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This web page has been provided in order to inform you about some of the aspects of escrow, including a clarification of the role of the escrow holder and knowledge of the escrow process. This information is intended to provide an overview of the escrow processes only.

Buying or selling a home (or other piece of real property) usually involves the transfer of large sums of money. It may be the single biggest investment you make in your life. Naturally you want to be sure it's handled properly. It is imperative that the transfer of these funds and related documents from one party to another be handled in a neutral, secure and knowledgeable manner. For the protection of the buyer, seller and lender, the escrow process was developed. That's the job of the escrow professional. Through escrow your transaction can be conducted with safety and in confidence.

What is escrow?
Escrow is a service, which provides the public with a means of protection in the handling of funds and/or documents. Escrow enables the buyer and the seller to transact business with each other through a neutral party, thereby minimizing their risk.

In the escrow, all parties involved give their instructions to this neutral intermediary, whose duty it is to assure that no funds or property will change hands until all instructions have been carried to completion.

The escrow holder/company serves as the neutral "stakeholder" and the communications link to all the parties in the transaction. The escrow holder performs the following functions:

• Prepares escrow instructions

• Requests a preliminary title search to determine the present condition of title to the property

• Requests a beneficiary's statement if debt or obligation is to be taken over by the buyer

• Complies with lender's requirements specified in the escrow agreement

• Receives purchase funds from the buyer

• Prepares or secures the deed or other documents related to the escrow

• Prorates property taxes, interest, insurance and rents according to instructions

• Secures releases of all contingencies or other conditions as imposed on a particular escrow

• Records deeds and any other documents as instructed

• Requests issuance of title insurance policy

• Closes escrow when all the instructions, including charges for title insurance, recording fees, real estate commissions and loan payoffs

• Prepares final statements for the parties accounting for the disposition of all funds deposited in escrow

The Escrow Holder does not:

• Offer legal advise

• Negotiate the transaction

• Offer investment advice

What types of transactions go through escrow?
Most contracts that involve the transfer, lease or financing of real or personal property can be placed in escrow. You may be involved in escrow not only when you buy or sell a home, but also when you buy a mobile home, sell a business or transfer stock in a closely held business. Prizefighters have even been known to have their purses guaranteed through an escrow depository. The buyer or seller should demand the protection of escrow for any transaction, which involves a substantial investment.

Why do I need escrow?
Whether you are the buyer or the seller, lender, or borrower, you want the assurance that no funds or property will change hands until all of the instructions in the transaction have been followed. The escrow holder has the obligation to safeguard the funds and/or documents while they are in the possession of the escrow holder, and to disburse funds and/or convey title only when all provisions of the escrow have been complied with. With the increasing complexity of business, law and tax structures, it takes a trained professional to supervise the transaction.

Who handles the escrow transaction?
The escrow officer is a trained and experienced professional. He or she can provide you with the assistance required to close your transaction quickly and effectively. This professional person may, under the terms of the instructions, make the decision that the conditions of escrow have been met, and then order the transfer of the affected real or personal property to the interested parties.

How does escrow work?
The principals to the escrow (the buyer, seller, lender, borrower) - cause escrow instructions, most usually in writing, to be created, signed and delivered to the escrow officer. If a broker is involved, he will normally provide the escrow officer with the information necessary for the preparation of your escrow instructions and documents. The escrow officer will process the escrow, in accordance with the escrow instructions, and when all conditions required in the escrow can be met or achieved, the escrow will be "closed". Each escrow, although following a similar pattern, will be different in some respects, as it deals with your property and the transaction at hand. The duties of an escrow holder include:

• Following the instructions given by the principals and parties to the transaction in a timely manner

• Handling the funds and/or documents in accordance with instructions: paying all bills as authorized

• Responding to authorized requests from the principals

• Closing the escrow only when all terms and conditions have been met

• Distributing the funds in accordance with instructions and provide an accounting for them in the Closing or Settlement Statement.

