1Listing: Escrow (Part 2) FAQs

Escrow FAQs

Edited and Reprinted from Fidelity National Title Insurance

What is an escrow?

An escrow is created when money and/or documents are deposited by two or more parties with a third neutral party, which are to be delivered upon the completion of certain conditions. The third neutral 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 the 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 collecting 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 on 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 of the performance of a prescribed condition, when it is then 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.

How do I open an escrow?

Opening an Escrow - A Checklist for Success
The company at which your escrow is opened can be negotiated in your purchase agreement. As soon as you execute the purchase agreement, the buyer's or their agent will place the buyer's initial deposit into an escrow account at Fidelity National Title. The following checklist covers some of the information needed to open escrow.

- 1. A copy of the Seller's existing title policy, if possible. If the policy is not available, provide the Escrow Officer with the following: a. Legal description and/or address of the property b. Assessor's Parcel Number (APN) c. Name of party in ownership d. Name of existing lienholders and type of loan

- 2. Direct which liens are to remain and which are to be paid in full. Provide the name, address and loan number(s) of existing lienholders. Request a 30-day notice letter if an FHA loan is being paid off.

- 3. Full names, addresses (including zip codes) and phone numbers of parties involved. This includes buyers, sellers, real estate agents and any new lenders with the name of the loan officer.

- 4. Vesting - How buyers desire to take title. Include the correct spelling of each buyer's name.

- 5. Consider the issue of required owner occupancy for residential property.

- 6. What will the amount of the Buyer's deposit be? Direct whether funds are to be deposited into escrow or held in the broker's trust account.

- 7. Include information on the amounts of commission and breakdown of payments.

- 8. Inform the Escrow Officer of the type of property (Single Family, land with mobile home, etc.)

- 9. If a termite report is required, provide information as to who is paying the fee. If corrective work is required, promptly order and deposit into escrow.

- 10. If there are rents to prorate, leases to assign and/or a Bill of Sale to be drawn, secure and deposit into escrow a rental schedule showing amounts of rents, date rents are paid and the amount of security/cleaning deposits to be credited to buyer. An inventory of personal property for the Bill of Sale and copies of all leases to be assigned should also be provided to escrow.

- 11. Inform the Escrow Officer of all items to be prorated and the proration date.

- 12. If there is a Homeowner's Association, provide us with the name and address of the management company.

- 13. Provide us with the hazard insurance agent's name and phone number. Promptly order and deposit into escrow.

- 14. If a loan is remaining that has an existing trust fund for taxes and insurance, direct how said account is to be handled.

- 15. Submit all terms of notes and security documents to be typed by escrow officer.

- 16. Direct who is to receive copies of the preliminary title report and the number of copies to be sent. Provide information as to whether copies of the tract restrictions or CC&R's are required.

- 17. Discuss all closing costs and who will be responsible for each.

- 18. Communicate all contingencies and conditions required prior to closing.

- 19. If the Seller is a non-resident of California, contact your escrow office immediately as additional disclosures may be required.

- 20. If Seller or Buyer is a corporation, submit the Articles of Incorporation, bylaws, and a corporate resolution authorizing the sale or purchase of the subject property.

- 21. If the Seller or Buyer is a partnership, submit a copy of the partnership agreement and a copy of the recorded statement/certificate of partnership.

- 22. If the Seller or Buyer is a trust entity, submit a copy of the trust agreement and a signed verification of trustee.

If a power of attorney is to be used, provide escrow and the lender with the power of attorney form for review and approval.

What is title insurance? What Does The Title Company Do?

Preliminary Title Report (PTR): The Title Company issues a Preliminary Title Report (PTR). The PTR is a report showing the condition of the title before a sale or loan transaction. After the completion of the transaction the title policy is issued.

Title Insurance Policy: Title insurance is insurance against loss resulting from defects of title to a specifically described parcel of real property. Defects may run to the fee (chain of title) or to encumbrances on the property.

Drafts a Deed of Trust: The Deed of Trust is drafted by the title company along with any other necessary documents. A Deed of Trust is a document filed with the county showing a property is transferred to trustee by the borrower (trustor) in favor of the lender (beneficiary) and reconveyed upon payment in full.

Pay Off Existing Loans: The title company pays off the existing loans when so ordered.

Taxes and Insurance: The title company prorates the taxes and insurance upon instructions
from the buyer and the seller.

Computes Interest On Loans: The Title Company computes the loan interest.

Acquires Hazard Insurance: The Title company secures or verifies hazard insurance.

Signing of Documents: Escrow and title will assists the buyer and seller when signing documents.

Recording Documents: The title company records the appropriate documents with the county office, giving public notice.

Disbursements: The title company disburses the documents and money to each party involved.

What do I need to do before closing escrow?

Close of Escrow (COE)
Below is a list of items that you will need before your appointment to sign the escrow papers:

- 1. Identification: There are several acceptable forms of identification, which may be used during the escrow process. These include: A current driver's license, passport, State of California Department of Motor Vehicles ID Card or Military ID.One of these forms of identification must be presented at the signing of escrow in order for the signature to be notarized.

