Congratulations! You have bought or sold your house. Your agent will now take the real estate purchase contract to the designated escrow company in the contract and open escrow. An escrow company is a neutral third party whose job is to carry out the agreement and terms of the real estate purchase contract. An escrow officer is the person in charge of your transaction. So let’s go over a few escrow terms and explain escrow.
Escrow Instructions – Your escrow officer will put the terms of your contract in writing for all to approve. The escrow instructions tell everyone, including the escrow officer what terms were agreed upon by the buyer and seller and the agents in order to complete the transaction of buying and selling your house. These are escrow instructions and the road map to complete the sale.
Amendment – An amendment is a written document changing what was originally agreed upon by the buyer or seller, stating a necessary item IE: the name of the lender, or to correct a written mistake in the escrow instructions.
Earnest Money Deposit – The earnest money deposit is given to your agent when you signed the offer to purchase also known as the good faith deposit. Escrow will be opened by depositing these funds in the escrow trust account. In California, money needs to exchange hands in order for the contract to be valid. The monies that are deposited are used towards your down payment or closing costs.
Preliminary Title Report – The preliminary title report or (PR) will give the buyer, seller, escrow, and lender all the existing information regarding the property title. IE: legal description, liens, taxes, names on title, easements, etc. In order to give clear title to the buyer, all parties need to approve the report, what will be removed and what will remain on title, like property taxes.
Title Company – The title company chosen is set forth in the original contract by the agents. They will be handling the monies, deeds, taxes, loans to be paid off, and insuring that the title will be free of any liens or problems at the closing and in the future. This insures the passing of clear title to the buyers.
Grant Deed – The actual deed in which the seller transfers the title to the buyers. This deed is signed by the sellers and must be approved by the buyers. It is recorded at the close of escrow.
Note and Deed – The note refers to the terms and conditions of a loan and the deed is recorded against the title of the property securing the note will be fulfilled. The deed will state who the lien holder is or the lender on the public record of a property.
Vesting – The vesting is on the escrow instructions, the grant deed and the note and deed of the lender. It states how the buyers will hold title to the property. IE: joint tenants, tenants in common, community property etc. How you will hold title depends on your situation. For example: joint tenants have the right of survivorship. This means that if one person dies, the property automatically goes to the other person(s) on title. Talk to your tax consultant or read more on “How to hold title.”
Impound Account – Each month, 1/12 of your tax and insurance bill will be included in your payment to your new lender and deposited into an impound account. Funds will be held in the account set up with the new lender for the buyer which will be used to pay the annual taxes and insurance for the property. If you have an impound account, your lender will be paying these bills. However, never ignore a bill received by you. Call your lender and make sure they too have received the bill.
Supplemental Taxes – A one-time bill which is the difference between the taxes of the previous owner(s) and the new buyers based on the sales price. In California, the supplemental tax bill usually comes out around September and is paid in two installments. If you have an impound account, your new lender should have collected for this bill prior to the close of escrow but check with your lender to be sure.
Demand – The payoff statement required by escrow from the seller’s existing lender. Be sure you give escrow detailed information regarding your loan so that they can request the payoff from your lender as soon as possible.
Contingencies – Items that are pending satisfaction. These items could be the termite report, work to be completed in the termite report, statement of information required by the title company from the buyer and seller, loan documents, proof of homeowners insurance, property inspection, etc. A contingency is an item that needs to be satisfied prior to the sale or loan being able to close.
Close of Escrow – The close of escrow is the date in which the exchange of title actually takes place. All items agreed upon have been fulfilled, monies exchange hands and the new deed(s) have been recorded with the San Diego county recorder’s office. The property moves from the seller to the buyer and escrow is now closed.
Closing Statement – The statement issued by the escrow company showing all of the monies deposited or paid out and the charges you paid for the purchase or sale of your home. Keep this statement and give to your CPA for tax purposes.
In-House Escrow – Some real estate offices have in-house escrow. I would caution clients using an in-house escrow because escrow is supposed to be a “neutral” third party. In house escrows are employed by one of the broker’s and as a result, in my opinion, are not a neutral third party. Be very careful and make sure your agent holds the escrow company’s feet to the fire if you use an in-house escrow. I do not charge transaction fees or any other fees in addition to my commission as some agents do. Be sure you ask your agent what fees they charge like “a transaction coordinator fee.”
Escrow will usually take 30 to 45 days. Maybe shorter or longer depending on your situation and what the buyers and sellers agreed upon. However, escrow cannot close until all items are satisfied in the contract and as requested by the lender. Your agent should explain everything to you. As your agent, I promise to make sure you understand everything in a transaction before signing and you will never be talked into doing something that is not in your best interest. Here’s to a smooth escrow process!