What is an escrow?

When opening an escrow, the buyer and seller of a piece of property establish terms and conditions for the transfer of that property.  These terms and conditions are given to a third party known as the escrow holder.  The escrow holder has the responsibility of executing the terms of the escrow.   The escrow is an independent neutral account, and the vehicle by which the mutual instructions of all parties to the transactions are complied with.

The escrow is a depository for all monies, instructions and documents necessary for the purchase of your home, including your funds for down payment and your lender's funds and documents for the new loan.

Generally, the buyer deposits a down payment with the escrow holder, and the seller deposits the deed and any other necessary papers with the escrow holder.

Prior to the close of escrow, the buyer deposits the funds required and agreed upon by the parties to the sale with the escrow holder.  The buyer instructs the escrow holder to deliver the monies to the seller.  When escrow closes, the escrow officer performs the following

• records the deed

• delivers to the buyer a policy of title insurance, which shows title to the property, vested in the name of the buyer

The escrow holder is authorized to deliver the deed to the buyer when the buyer has deposited the agreed upon purchase price and fulfilled any other conditions specified in the escrow instructions.  The escrow holder handles the prorations and adjustments on any fire/hazard insurance, real estate taxes, rents, interest, etc., based on the escrow instructions of both parties.

The escrow holder thus acts for both parties and protects the interests of each within the authority of the escrow instructions.  Escrow cannot be completed until the instructions have been satisfied and all parties have signed escrow documents.  The escrow holder takes instructions based on the terms of the purchase agreement and the lender's requirements.

How do I open an escrow?