What is an escrow?

Escrow is service which provides the public with a means of protection in the handling of funds and documents. Escrow enables communications between Buyer and Seller through a neutral party, thereby minimizing risks.

In escrow, all parties involved give their instructions (in writing) to this neutral intermediary, the "Escrow Holder", whose duty is to assure that no funds or property changes hands until all terms have been carried out to completion. If one of the entities as shown in the diagram, has not, will not, or cannot provide the documents/reports/funds required, the Escrow Holder is unable to consummate the transaction.

What is escrow officer impartiality?

An escrow officer must remain completely impartial throughout the entire escrow process. He or she will usually adopt a courteous but rather formal manner when dealing with parties to the escrow, keeping conversations to the matters at hand in 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.

What are escrow instructions?

Escrow 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 would include the following: 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 instructions and authorization to the escrow holder to disburse funds for recording fees, title insurance policy, real estate commissions, and any other closing costs incurred though escrow. Instructions as to the proration of insurance, taxes and possibly homeowner's association dues. Instruction to the escrow holder on the payment of property liens and charges against the property and distribution of the new sale proceeds. Since the escrow holder can only follow the instructions as stated and may not exceed them, it is extremely important that the instructions be stated clearly and be complete in all details.

Who does what in the escrow process?

The Seller Deposits the executed deed to the buyer with escrow holder. Deposits evidence of pest inspection and any required repair work. Deposits other required documents such as tax receipts, address of mortgage holder, insurance policies, equipment warranties or home warranty contracts, etc. The Buyer Deposits the funds required, in addition to any borrowed funds, to pay the purchase price with the escrow holder. Deposits funds sufficient for home and title insurance. Arranges for any borrowed funds to delivered to the escrow holder. Deposits any deed of trust or mortgages necessary to secure loans. Approves any inspection reports, title insurance commitments, etc. called for by the purchase and sale agreements. Fulfills any other conditions specified in the escrow instructions. The Lender Deposits proceeds of the loan to the purchaser. Directs the escrow holder on the conditions under which the loan funds may be used. The Escrow Holder Opens the order for title insurance. Obtains approvals from the buyer on title insurance report, pest and other inspections. Receives funds from the buyer and/or any lender. Prorates insurance, taxes, rent, etc. Disburses funds for title insurance, recordation fees, real estate commissions and lien clearance. Prepares a final statement for each party, indicating amounts to be disbursed for services and any further amounts necessary to close escrow. Records deed and loan documents, delivers the deed to the buyer, loan documents to the lender and funds to the seller, closing of escrow.

What is involved in closing escrow?

Once all the terms and conditions of the instructions of both parties have been fulfilled, and all closing conditions satisfied, the escrow is closed and the safe and accurate transfer of property and money is accomplished.

How are the charges divided?

The method of dividing the charges for the services performed though escrow or as a result of escrow varies from place to place. The fees and service charges to be divided might include, for example, the title insurance policy premium, escrow fee, any transfer taxes, recording fees, and cost in connection with any loan being obtained. Unless there is some special agreement between the buyer and seller as to how these charges are to be paid, local custom will generally be followed in drafting the instructions to the escrow holder as to how they are to be delivered.

Why does escrow exist?

The escrow process was developed to help facilitate the sale or purchase of your home. The escrow holder accomplishes this by: Acting as the impartial "stakeholder", 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 required. Prorating and adjusting insurance, taxes, rents, etc. Recording the deed and loan documents. Maintaining security and accountability of moneys owed and owing. Since the escrow holder can only follow the instructions as stated and may not exceed them, it is extremely important that the instructions be stated clearly and be complete in all details.

What if I want further information?

The examples and explanations given here are designed to acquaint you with the escrow process and are based on relatively simple escrows. Every escrow is unique and most are more complex than explained here. We recommend that you contact American Trust Escrow with any further questions.

How do I make closing successful?

FIRE INSURANCE POLICY - Your lender will require a hazard insurance policy naming the as the 1st Loss Payer. It is to your advantage to shop around for the best rate. Once you have placed your insurance, instruct your agent to call the escrow officer as there will be other information needed to complete the policy.

LENDERS REQUIREMENTS AS TO FEES PREPAID INTEREST - Interest on your new loan is paid in arrears (i.e. Escrow closes 7/10 escrow will collect interest from 7/9 to 8/1; 1st payment is 9/1 - which pays interest from 8/1 to 9/1).

90% FINANCING - additional fees may be required: PMI (Private Mortgage Insurance) Usually .05% point fee. The lender will require 1 year prepaid in escrow plus 2 months placed in a reserve account. FIRE INSURANCE One year pre-paid in escrow plus 2 months placed in a reserve account.

REAL ESTATE PROPERTY TAXES - Depending on the month of closing the lender will ask for 2 to 5 months tax reserve. (Escrow closes 7/10; 1st payment 9/1; 5 months tax reserve will be collected in escrow, based on the new estimated assessed value. 5 months tax reserve and the 9/1 payment will be sufficient to pay the 1st installment of taxes in October, with one month additional remaining in the reserve account).

