Escrow Defined

An escrow is the depositing of funds or documents by a buyer and a seller with an impartial third party (the escrow company), for delivery upon completion of the terms of the escrow instructions.

When the parties to the escrow deliver documents or money to be held for further delivery upon the performance of certain conditions, the parties involved will say the transaction has been “Opened” or “We have now opened escrow”.

In an escrow, no funds or property are exchanged until all conditions of the escrow are met.

Frequently Asked Questions

    Q: What is the purpose of Escrow?
A: Primarily, an escrow account is established for both the buyer and seller to:
  • Ensure protection of funds until all conditions of the sale/transfer are met.
  • Ensure impartiality.
  • Ensure professionalism in the performance of assigned duties and responsibilities.
      What is the benefit of an Escrow?
A: An escrow provides benefits and advantages to both the buyer and the seller. Here is a partial list of benefits:
  • Provides for custodian of funds and documents, which may not be released until all conditions of the escrow are met.
  • Significantly reduces risk for the non-performance of certain conditions or activities.
  • Provides a clearinghouse for payment of demands.
  • Provides a clearinghouse for the accounting side of escrow.
      Who are the main parties involved in an escrow?
A: The buyer and sellers are known as the principles in the escrow. The third party is the “Escrow Holder” or “Escrow Agent”. Each of the principles will execute written instructions setting out the conditions that will govern the manner in which the escrow is conducted. The “Escrow Holder” acts as an agent for all principles involved in the transaction. Once all conditions are met, the “Escrow Holder” delivers the documents and/or money in its custody to the appropriate parties as spelled out in the escrow instructions.
      What are the main escrow activities?
A: Escrow companies service their customers by performing a variety of tasks which include:
  • Clearing title issues
  • Providing accounting controls/holding of funds
  • Preparing Escrow Instructions and other documentation (“Fill in the blanks” documents ONLY)
      What other parties are involved in an Escrow?
A: While the buyer and seller are the principles to an escrow, there are other players who also have interest. These sub-principles include:
  • Lender/Mortgage Broker
  • Home Owner Association
  • Title Company
  • Listing Agent
  • Selling Agent
  • Attorneys
  • Termite Company
  • Builders/Contractors
  • Insurance/Home Warranty Companies
  • Lien Holders
      What are Escrow Instructions?
A: Escrow instructions provide “Instructions” on what the escrow holder is supposed to do. They outline all party’s performance, responsibilities, and the duties to be performed.
Escrow instructions set forth the consideration (money or other value) being paid for the property being paid for.
The Escrow Instructions describe the property being purchased or sold with generally a “legal” description or other identifiable means (street address).
The instructions also will identify how title will be held among those who are purchasing the property or refinancing it.
The Escrow Instructions will be given for the payment of certain fees and will set forth in writing the allocation of such fees, outlining who will be charged within the escrow for each fee listed.
      What are Escrow Amendments?
A: “Escrow Amendments” are used to document specific changes to the escrow instructions. Any time a change is made that impacts the Escrow Instructions, an “Amendment” should be created. Examples of Escrow Amendments include:
  • Loan terms
  • Vesting information
  • Escrow closing date
  • Payoff amounts to creditors
The Escrow File should have a copy of all Escrow Amendments filed in the date order written.
      What are the primary duties of an Escrow Officers?
A: The Escrow Officer has many tasks which include the following:
  • Preparing Escrow Instructions
  • Complying with lender’s requirements and instructions
  • Prorating taxes, interest, insurance and rents
  • Requesting issuance of the Title Policy
  • Closing Escrow when all conditions have been met
  • Communicating with all parties linked to the transaction
  • Receiving from the buyer the funds necessary for the purchase
  • Disbursing funds as indicated within the Escrow Instructions, including all fees, commissions and loan payoffs
  • Preparing any final accounting statements required

Escrow “No No’s” … Services that we do not perform include:

  • Create legal documents
  • Offer advice (legal or otherwise)
  • Co-mingle funds
  • Pay unlicensed real estate brokers
  • Pay commissions prior to Escrow closing
  • Recommend certain fire insurance/home warranty/other companies
  • Act outside the scope of Property’s Escrow instructions