What Happens in an Escrow?

stock-photo-portrait-of-a-happy-couple-kissing-outside-new-house-110127494An escrow holder is a neutral, third party for both the buyer and the seller who will work closely with your real estate agent and your lender to fit together all the “jigsaw pieces” of the transaction, assuring that the escrow instructions are complied within the time period called for.


The statutory definition of escrow, found in Section 17003 of the California Financial Code, reads:

‘Escrow’ means any transaction wherein one person for the purpose of effecting the sale, transfer, encumbering, or leasing of real or personal property to another person, delivers any written instrument, money, evidence of title to real or personal property, or other thing of value to a third person to be held by such third person until the happening of a specified event or the performance or a prescribed condition, when it is then to be delivered by such third person to a grantee, grantor, promisee, promisor, obligee, obligor, bailee, bailor, or any agent or employee of any of the latter.

Duties the Escrow Holder Performs:

  1. Serves as communications liaison to all parties in the transaction.
  2. Prepares escrow instructions from the purchase contract and delivers them to the buyer and seller.
  3. Orders a title search (“preliminary title report”) to establish the present condition of title. This report reveals liens of public record and is the guideline escrow uses to assure that title is conveyed with only the liens and matters the buyer has agreed to accept.
  4. Orders a statement of debt (the “demand”) from the current beneficiary, if any; orders the homeowner’s association statement and documents, if any; orders any other lien information that affects the title to the property.
  5. Prepares all deeds and documents related to the transfer of title.
  6. Arranges for buyer’s loan documents to be delivered to escrow, prepares an estimated closing statement, and arranges an appointment for the buyer to sign the loan documents and bring in closing funds. Insurance is also ordered from the buyer’s insurance agent, per the requirements of the buyer’s new lender.
  7. Requests loan funds to be released (“funding”). When the buyer has signed all loan documents, they are then sent back to the lender with a request that the loan funds be released.
  8. Receives closing funds from buyer and does a final audit of the escrow file to make sure all is in order.
  9. Instructs title company to “set up” the recording. Important: the title company will recheck public county records prior to having the documents recorded, to assure that no new liens have been recorded since the initial preliminary title report was issued. Occasionally, a new lien will appear and the recording is “pulled” until clearance of the new lien is obtained.
  10. Balances the escrow file, prepares the closing statements, and disburses funds. The title company will call to confirm all documents have been recorded and give escrow the final title charges and payoff of existing lender costs. The escrow file is balanced, the final closing statements are prepared, and all funds are disbursed.