HOT ESCROW TIPS

Congratulations! You have made the decision to buy or sell your home. We know the process can be confusing and a little overwhelming. Often you find yourself giving blind trust to your broker, escrow officer, lender and all the other providers of services throughout the transaction - that is why we will be there for you every step of the way.

Once a buyer and seller get together, it's time to open an escrow, which is a one to three month process that will officially transfer ownership of the property. This escrow process involves several key entities and can be very stressful to the uninitiated. The one thing for both buyer and seller to remember, however, is that all of the parties involved are interested in the same objective - to close escrow in the quickest time possible without encountering any issues. Until the escrow is closed, nothing happens and no one gets paid. Keep in mind that a Realtor, unless they are the selling or buying party(ies), is not a party to the escrow, only the buyer and the seller. Naturally, we will be with you during the escrow process, but we are not in escrow with you.

The premise behind a real estate transaction is simple: The seller is selling, and the buyer is buying. You may have been told that you don't need a broker, you don't need an escrow, you don't need a lender, or you don't need a title policy. Unless you are an expert in these matters, a consumer shouldn't even think about entering into escrow without the professional help from at least some, if not all, of these providers. (The old axiom about the first thing a smart lawyer does when in need of legal advice is to retain legal counsel holds very true: buying and selling property is fraught with many potential legal potholes. One innocent misstep could result in the loss of many, many thousands of dollars - if not the complete loss of ones property!) We have assisted hundreds of thousands of home buyers and sellers - let us do what we do best.

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What can you do to make sure things run smoothly in your transaction? Most important is honesty and disclosure. Below are over 30 tips that every buyer and seller should know in preparing for a trouble-free escrow process. Most important, however, is to retain only licensed professionals to assist you in your transaction(s). We are bound by the Real Estate Settlement Procedures Act (RESPA), which includes laws that all lenders must follow when funding and managing your escrow accounts. Note that RESPA does not require borrowers to maintain an escrow account with their lender - lenders make that decision. The laws do, however, regulate the maximum amounts that a lender can require a borrower to maintain in an escrow account.

The Neutral Escrow holder
By William Walsh, J.D.
Attorney at Law

Escrows are a creature of law. California statutory law provides an "escrow" is created when a deed is deposited with a third person to be delivered when certain conditions occur. The escrow holder is a neutral third party, a stakeholder who receives and delivers documents and funds required by a real property or business transaction.
Much of the eastern United Sates uses a formal closing process requiring the services of costly attorneys. We are blessed in the West with independent escrow companies that provide these services at significant savings to the consumer/
Escrow holders follow written instructions of the parties. An escrow is not created (i.e "opened") until both parties sign identical escrow instructions. Contrary to popular belief, securing an escrow number by itself does not "open" the escrow. Until such time as both parties have signed identical instructions, the escrow agent may return any deposited funds or documents to the party depositing the same.
Once a true escrow has been created, the escrow agent may not return cash or documents without the consent of all parties or an order of the court. The interest of buyer and seller are often competing in the typical sale transaction. The independence of the escrow holder as stakeholder in the transaction is of benefit to all the parties.

William Walsh is a partner in Walsh, Delaney & Yep, Attorneys at Law, and has been practicing law in California since 1965. He teaches Real Estate and Business Law at Antelope Valley College and is a frequent lecturer and commentator on business, estate and real estate legal issues.