CREDIT CARDS/PERSONAL LOANS/CAR LOANS - Depending on your income to loan ratio, the lender may require that all or a portion of your debts be paid in escrow. They will supply escrow with estimated balances. It is your responsibility to submit current billings and the self-addressed envelopes to escrow for payment. Escrow does not check balances or recent payments made.

FUNDS TO CLOSE ESCROW - Assembly Bill 512 (Good Funds Bill), effective January 1, 1990 states that a title company may only make funds available for monetary disbursal in accordance with certain rules. Therefore, a cashiers check must be deposited to escrow 1 business day prior to recordation; wired funds should be sent 2 business days prior to close of escrow. Any other type of check deposited for closing can delay close of escrow for check clearance up to 10 days.

CLOSE OF ESCROW - Signing the loan documents and escrow instructions is not the closing day. After the documents are signed by buyers and sellers, the escrow officer must package and return to the lender for their review. Lenders take 24 to 72 hours to review and fund. The day after the lender deposits funds to escrow, escrow presents the original documents (deed, deed of trust) to the County Recorder for recordation. The recordation day is the "Close of Escrow."

POWER OF ATTORNEY - If any one of the buyers will not be available to sign the escrow instructions and loan documents, notify your real estate agent immediately. Your real estate agent will notify your loan broker or bank and the title company. Most banks will accept a power of attorney's signature if the document is prepared by the title company. Power of Attorney must always be approved by the lender.

VESTING OF TITLE - Prior to your appointment with your escrow officer you should be aware of and know how you wish to take title. Holding title is an individual concern. If you are unsure of how you wish to take title, consult with your attorney or tax accountant. Neither your real estate agent nor the escrow officer can advise you on this matter.

TITLE INSURANCE POLICY - You will be required to purchase an Owner's Title Policy of Insurance (CLTA/Owners) and a Lenders Title Policy of Insurance (ALTA/Lenders). A title company will not handle an escrow, nor will a lender loan you money without title insurance.

CLTA OWNERS POLICY - Insures that you have clear title to your property and that no other individual or government entity has any recorded rights, hense, claims or encumbrances to your property.

ALTA LENDERS POLICY - Issued to institutional lenders only. This policy insures the lenders priority and the fact that title is marketable. It covers both recorded and unrecorded matters such as: Encroachments, unrecorded easements, access, loss of priority.

SUPPLEMENTAL TAXES - Usually within 4 months after recordation of the Grant Deed, the County Tax Collector will send you a supplemental tax bill. This tax bill is a pro-rated bill based on the difference of the existing assessment and the new assessment. Your new assessed tax valuation can be from 1.025% to 1.25% of the sales prices, depending on the area in which you purchase your property.

CLOSING COSTS IN ADDITION TO THE LENDERS FEES - Title Fees & Escrow Fee Recording Fees Document Preparation Fees Home Warranty Inspection Fees: termite, roof, property, etc. Fire Insurance Premium for 1 year Tax Pro-rations Estimated Courier & Fed-Ex Fees Notary Fees City Transfer Tax If Purchasing a Condo: HOA Transfer Fees 1 Month HOA Dues and Pro-ration for balance of month

What are the common ways of holding title?

NOTE: Buyers are advised to seek legal counsel to determine the most advantageous form of ownership for their particular situations, especially in cases of multiple owners of a single property. The following definitions of common vestings are for informational review only. Consumers should not rely on these as legal definitions.

	TENANCY IN COMMON	JOINT TENANCY	COMMUNITY PROPERTY
Parties	Any number of persons (can be husband and wife).	Only husband and wife.	.
Division	Ownership can be divided into any number of interests, equal or unequal.	Ownership interests can not be divided.	Ownership interests are equal.
Title	Each co-owner has a separate legal title to his undivided interest.	There is only one title to the whole property.	Title is in the "Community" (Similar to title being in a partnership).
Possession	Equal right of possession.
Conveyance	Each co-owner's interest may be conveyed separatly by its owner.	Conveyance by one co-owner without the others breaks the joint tendancy.	Both co-owners must join in conveyance of real property. Seperate interests can not be conveyed.
Purchaser's Status	Purchaser becomes a tenant in common with other co-owners.	Purchaser can only acquire whole title of community: cannot acquire a part of it.
Death	On co-owner's death, his interest passes by will to his devisees or heirs. No survivorship right.	On co-owner's death, his interest ends and cannot be willed. Survivor owns the property by survivorship.	On co-owner's death, 1/2 goes to the survivor in severalty. Up to 1/2 goes by will or succession to others. (Consult attorney with specific questions).
Successor's Status	Devisees or heirs become tenants in common.	Last survivor owns property in severalty.	If passing by will, tenancy in common between devisee and survivor results.
Creditor's Rights	Co-owner's interest may be sold on execution sale to satisfy his creditor. Creditor becomes a tenant in common.	Co-owner's interest may be sold on execution sale to satisfy creditor. Joint tenancy is broken, creditor becomes tennant in common.	Co-owner's interest cannot be seized and sold separately. The whole property may be sold to satisfy debts of either husband or wife, depending on the debt (Consult attorney with specific questions).
Presumption	Favored in doubtful cases except husband and wife (See Community Property).	Must be expressly stated and properly formed. Not favored.	Strong assumption that property acquired by husband and wife is community.