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The Escrow Process Defined

What is Escrow?

Escrow is an essential part of selling and buying a house. In escrow, an independent and neutral third-party handles and coordinates all of the funds, documents and instructions involved in the real estate transaction. The escrow agent (or escrow holder) makes sure that no funds are dispersed until all conditions of the sale have been met.

How Long Does Escrow Take?

Depending on different factors, the process can last between several days to several weeks. In general, escrow takes 30-45 days.

Escrow begins when a seller accepts a buyer’s offer and an escrow agent or company is selected. The following steps include (but are not necessarily in this order):

Request for Documents

Working together with the real estate agent, the escrow holder compiles a set of joint escrow instructions. These documents outline how funds held in escrow should be disbursed. Both parties must sign the documents before moving forward.

“Good Faith” Deposit

The buyer places a “good faith” deposit (typically one to three percent of the purchase price of the house) into the escrow trust account.

The Loan-Approval Process

Since approval of a bank loan is the most time-consuming element in the process, buyers are advised to fill out a loan application as soon as possible. This includes supplying the lender (a bank or mortgage company) with key financial information (bank statements, tax returns, paycheck stubs, etc.).

Seller’s Disclosure

According to law, the seller is obliged to disclose any known problems with the house. This often takes the form of an extensive property questionnaire to be filled out by the seller early in the escrow process.

Title Search

The escrow holder requests a Preliminary Title Search to be made of public records (deeds, mortgages, paving assessments, liens, wills, divorce settlements, etc.). This will establish whether there are any existing claims to the property (other than the present owner’s). The escrow holder then prepares a preliminary title report for review by all parties. Any problems must be resolved before the process can continue.

Property Appraisal

The lender schedules an appraisal of the property to assess its physical condition and address any defects or issues. This may include a pest inspection. The goal is to assure both buyer and lender that the house is in order and there are no threats (such as termites) to its structural integrity. The cost of repairs is negotiated between buyer and seller or may be deducted from the purchase price of the house.

Documents Prepared for Signatures

Once the seller’s loan application is approved, the required documents are sent to the escrow company., The escrow agent also prepares other key documents, such as a settlement statement, warranty deed and any documentation required by the IRS.

Signing

Escrow will schedule both parties to review and sign the appropriate closing papers.

Closing Date and Final Walk-Through

The escrow agent communicates with all parties to coordinate a closing date. Prior to that time, the seller revisits the house to determine that requested repairs have been made and no other damage has taken place while the property has been in escrow.

From the funds held in escrow, the escrow agent makes payment on any existing claims to the property. He or she also orders the recording of Title and delivers contracts, statements, policies and other paperwork to the appropriate parties. After all the papers have been signed, the deed is recorded at the County Recorder’s Office under the buyer’s name and escrow is signed off as “closed.”

We’ll look at many of these steps in greater detail in forthcoming articles. Stay tuned!

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