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  1. Select a licensed Realtor to represent you. Bruce Clark is licensed with the California Association of Realtors, National Association of Realtors and Orange County Association of Realtors, license # 205523453.
  2. Choose and Independent Escrow provider — You have a choice. Remember only independent escrow providers licensed by the California Department of Corporations are 100% neutral third parties. My team consists of such a person. Their only concern is to monitor the real estate transaction and safeguard trust account funds. Independent Escrow providers are specialist whose sole purpose is providing escrow. Escrow is their only business.
  3. You do not have a valid Escrow without signed escrow instructions by all parties. Do NOT change anything on escrow documents; if you need something changed, notify escrow so they can generate new escrow instructions or issue an amendment to the escrow. Even something as seemingly innocuous as crossing out a word one doesn't like causes problems with either opening or closing escrow since the documents between the buyer and seller don't perfectly match.
  4. Sellers: Eliminate surprises — If you nave judgments against your property and don't say anything to anyone, you should know that a search of public records is automatic, and will reveal any liens. If you don't let your broker or escrow officer know about potential problems in advance, your escrow will most definitely be delayed.
  5. Buyers: Eliminate surprises — If you have questionable credit, tell your broker or mortgage lender. They know the steps you need to take to clean up your credit. Every lender will require a credit report. Many borrowers go through a pre-qualification process before looking for a home today. If you are pre-qualified, you know how much of a loan you can obtain and therefore how much you can spend on your new home.
  6. Be responsive — The escrow officer may periodically contact you requesting pertinent information. There is always a good reason for the request. Just ask the escrow officer if they need more details, then get them the information they need as soon as you can. Remember nothing happens until the escrow is closed. Don't think, "If I don't respond, maybe they'll forget about it."
  7. Be prompt — You will be required to meet with an escrow officer when it is time to sign the loan documents. If you are not on time, the officer will take the next appointment and you may be the one waiting. Remember signing documents is at least a 60-minute affair. The escrow officer will go through and explain each document your must sign. Remember that all persons taking title will need to sign the loan documents.
  8. Insurance — Make sure you have addressed your insurance needs. Select an insurance agent and inform your escrow officer in advance. Talk with your agent to determine your insurance needs. You must have fire insurance. You may also want a homeowners policy. Most lenders require title insurance as well. Your lender will require the name and address of your insurance agent. Be sure to have this information well in advance of the escrow close.
  9. Walk-Throughs — Make sure you have completed all walk-through inspections and other contingencies such as termite inspection and any required city permits. Many things can delay the close. Be informed and prepared.
  10. Documents — To expedite the escrow closing, bring the following items with you to your appointment:
     Buyers & Sellers — Drivers license or passport (photo ID)
        Buyers Only — The name and address of your homeowner's insurance agent
    Sellers only — If your home is a condominium, make sure you have a copy of the homeowners' association information
  11. Many people are involved in most real estate transactions. It takes cooperation and communication between all of these entities to ensure a smooth escrow close. A positive outlook and a quick response to anything asked of you will encourage this cooperation. Many things can hold up an escrow — make sure you're not one of them!
  12. If the seller has an FHA loan to pay off, plan to close by the 25th to avoid paying another month's interest.
  13. If your escrow period encompasses the property tax due date consult your Escrow Officer as to the best method of tax payment.
  14. Funds for closing must be in the form of a wire transfer or Cashier's Check drawn on a California Bank. An "official check" will delay your closing,
  15. Always check with the Lender when your client wants to take title as a trust, most will not lend to a trust. The transfer to a trust will have to occur after the close of Escrow.
  16. Married persons acquiring property separately must obtain interspousal transfer deed from their spouse prior to close of escrow.
  17. Homeowners must supply Home Owners Association (HOA) information to escrow. This information is not of public record.
  18. If the property is in a condominium complex, be sure to check with the Home Owners Association (HOA) before ordering the termite inspection. Some associations cover this expense.
  19. All information provided to Escrow is strictly confidential and all third party inquiries must be authorized by the principal(s) involved.
  20. Supplemental Taxes are not prorated unless specific instructions are provided by the Seller and/or Buyer.
  21. Use full legal names and marital status of party(ies) when preparing the contract. Include Realtor Agent name(s) and telephone numbers on the contract. Advise the new lender contact as well. Earnest money will be held by escrow for the transaction, if requested. On earnest money refund situations, title will require a written release signed by all parties (all sellers and all buyers) before money will be released.
  22. Provide escrow with correct legal description. Check seller’s papers, particularly the Deed and Title Policy for correct legal description. If legal description is in ‘metes and bounds’ terminology, please furnish escrow and title the complete description.
  23. If you are aware of any liens or potential title problems including, but limited to: estate, heirship, probate, bankruptcy, divorce, child support, judgments, mechanics’ liens, etc., title needs this information. This will help cure problems in advance of closing.
  24. Buyer will be responsible for providing homeowner’s insurance prior to closing. Very important: call your insurance agent and add your new house!
  25. A copy of an Owner’s or Lender’s Title Policy, if available, should be forwarded to title as soon as possible. This will help expedite the title search process.
  26. When it is necessary to mail closing papers to out of town parties, please inform escrow as soon as possible. A power of attorney for the signature of someone absent from closing may have to be approved by the lender as well as escrow and the title company. A durable power of attorney with subject property specifically named is the preferred type.
  27. If there is a change of disbursement, regarding holding funds for any reason (especially repairs), this should be discussed before closing between agents and parties so that an appropriate escrow agreement can be obtained, and approval received from the lender if necessary.
  28. If any modifications of charges occur, please notify both your Realtor and escrow as soon as possible. This may necessitate a change in closing statements and help avoid delays during closing. When you have a closing set up late in the day, please keep in mind that if a delay or problem surfaces, it is possible that the lender will not approve the closing, therefore, funds cannot be dispersed until the next day and escrow can't close, which holds up transfer of ownership of the property.
  29. "GOOD FUNDS" must be provided at the closing. In California, good funds is either a wire transfer or a cashiers check. Official checks, money orders or anything else WILL NOT qualify as good funds and may result in escrow not closing. (Many banks and credit unions are now issuing "Official Checks" in lieu of cashiers checks. This includes Wells Fargo and Washington Mutual. Once again, an official check does not qualify as good funds.) The delay could be up to 10 days for funds not qualified as qualified to clear. In other states, the most popular types of good funds used are cashiers checks, money orders, and wired funds. Escrow will inform the buyer and Realtor of the amount needed.
  30. Whatever form of money used, it should be made payable to the escrow company. If wiring funds, call the escrow company for wiring instructions. (Note there is typically a charge for wiring funds and for receiving funds.)

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