What do I have to do while in escrow?
The key to any transaction as important as your sale, purchase or loan, is to read and understand your escrow instructions. If you do not understand them, you should ask your escrow officer to explain the instructions. Your escrow officer is not an attorney and cannot practice law; you should consult your lawyer for legal advice. Do not expect your escrow officer to advise you as to whether or not you have a "good deal" or are doing things the right way. The escrow officer is there to follow the instructions given by the principals in the escrow.

In order to expedite the closing of the escrow, you should ask your escrow officer the question "What can I do to expedite the closing of this escrow?" Respond quickly to correspondence. This will assist in the timely closing of the transaction. If you are required to deliver funds into the escrow, make sure that you provide "good" funds in the form required by the escrow officer. Company procedures differ in this regard, and there are ways that you can help at the time of closing; check with your escrow officer. Do not give the escrow officer a personal check and expect the escrow to close immediately; the escrow can only close on cleared funds, and the processing of a personal check can take days, possibly even a week or more.

When the escrow officer closes the escrow, some of you may want the closing papers, checks, title policies, statements, etc. made available immediately. There are many aspects to the closing of the escrow, and some of these cannot be processed on the day of the closing; they may take several days. If you have a special need, for example a cashier's check on the day of closing, you should communicate that need to the escrow officer early in the processing of the escrow.

What about escrow and my new loan?
If you are obtaining a new loan, your escrow officer will be in touch with the lender who will need copies of the escrow instructions, the preliminary title report, and any other documents escrow could supply. In the processing and the closing of the escrow, the escrow holder is obligated to comply with the lender's instructions. It has become a practice of some lenders to forward their loan documents to escrow for signing. You should be aware that these papers are lender's documents and cannot be explained or interpreted by the escrow officer. You have the option of requesting a representative from the lender's office to be present for explanation, or arrange to meet with your lender to sign the documents in their office.

What is a closing statement?
A closing statement is an accounting, in writing, prepared at the close of escrow which sets forth the charges and credits of your account. The items shown on the statement will reflect the purchase price, the funds deposited or credited to your account, payoffs on existing encumbrances and/or liens, the costs for all services and a determination of the funds you are entitled to at the close of the escrow. When you receive your closing papers, review the closing statement; it is extremely logical and reflects the financial aspects of your transaction. If anything does not make sense to you, you should ask your escrow officer for an explanation. When going through your closing papers, examine all of them; there may even be a refund check hiding in there. Cash the check quickly, please. Be sure to have the check properly endorsed. All payees must endorse the check. This will eliminate the check being returned unpaid due to irregular or missing endorsements.

How long should I keep my escrow papers?
Your closing statement and all other escrow papers should be kept virtually forever for income tax purposes. Your accountant will need the information about the sale or purchase of the property. The IRS and other agencies may require you to prove your costs and/or profit on the sale of any property. The closing statement will assist in this task. Do not rely on your escrow holder retaining the escrow file so that you can always call and get copies of the closing statement. Most escrow holders will be destroying the files after the statutory retention period, usually five years. Maintaining and storing the closed escrow files is a costly endeavor to the escrow holder, therefore, a nominal fee may be charged by your escrow holder for the retrieval of a file from storage, photocopying the requested documents and returning the file to storage.

What fees and costs will be charged?
Escrow fees are not regulated by the State. Escrow holders, like any other business, will charge fees that are commensurate with the costs of producing the service, the liability undertaken, and the overhead expenses which include a profit factor. Therefore, the fees will vary between companies and from county to county. Normally, the escrow holder will follow its minimum fee schedule, which will provide for extra charges based upon the differing elements of your escrow. On occasions, an additional fee will be charged for unusual expenditures of time on a given transaction. The escrow holder has no control over the costs of other services that are obtained, such as the title insurance policy, the lender's charges, insurance, recording charges, etc. Your escrow officer, upon request, can provide you with an estimate of the escrow fees and costs as well as fees charged by others, provided such information is available.

