An Escrow is created when money and/or documents are deposited by two or more persons with a third party, which are to be delivered upon the happening of certain conditions. The third party is known as the escrow agent or escrow holder.
The authority given to an escrow holder is strictly limited by instructions provided by the parties involved. Consequently, an escrow holder acts on mutual instructions deposited into escrow and DOES NOT represent any party. The escrow officer is authorized by instructions to allocate funds for items during the escrow period, such as real estate commissions, title insurance, liens, recording fees and other closing costs.
Instructions also specify the method of collection funds, proration issues, time limitations and all the terms of the transaction. The escrow process protects all parties involved by retaining money and documents until the mutual instructions are met.
The statutory definition of escrow is found in Section 17003 of the California Financial Code and reads as follows:
“Escrow” means any transaction wherein one person, for the purpose of effecting the sale, transfer, encumbering, or leasing of real or personal property to another person, delivers any written instrument, money, evidence of title to real or personal property, or other thing of value to a third person to be held by such third person until the happening of a specified event or the performance of a prescribed condition, when it is to be delivered by such third person to a grantee, grantor, promisee, promisor, obligee, obligor, bailee, bailor, or any agent or employee of any of the latter.”
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Common Home Buyer Questions: Part 1
Q: What is escrow?
An escrow is money or property put into the custody of a 3rd party until specified conditions are met.
Q: When does escrow begin?
As soon as you execute your purchase agreement, your real estate agent will deposit your initial down payment into your escrow account. Your escrow officer will then send you escrow instructions.
Q: Where does the money go?
Written evidence of your deposit is included in your copy of the purchase agreement. Your funds will then be deposited in your separate escrow account.
Q: What should I do next?
You will want to speak with your credit union, bank, mortgage company or savings and loan. You will be required to complete a loan application which will require personal and financial information.
Q: What happens after I submit the loan application?
The lender will begin the qualification process including verification of items submitted on the application and appraisal of the value of the property.
Q: Assuming the loan is approved, what’s next?
Your escrow officer will make an appointment for you to sign your final loan papers. At this time, the escrow officer will also tell you the amount of money you will need to buy your new home. Your loan funds will be sent directly to the escrow by the lender.
I hope these facts are helpful. I look forward to assisting you with all your title and escrow needs.