The Escrow Process
Both buyer and seller deserve the assurance that no funds or property will change hands until all of the instructions in the Purchase Contract have been satisfied. Buyers and sellers submit signed documents and buyer’s deposit money to be held by an independent neutral third party (Escrow). After the conditions agreed upon by both buyer and seller (in the Purchase Contract) are satisfied, Escrow then distributes the documents and the funds.
The escrow holder is an independent neutral third party; works for both the buyer and the seller, and is authorized to follow the specific written instructions provided by both parties. Escrow functions:
- Receives and deposits (into escrow’s account) buyer's initial deposit and prepares escrow package. Requests "demands" (pay-off statements) from existing lenders and/or lien holders. Obtains seller's notarized signature on grant deed. Safeguards grant deed until all terms and conditions are met and buyer’s remaining certified funds are on deposit. Orders title search and receives and distributes preliminary title report. Calculates prorations pertaining to property taxes, rents, insurance, interest, and other expenses as required.
- Coordinates with buyer's lender throughout the escrow process. Orders and processes buyer's loan documents. Coordinates buyer’s signing of loan documents and their return to buyer’s lender. Receives buyer's final down payment funds and coordinates funding with buyer's lender.
- Orders recordation of grant deed conveying title to buyer and distributes all funds: pays-off existing loans; pays other required costs, such as termite completion, home protection policy; etc. Releases net proceeds to seller.
Simultaneously, the buyer and the buyer's lender are engaged with the loan approval process. Lender duties:
- Orders a credit report and other credit documentation as required (mortgage ratings, landlord ratings). Reviews the buyer's credit and when necessary obtains satisfactory explanations from the buyer regarding any negative credit history. Verifies the buyer's sources of income. Verifies that the buyer has adequate liquid funds for down payment, closing costs, and reserves. Requests an appraisal of the property, and verifies that the property's value is equal to the contract sales price.
- Submits the loan to underwriters for final approval.
- Coordinates delivery of the buyer's loan documents to the escrow officer.
And in the meantime... While the escrow officer, lender, and buyer are diligently working, the seller also has responsibilities.
- The seller and the listing agent must now prepare detailed disclosures that are required by law (smoke detector, lead based paint, earthquake, environmental hazards, zone disclosures, water heater, transfer disclosure, etc.)
- Provide escrow officer information on existing loans to check against title search findings.
- With their Realtor, make the home available for physical inspection and other trades people as required by the purchase contract, such as licensed Termite Company and lender's appraiser.
- Make any repairs agreed upon in purchase contract.
In order for your escrow to proceed smoothly, your Realtor’s job is to coordinate and oversee the above chain of events. Similar to dominos – each event must occur in a timely fashion; delays in any event may result in the postponement of escrow’s scheduled closing date.