What about cancellations?
No escrow is opened with the intention that it will cancel, but there are occasions when a contingency cannot be met or when the parties disagree during the period of the escrow. Some escrow holders provide for such an event by incorporating an instruction in the typed or printed General Provisions. Ordinarily, an escrow holder will take the position that no funds on deposit can be refunded until the escrow holder is in receipt of mutual cancellation instructions signed by the principals. The escrow holder cannot normally make a determination as to who is the "rightful" party in a dispute on a cancellation and therefore will not return the funds or documents until the principals agree; the escrow holder is not a judge. Do expect to be charged a cancellation fee, as this is a charge for professional services rendered and quite often for several "out of pocket" expenses that have been incurred on the client's behalf. These fees can vary from company to company depending upon their policies. Sometimes, when a dispute exists, the escrow holder may be forced to allow a court to decide which party is entitled to what documents or funds; this is called an Interpleader Action. Fortunately, most disputes are resolved before the Interpleader is filed, as the costs for such legal actions are extreme. Those costs, incidentally, are normally paid out of the funds on deposit in the escrow.

What about Title Insurance?
Title insurance is usually obtained when real property is purchased. The policy of title insurance insures the owner and/or the lender of ownership of the property. There are various coverages afforded, but a basic policy insures that the buyer is the owner and that any lender shown on the policy is an "insured" lender. Many different types of extended coverages are available; for example, an ALTA policy is quite often required by institutional lenders to afford them additional protection under the title insurance policy. The title policy is written after an extensive examination of the public records is made and the recording of the required documents as called for in the escrow. The title insurance policy fee is a one-time fee, paid at the close of escrow. The determination of who pays for the policy is not uniform from county to county in California. In some counties, the buyer will pay while in others the seller will pay. In other counties the seller will pay for the owner's policy and the buyer will pay for the lender's title policy. But in almost every case, the question of who pays closing costs is a matter of agreement between the parties. Usually this agreement is based on the customary practice in your county or area. In the case of some FHA or VA transactions, the escrow officer must follow the guidelines as required by the lender and/ or government.

What about property taxes?
The terms of your transaction and the resultant escrow instructions determine how the property taxes will be handled. If there is no mention of the proration of taxes, your escrow officer will not deal with any credits or charges for prorated taxes. However, if your escrow calls for a proration of taxes, there will be an item in your closing statement that will reflect either a credit or charge to your account. If the taxes are not paid (even though there has been a credit or charge against your account), the buyer is obligated to obtain a tax bill and pay the taxes. If the buyer does not have a tax bill with which to pay the taxes, you can request a bill from the Tax Collector; send a photocopy of the deed. Supplemental Property Taxes is another concern of the buyer. Upon transfer of real property, a supplemental tax bill is generated. This is accomplished in cooperation with the County Assessor and the County Tax Collector. Shortly after the close of an escrow involving the conveyance of real property, the County Assessor will request information about the property from the buyer. This information assists the Assessor in determining the value of the property for taxation purposes. The escrow holder may have previously supplied some of the information at the time of the closing of the escrow, via the Preliminary Change of Ownership form that should accompany each deed when it is recorded.

Does the perfect escrow exist?
Perfection is difficult to achieve, especially in dealing with the complexities of the escrow, the desires of the parties and other matters that are sometimes far beyond the control of the escrow officer. It is human nature to err on occasion, but your escrow officer has the background, training, education, support and systems in place necessary in order to accomplish the objectives of the escrow instructions. In the event you have any problems in the handling of your escrow, you should first contact the escrow officer. If your problem is not resolved, you should next contact the management or owner of the company. If the matter requires additional attention, you can call the proper regulatory agency.

As a buyer entering into escrow, what must I do?
If the transaction is contingent upon a new loan, it is your responsibility to arrange this loan. Your real estate agent can be most helpful in obtaining a lender, since he or she is more knowledgeable about which lenders are currently active and their financing terms.

The instructions are ready--now what?
When the escrow instructions have been prepared, read them carefully to determine that they are complete and properly reflect your total agreement. If you have any questions or corrections, discuss them with the escrow holder before signing. Once the instructions have been signed, they become the basis for the conduct of the escrow.

