Escrow: Ten things To Know
You know generally how to buy a home but you have some questions about the details? Take a look and find out everything you wanted to know about Escrow. If you don’t see what you’re looking for just ask!
1. It’s good to know from the outset that many of the words you will hear floating around when buying or selling a home is real estate jargon and may not be as specific as it should be. For example “In Escrow” is used to mean the moment a buyer’s offer is accepted by the seller till the moment the buyer’s deed is recorded at the county recorder and ownership transfers. “Escrow” officially starts when the escrow company has received the buyer’s Earnest Deposit Check.
2. After the offer is accepted the buyer’s agent will contact the escrow officer typically chosen by the buyer (have a question about who chooses the title and escrow company? use the contact form below), and requests a pick up of the Earnest Deposit Check. It is with the cashing of this check into a neutral third party account and the issuing of an escrow number that the escrow account is open.
What is an Escrow Account
3. The buyer’s lender may require an Escrow Account (also referred to as an Impound Account) to be opened so that over the life of the loan Property Taxes and Home Insurance can be paid by the buyer on a monthly basis. The lender then manages the payment of the taxes and insurance when they come due on a yearly or bi-yearly basis. The home is what secures the loan for the lender, but the tax man has first right to the home, so the lender wants to make sure the tax collector gets paid.
What can be confusing is that this escrow account stays open for however long the loan is outstanding while “escrow” will close once ownership transfers to the buyer.
4. This is a general list of the milestones in the purchase Process which includes opening and closing of escrow:
a. Purchase Contract is Ratified (buyer and seller both have signed)
b. Buyer’s Earnest Deposit Check is cashed into a neutral third party account with the escrow company
c. an Escrow Deposit Receipt is issued
d. Buyer continues the process of providing financial documentation to their lender in order to secure the loan
e. Inspections are completed
f. The Appraisal is completed
g. Borrower documentation including the appraisal is sent to the underwriter for review
h. Contingencies are Waived (inspection, appraisal, and finance contingencies for example)
i. Loan documents are sent to escrow officer for buyer’s signatures
j. A time is set for the buyer to sign the loan documents (the loan docs…make sure to bring your Driver’s License)
k. A time is set for the seller to sign
l. Signed loan documents are sent back to the lender for review
m. If all the documents look good the lender funds (the buyer borrowed money) are sent to escrow
n. Escrow officer disburses the lender funds to all parties: seller, realtors, inspectors, and any liens owed
o. An employee from the escrow company brings the new deed with the buyer’s name on it to the County Recorder and the deed is recorded
p. Escrow officer calls buyer’s and seller’s agents to confirm the new deed has been recorded and escrow is closed
q. The buyer’s and seller’s agents coordinate the transfer of keys which are then handed off to the new owners.
5. On page one of the San Francisco Purchase Contract, there is a space to offer an Earnest Money Deposit. If the purchase offer is accepted these good faith funds become the escrow deposit that the escrow company requires to “Open” escrow. The earnest deposit amount will typically be somewhere between $5000 and 3% of the purchase price. Offering the full 3% of the purchase price is an easy way for the buyer to show the seller they are serious and have the funds to back up their offer.
Preliminary Title Report
6. There will often be a copy of the preliminary title in the property’s disclosure package, but a new one will be issued during escrow. Read it!
Click HERE to find out How To Read a Preliminary Title Report
7. In the purchase contract, your realtor will help you decide on what contingencies to ask for. The three main contingencies are the Inspection contingency, the Appraisal Contingency, and the Finance Contingency. Each one can only be removed by the buyer signing a form that waives each contingency, so it is very clear when a contingency is removed. The contingencies are part of the purchase contract not the escrow per se, but the contingencies have a lot to do with the flow and duration of escrow.
8. Once the lender’s underwriter has completed the loan file for the borrower which includes compiling all the buyer’s financial documents, the appraisal, and any other documents they require, loan documents will be sent to the escrow company for buyer signatures. The seller will also schedule a time to sign the grant deed. The seller will only have a few documents to sign but the buyer should be prepared to sign a mountain of them.
9. Many people think of the Signing as the close of escrow, but in fact, the buyer signed documents still need to be sent back to the lender where they are gone over with a fine tooth comb to make sure every “i” is dotted and every “t” is crossed. Only after the documents are completed to the lender’s satisfaction are the actual funds sent to escrow and from there disbursed to pay off any liens owed by the seller, inspectors, and the realtors. This is somewhat of a simplification since there can be any number of people and institutions owed money including the IRS, the Franchise Tax Board, etc, but in essence, by purchasing title insurance the buyer is ensured that clean title is being transferred.
Close of Escrow
10. All parties are paid and the escrow officer has sent the Buyer and Seller signed and notarized deed to the county recorder. Once the new deed is recorded the escrow officer will call the buyer’s realtor letting him know “We’re on record”. This is the point at which we call the escrow “closed”. Congratulations!
Oh, and one last thing…no matter how good your credit is, if you are getting a loan to finance the purchase of a home, don’t buy a Land Rover or other large ticket item during escrow, or when the lender pulls your credit for the second time right before they fund the loan they may reject the loan. Unfortunately, we experienced this 10 years ago when a client of ours buying a home in Noe Valley decided to purchase an expensive car during escrow and when the lender found out they denied the loan. It was a tricky situation, to say the least.
Have a Real Estate Question? Get in Touch With Us!
Mike & Oliver
Mike Ackerman – Oliver Burgelman
Zephyr Real Estate