- 2. At The Signing: Sellers will also be asked how proceeds are to be disbursed. On rare occasions, funds are insufficient to close escrow and you, as the seller must deposit money into the escrow. Should this situation occur, you will need to obtain a cashier's check or certified check issued by a California financial institution made payable to Fidelity National Title in the amount indicated to you by your escrow officer. A personal check may delay the closing since Fidelity National Title is required by law to have "good funds" (check clearance) before disbursing funds from escrow. Similarly, an out-of-state check could cause a delay in closing, due to delays in clearing the check.

- 3. Closing the Escrow: Closing escrow is a legal transfer of title to the property from the seller to the buyer and is the culmination of the transaction.Once all the conditions of the escrow have been satisfied, the escrow officer advises you of the date the escrow will close and takes care of technical and financial details. Usually the Grant Deed and Deed of Trust are recorded within one working day of the escrow's receipt of loan funds.

This completes the transaction and signifies the "close of escrow". Once all of the terms and conditions of escrow of both buyer and seller have been fulfilled, and all closing conditions satisfied, the escrow officer will return the instructions and documents to the lender for a final review. Following the review, which usually occurs in a day or two, the lender is ready to fund the loan and advises the officer, so that the necessary work can be completed to record the documents and "close" the escrow.

After the Close of Escrow: After the loan has been finalized, the documents signed and recorded, and the financial settlement completed, there are still several steps, which must be accomplished to complete the transaction. Your existing loan is being paid in full from the escrow. Your lender is required by law to issue a full reconveyance (release) of their loan. As soon as the deed of reconveyance removing the previous Deed of Trust is received, it should be recorded and the original returned to you. This may take several weeks.

Who Is Expected To Pay Which Closing Costs? (Typical Allocation in Most Counties)

The SELLER Can Generally Be Expected To Pay For:
Title insurance premium covering loan policy (Buyer)
Escrow Fees (1/2)
Real Estate Commission
Document preparation fee for deed
Document recording charges that effect the seller
County Transfer Tax ($1.10 per $1,000 of sales price) This varies with county & city
Any loan fees required by buyer's lender (as per contract)
Notary fees - Sellers Documents
Any city transfer/conveyance tax
Special delivery/courier fees
Payoff of all loans in sellers name
Interest accrued to old lender, Statement fees, Reconveyance fees and any prepayment penalties
Homeowners' association transfer fee and prorata dues (Negotiable)
Bonds or assessments according to contract
Termite inspection according to contract
Termite work or repairs according to the contract
Home warranty according to the contract
All delinquent taxes
Any judgment, tax liens, etc against the seller
Recording charges to clear all documents of record against seller

The BUYER Can Generally Be Expected To Pay For:
Title insurance premium covering loan policy (ALTA)
Escrow Fees (1/2)
Notary Fees - Buyers Documents
Document preparation fees - Buyer documents
Termite Inspection according to contract
Inspection fees (roofing, geological, property, etc.)
Special delivery / courier fees
All new loan charges (except those requires by lender for seller to pay) (as per contract)
Interest on new loan from date of funding to 30 days prior to first payment
Home warranty according to the contract
Fire insurance premium for first year
City transfer/conveyance tax according to the contract
Preliminary change of ownership fee
Assumption / change of records fees for takeover of existing loan
Beneficiary statement fee for assumption of existing loan
Other prorations if applicable

The above items are negotiable between the buyer and seller, as agreed upon in your individual sales contract. This is for informational purposes only and reflects typical charges.

What about property taxes?

Experience had shown that many tax delinquencies occur during the first year of property ownership. As a new property owner, you should be aware of the manner in which real property taxes are currently billed and paid.

It is your responsibility to obtain and pay the real property tax bill. Failure to receive a tax bill does not relieve the imposition of penalties after the delinquencies date. The Tax Collector has no discretion regarding penalties.

County taxes are levied on both real and personal property and become a lien, annually, on the first day in January preceding the fiscal year for which such taxes are levied. The Fiscal year begins on July 1 and ends on June 30 of the following calendar year.

Property taxes are due and payable in two installments, although the property owner may pay both installments prior to December 10 without penalty.

- The first installment is due November 1 and delinquent at 5:00 pm and December 10.
- The second installment is due February 1 and delinquent at 5:00 pm on April 10.
- If the 10th Day of December or April falls on Saturday, Sunday or Holiday, the time of delinquency is 5:00 pm n the next regular business day.

Penalties of 10% immediately begin accruing if payment is not made when due.

If your deed records after January 1st, the tax bill may be mailed to the prior owner. It is your responsibility to contact the Tax Collector's office if you fail to receive the tax bill in November of each year. If you have made alternate arrangements for the taxes to be paid on your behalf by a lender or agent, you may want to confirm that they are in receipt of the current tax bill to avoid penalties.

In addition, the within described property may be subject to supplemental real property taxes due to the change of ownership taking place through this escrow. Any supplemental real property taxes arising as a result of the transfer of the property to you shall be your sole responsibility. The due dates and delinquency dates may differ.

You are encouraged to contact the Tax Collector if you have any questions or if you wish to confirm your correct address on record to avoid penalties