Can I get legal advice from the escrow officer?
An escrow officer is not a legal counselor and cannot give you advice. Remember, the purpose of escrow is to take, and comply with, instructions to carry out the mutual agreement of the principals. In the event of disagreement of the parties, the escrow officer must remain neutral until agreement is reached. The transaction should not be negotiated in the escrow office, nor should an escrow officer become involved in the negotiation.

If I still have questions about the transaction, where can I go for answers?
If negotiations have been conducted through a real estate agent, that person, or his/her broker, should be your primary consultant. The role as an independent agent prohibits the escrow officer from answering many of your questions. However, a knowledgeable escrow officer, whose responsibility is giving impartial service to all the parties, will refer you to the proper source for your answers. An escrow officer will often suggest that the customer seek the advice of legal counsel or a tax consultant.

What happens at the closing?
When instructions of all parties to the escrow have been carried out, the closing can take place. All outstanding funds are collected at this time and all costs must be paid. Title to the property, whether real or personal, will then be transferred. All specified documents are recorded or filed at this time.

What fees must I pay at closing?
Fees and charges are controlled by many factors and depend largely upon the type of transaction and the terms of your agreement. However, there are certain charges, which are considered to be normal. These would include fees charged by a lender in connection with obtaining a new loan or in paying off the old one. They may also include recording fees, title insurance policy premium, documentary transfer taxes, prepaid taxes and insurance and escrow fees. Your escrow officer will provide your with an itemized statement.

Your closing funds should be in the form of a wire transfer or a cashier's check made payable to the escrow holder in the amount requested. Do not bring a personal check to close a transaction. It will only delay the closing, since the funds must be collected before the closing can take place. An out-of-town check can cause a week to ten days delay in closing.

As a seller entering into escrow, what must I do?
To be fully prepared when you enter the transaction, you should have sufficient information relative to your ownership available. This would include information concerning any loans, taxes, insurance and, if appropriate, rental data. Items that would be the sources of this information are your original deed or title policy, fire insurance policy and a year-end statement from the existing lender. A copy of the most recent structural pest control report may be helpful, or in some cases even required, in a real estate transaction.

What is the fee for the escrow service?
The escrow fee is normally based on the size and complexity of the transaction. Since there are so many types of escrows and every transaction is different, there are no set fees. Usually the escrow fee is divided in accordance with the agreement of the parties.

The closing is complete--now what?
Upon closing, review the closing statement to determine that the costs were allocated in accordance with your instructions. It normally takes a period of time after closing before the hazard and title insurance policies can be delivered to you. Any recorded documents to which you are entitled will be mailed to you after the escrow has closed. Frequently these documents will come to you directly from the office of the recorder or the Secretary of State in the case of personal property filing.

What if the transaction isn't completed? Is my deposit refundable? Who pays the fees?
When a transaction fails to close, a cancellation agreement must be reached between the parties. This cancellation agreement must be put in the form of a written instruction, just as your contract was. Since the deposit is part of the escrow contract, both the buyer and the seller must mutually agree to its disposition. Instructions for the disposition of this deposit should include, among other things, provisions for payment of charges incurred during the escrow. This would include fees and costs incurred by the escrow holder and charges such as loan processing and title insurance fees as specified in the escrow instructions.

The escrow officer does . . .

• Serve as the communication link to all parties in the transaction.

• Prepare escrow instructions.

• Request a preliminary title search to determine the basis upon which a title insurance policy may be issued.

• Request a beneficiary's statement or pay-off demand relating to existing financing.

• Comply with lender's requirements, specified in escrow agreement.

• Receive purchase funds from the buyer.

• Prepare or secure the deed or other documents related to escrow.

• Prorate taxes, interest, insurance and rents according to instructions.

• Secure releases of all contingencies or other conditions as imposed on any particular escrow.

• Record deeds and any other documents as instructed.

• Request issuance of the title insurance policy.

• Close escrow when all of the instructions of buyer and seller have been carried out.

• Disburse funds as authorized by instructions, including charges for title insurance, recording fees, real estate commissions and loan payoffs.

• Prepare final statements for the parties accounting for the disposition of all funds deposited in escrow.