All jokes aside, escrow is an important part of real estate transactions in California. Despite being a mysterious place where transactions inevitably get delayed, stalled, cancelled, and everything else in between, you will be hard pressed to find a transaction that did not utilize the escrow process.
An escrow holder acts as:
1) A custodian for funds and documents
2) A clearing house for payments of all demands
3) An agency to perform the clerical details for the settlement of the accounts between parties
In short, an escrow officer makes sure that the seller gets the money for their house, the buyer gets title to the property and everyone else is paid.
Step #1: Open Escrow
In the Bay Area the listing agent typically opens escrow once the seller has signed the listing agreement. For each transaction, there is an escrow officer that oversees the escrow process.
It is important to note that in California the buyer has the right to choose the title and escrow officers. When escrow is opened by the seller/listing agent the buyer can request to re-open escrow with the escrow company/officer of his or her choice.
Let's assume that the same escrow company and officer are used that the listing agent originally opened with.
Step #2: Escrow Officer's Duties
Once escrow is opened, the escrow officer will order the title search and review the preliminary title report for taxes/demands/etc. Once everything is clarified and the most current demands are received, the escrow officer prepares the escrow instructions and the pertinent documents.
Step #3: Contracts
At this point, everything is put on hold until the ratified purchase agreement is received from the buyers/sellers. Typically, an earnest money deposit is also required within 1-3 days to comply with the Purchase Agreement. Once received, the escrow officer ensures that all of the proper documents are available for signing (i.e. termite inspection, contingencies released, fire insurance ordered, etc.).
Step #4: Confirm. Confirm. Confirm.
Once everything is received and properly signed, the escrow officer's real job begins - they deal with the exchange of money (post earnest money deposit). The escrow officer confirms the seller's and buyer's paperwork and configures the file to ensure all signatures on all remaining docs are signed. The request then goes out to the buyer to obtain funds. If there is a going to be a loan, there is also a request for loan funds. Once funded, the escrow officer orders the recording and then the files are closed and statements are prepared to disburse funds.
Step #5: Closing
The closing is completed and all final documents are forwarded to all parties. When you make it to this stage, everyone is hopefully happy and the keys are handed over :)
The hardest part about the escrow process is communication and setting expectations. If the buyer or seller fail to sign or provide certain documents, then things can go sour fast.
If you ever have any questions at all, please do not hesitate to reach out. At MinnGo, we realize that real estate is not something our clients think about everyday. Lucky for you, that is what we live and breath.
Until next time.