When you decide to purchase a home, the word “escrow” comes up often. You may or may not know what it actually means, but it will become an important part of the home buying process. In the home buying process, escrow happens, or opens, when the buyer and seller sign a purchase agreement, and the buyer puts down a deposit. Escrow protects all parties involved by making sure that no funds change hands until all conditions in the agreement are met.
Escrow requires a neutral third party such as an escrow officer from an escrow company or someone from a title company. The duties of an escrow officer include: following the instructions given by the principals and parties to the transaction in a timely manner, handling the funds and documents in accordance with the instructions, paying all bills as authorized, closing the escrow when all terms and conditions have been met, distributing the funds in accordance with the instructions given, providing an accounting for the closing, and providing a Settlement Statement.
After escrow opens, the contract dictates how the homebuying process is handled. The escrow officer opens escrow by collecting the contract and the buyer’s deposit. The escrow holder has the obligation to keep all the funds and documents safe while they are in the possession of the escrow holder, and to disburse funds and/or convey the title only when all the provisions of the escrow have been complied with.
Generally, the contract factors in contingencies for homeowners insurance, home inspections, financing, repairs and other tasks to be accomplished by the buyer and/or seller before the transaction can be completed. When each contingency is met, the buyer and/or seller sign a contingency release form. Once the loan is funded and all the contingencies have been met, the title is cleared, the buyer inspects the property, and the parties prepare for the closing.
Once all the paperwork is signed and all conditions in the contract have been met, escrow closes and the escrow officer records a new deed in the buyer’s name, the seller gets paid for the home, and all other monies are disbursed.
The escrow officer maintains contact with the lender. In the processing and closing of escrow, the escrow holder is obligated to comply with the lender’s instructions. Paperwork and documents cannot be interpreted or explained by escrow officers, so it’s important for both buyers and sellers to ensure that they understand all paperwork and conditions involved in the transaction.