Imagine, if you will: you're offered $500,000 for a piece of property. You accepted the deal, and then, you told the buyer: "give me the $500,000, and I'll sign over the property." Then, you said: "how about this, you sign over the property, and I'll give you $500,000."
Well, we might be in a standoff, so that's where escrow comes in.
Mike Explains: Escrow
So, what is an escrow? That's a question a lot of people are afraid to ask. You hear that a property is under escrow or fell out of it. Or, it's at the close of escrow, and there's an escrow officer, you might think: "is it like, a government official with handcuffs or something?"
Escrow, in the most general sense of the word, is when a transaction is run through a neutral third party who ensures that all the terms of the agreement are met before it's finalized.
For example: that the title in a real estate transaction is clear, the lender has been paid off, that there's no back due to property taxes, there is no other money owed, etc. All those terms are part of the original agreement, escrow goes through, and checks off that each party has lined up to their side of the contract before the transaction is complete.
In California, we use escrow as a tool for real estate transactions.
Escrow Process Explained
Once the property is under contract (the buyer and the seller have negotiated out all the terms of the agreement), then they're ready to open escrow. To open escrow, the parties take the contract to an escrow company, and a file is opened. The escrow officer prepares escrow instructions, which essentially reinstate the terms of the agreement and an initial deposit (a good faith deposit) is put into escrow by the buyer.
Once the escrow instructions have drawn, both parties will receive instructions on reinstating the contract. There will also be a form called Statement of Information: verifying the identities of the parties. The seller has something called the grant deed, that needs to be notarized. This is generally the one document that needs a notarized signature. This extra level helps ensure that in fact, it was truly the seller with an ID and fiber print who signed and executed the grant deed.
Once escrow receives signed instructions, they have the authority to go through and do things like order demands from the bank or a homeowner's association to see if there are monies due. That gives escrow authority to go through parts of the contract and make sure that they've adhered to it before the final closing.
The Process of Closing Escrow
To close escrow, all the conditions of the agreement are met: all the money is in (and this may also include a loan to be funded by the buyer): we may include getting a demand from the old lender (if there was a loan on the property), make sure all back taxes were paid (with help from the title insurance), if there are no other liens on it, and all participating parties are paid.
If the terms of the contract have been made and it's ready to close, then the funds are distributed to anybody who's owed any money through the transaction.
Finally, the title is recorded with the county tax assessor and passed to the new owner. You just now closed escrow, congratulations.
We're Here to Help
Let's face it, it's a lot. That's why you hire a professional who you trust to help walk you through the process and make sure that you're going through all the steps correctly.
If you have any questions about the escrow process or anything in real estate for that matter, please feel free to reach out to us at the Mike Dunfee Group and we'll be happy to help.
Dunfee Real Estate Services, Inc.