What is escrow?

The Escrow Process

What is the escrow process? Realtors are always referring to the murky river of escrow and what happens during this time.

Escrow refers to two totally different things:

The 'escrow process' is the time after your contract is accepted, before you close, during which all remaining information is gathered, especially relating to your loan and taking title to the home. We say 'you're in escrow' once a contract has been accepted.

Your lender is working on your loan, inspections are happening, and the title company is working on title insurance. During this time, it’s essential that you deliver anything that we ask for or that your lender requires expeditiously, and that we remain within all contingency timelines.

Escrow/Title Company

Escrow also refers to the escrow or title company, a neutral third party that oversees all money and documents related to the transaction. The escrow or title company has two functions:

-The first is to be the neutral third party. All money, including the buyer’s initial deposit, any credits or deposits from the seller, the buyer’s remaining down payment and the buyer’s loan funds all come through escrow. They will also issue a check to the seller at the end of the transaction. Because they are a neutral third party, they must always have the permission of both parties, in writing, before they can release funds.

-The second function of the escrow company is to be sure that title can be delivered free and clear and to check for any exceptions to this. When we get initial disclosures, one of these is the preliminary title report, that the listing agent has usually already requested. This preliminary title report lists any liens on the property or clouds on the title. When you are in contract, we receive an updated title report, with any changes. It's normal to have the sellers loan and property taxes listed here. This is also a place where we'd see if there had been any evictions in the past or easements on the property.

-The other function of the title company is to issue title insurance. After issuing the title report, the escrow company will issue both you and your lender a ‘title policy” ensuring the property can indeed be sold and delivered free of liens or encumbrances. This title policy lasts for your life. Paying for title insurance is one of your closing costs and is required by a lender.