What is Escrow?
Escrow is the process whereby parties to the transfer or financing of real estate deposit documents, funds, or other things of value with a neutral, third party: the escrow agent. These items are held in trust until a specific event or condition takes place according to specific, mutual written instructions from the parties.
Escrow is essentially a clearinghouse for the receipt, exchange, and distribution of the items needed to transfer or finance real estate. When the event occurs or the condition is satisfied, a distribution or transfer takes place. When all of the elements necessary to consummate the real estate transaction have occurred, the escrow is “closed”.
The buyer and seller will need to abide by a timeline that is established in the purchase agreement. Read this blog post for more detail on the timelines for both buyer and seller.
Prepare for Closing
If you are like most people, you are financing your purchase. In preparation for closing, there is an exchange between your lender and the escrow company:
- The lender will send loan docs to the escrow company.
- Once the escrow company receives the loan docs, they will prepare them for you to sign.
- You can chose to go to the escrow company to sign in person or sometimes the escrow company can send someone to you for your convenience.
- Once the loan docs are signed, the lender will fund the loan.
- The escrow company will distribute the funds to the seller.
- The escrow company will have a “runner” go to the County Recorder’s office and record the deed, which officially transfers title of the property to you. A deed is the document that transfers ownership of real estate. The deed names the seller and buyer, gives a legal description of the property, and contains the notarized signatures of the seller and witnesses.
- You will get a call or email from the escrow company notifying you that the deed has been recorded.
- Congratulations, the escrow process has closed and the property is now officially yours!
The diagram below summarizes the critical steps a buyer goes through to purchase a new home.