– What is it?
Very simply defined, an escrow is a deposit of funds, a deed or
other instrument by one party for the delivery to another party
upon completion of a particular condition or event. The California
Escrow Law – Section 17003 of the Financial Code – provides
the legal definition.
Do I Need an Escrow?
Whether you are the buyer, 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.
Be sure to choose an independent licensed escrow provider who is
100% neutral, licensed by the Department of Business Oversight (DBO),
requiring adherence to the most stringent standards in the industry
and whose sole business is providing escrow.
– How Does it Work?
The principals to the escrow – 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
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 the
instruction; paying all bills as authorized; responding to authorized
requests from the principals; closing the escrow only when all terms
and conditions have been met; and, distributing the funds in accordance
with instructions and provide an accounting for same – the Closing
or Settlement Statement.
Chooses the Escrow?
The selection of the escrow holder is normally done by agreement
between the principals. If a real estate broker is involved in the
transaction, the broker may recommend an escrow holder. However,
it is the right of the principals to use an escrow holder who is
competent and who is experienced in handling the type of escrow
at hand. Remember, only independent escrow corporations are licensed
by the DBO. There are laws that prohibit the payment of referral
fees; this affords the consumer the best possible escrow services
without any compromise caused by a person receiving a referral fee.
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
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
In order to expedite the closing of the escrow, you should check
with your escrow officer as to what specific items you could do
to assist. Ask 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 many ways 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.
and Your 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
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.
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. 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.
Fees and Costs will be Charged?
Escrow fees are not regulated by the State. Escrow holders, like
any other businesses, 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.
No escrow is opened with the intention that it will be cancelled,
but there are occasions when a contingency cannot be met or when
the parties disagree during the period that the escrow is open.
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
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.
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.
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, 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.
Some of the information may have previously been supplied by the
escrow holder at the time of the closing of the escrow, via Preliminary
Change of Ownership form that should accompany each deed when it
Perfect Escrow; Does it Exist?
Perfection is sometimes 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 if you
have chosen an independent licensed escrow company, your escrow
officer has the background, training, education, support and systems
in place necessary in order to accomplish the objectives of the
In the event you have any problems in the handling of your escrow,
you should first contact the escrow officer.
If you 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
There are five different regulatory agencies governing the escrow
operations in California; Superintendent of Banks; Department of
Business Oversight; Department of Insurance; Department of Real
Estate; and Department of Savings and Loans.
of the Escrow Institute of CA)