What is an escrow and what happens in Escrows?
An escrow is an arrangement in which a neutral third party, in
Arizona a Title Company, holds legal documents from the buyer, the
seller and the lender, and funds on behalf of a buyer and seller, and
distributes the funds according the buyer and seller's instructions
via a purchase contract.
People buying and selling real estate open an escrow for their
protection. The buyer instructs the title company (via the contract) to
disburse the purchase price only upon the satisfaction of certain
prerequisites and conditions.
The seller instructs the title company (via the contract) to retain
possession of the deed to the buyer until the seller's requirements,
including receipt of the purchase price, are met.
Both rely on the title company to carry out faithfully their mutually
consistent instructions relating to the transaction and to advise them
if any of their instructions are not consistent or cannot be carried
out.
An escrow is important in that both can move forward separately but
simultaneously in providing inspections, reports, loan commitments and
funds, deeds and many other items, using the title company as the
central depositing entity.
If the instructions from all parties to an escrow are clearly
drafted, fully detailed and mutually consistent, the title company can
take many actions on their behalf without further consultation. This
saves time and facilitates the closing transaction.
Typical
instructions to the Title Company
-
The method by which the title company is to receive and hold the
purchase price to be paid by the buyer.
- The conditions under which a lapse or breach of purchase contract
provision will terminate the escrow without a closing.
- The instruction and authorization to the title company to disburse
funds for recording fees, title insurance policy, real estate
commissions, and any other closing costs incurred through escrow.
- Instructions as to the proration of insurance and taxes.
- Instructions to the title company on the payment of prior liens
and charges against the property and distribution of the net sales
proceeds.
The duties of the Title Company
- Opens the order for title insurance (provided by seller to buyer
at closing).
- Obtains approvals from the buyer on the Preliminary Report, pest
and other inspections.
- >Receives funds from the buyer and/or any lender.
- Prorates insurance, taxes, rents, homeowner association fees, etc.
- Disburses funds for title insurance, recording fees, real estate
commissions, lien clearance, etc.
- Prepares a final statement for each party, indicating amounts to
be disbursed for services and any further amounts necessary to close
escrow.
- Records deed and loan documents, delivers the deed to the buyer,
loan documents to the lender and funds to the seller, closing the
escrow.
And now on to our next "step!"
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