds and the conditions
under which the Grant Deed may be recorded in favor of the new
buyer.
What is a Grant Deed?
A Grant Deed is the document which legally transfers your title
of the property to the new owner. You will sign the instructions
and the deed will be notarized by your escrow officer or another
qualified notary public. Proper identification is needed for this
procedure (see heading “Identification”). The Grant
Deed is recorded at the time escrow closes.
When do I sign escrow instructions and where do I do this?
Your escrow officer or real estate agent will contact you to make
an appointment for you to sign your escrow instructions and Grant
Deed. At this time, the escrow officer will inform you of the
amount of proceeds you will receive from the sale of your home.
If you are also purchasing another home, arrangements can be made
to transfer funds to your purchase escrow. Usually you will sign
your escrow instructions at the title company office. However,
you may go to your real estate agent’s office or some other
location agreed upon by all parties.
Your Appointments
An appointment is required for the sign-off. Please call your
escrow officer to arrange a convenient time and expect the process
to take approximately one hour.
Identification
There are several acceptable forms of identification which may
be used during the escrow process. These include a current driver’s
license, passport, or State of California Department of Motor
Vehicles Identification Card. One of these forms of identification
must be presented at the signing of escrow in order for the signature
to be notarized. If you do not have one of these forms of identification,
call your escrow officer ahead of time to discuss a solution.
What’s the next step after I’ve completed my sign-off?
After you and the buyer have signed all the necessary instructions
and documents, the escrow officer will return them to the new
lender for a final review. Following the review, which usually
occurs within a few days, the lender is ready to fund the buyer’s
loan and advises the escrow officer, so that the necessary work
can be completed to record the documents and “close”
the escrow.
What is an “escrow closing?”
It signifies legal transfer of title from the seller to the buyer
and is the culmination of the transaction. Usually the Grant Deed
and Deed of Trust are recorded within one working day of the escrow’s
receipt of loan funds. This completes the transaction and signifies
the “close of escrow.” Once all the conditions of
the escrow have been satisfied, the escrow officer advises you
of the date the escrow will close and takes care of the technical
and financial details, including paying off your loan.
When will I receive the proceeds from the sale?
A final settlement statement and a check for the proceeds will
be available to you the day the sale is completed, documents are
recorded and the escrow is closed.
What happens after the escrow closes?
After the loan has been finalized, the documents signed and recorded,
and the financial settlement completed, there are still several
steps which must be accomplished to complete the transaction.
Your existing loan is being paid in full from the escrow. Your
lender is required by law to issue a full reconveyance (release)
of their loan. As soon as the deed of reconveyance removing the
previous Deed of Trust is received, it should be recorded and
the original returned to you. This may take several weeks. However,
you need not be concerned by this delay since it is normal.
What happens to funds held in escrow?
In some cases the escrow holder will be instructed to hold funds
in escrow to pay off obligations which may not be completed until
after escrow closes. An example might be a set-aside of funds
to correct a structural problem, remodeling or termite repair
work. Upon completion of the project and receipt of the proper
documentation and releases, the escrow officer will disburse the
reserved funds.
Helpful Reminders
* If you wish to transfer funds to another escrow or wire transfer
funds, arrangements must be made in advance with the escrow officer.
* In the event that you wish to use a Power of Attorney, arrangements
must be made one to two weeks in advance with the escrow officer,
and the Power of Attorney must be approved by the buyer’s
lender. These arrangements should be made as early as possible
in the transaction.
* Please bring appropriate identification (for example, a valid
driver’s license or passport) with you to the title company,
so that your identity can be verified by the notary public.
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