Escrow 101
What is Escrow?
Escrow is a process that evolved to ensure protection for all parties to
a real estate transaction. A “neutral third party” or “stakeholder” was
nominated to hold the funds until the purchaser received appropriate
assurance that the property had been transferred. An escrow may also be
created for other purchases, although it is most commonly used during the
transfer of real estate. Today the escrow is overseen by an escrow officer
employed by an independent escrow company or title company. All parties
are protected because the escrow holder will retain funds and documents
until all the instructions are fulfilled.
An escrow is created when money and/or documents are deposited
with the escrow officer. The escrow officer’s authority is strictly governed
by written instructions, mutually agreed upon by the parties involved.
The instructions direct the escrow holder to perform duties necessary to
complete the transaction. A few of the tasks which may be required are:
• Receive and deposit earnest money
• Order information for payoff of existing liens
• Calculate and/or prorate taxes, liens, interest, rents, and
insurance policies
• Make arrangements for title insurance protection for the
buyer and lender
• Prepare and/or receive documents relating to the escrow
• Request and receive funding from new lender when conditions have
been satisfied
• Arrange for recording of the conveyance documents and any other
legal instruments required to transfer title to the property pursuant to
the terms of the purchase agreement
• Close the escrow and disburse funds as agreed upon in the
instructions
• Prepare a closing statement for the parties showing disposition of
funds
Definition of “Escrow” from Black’s Law Dictionary
A writing, deed, money, stock or other property delivered by the grantor,
promissor or obligor into the hands of a third person, to be held by the
latter until the happening of a contingency or performance of a condition,
and then by him delivered to the grantee, promissee or obligee. A system
of document transfer in which a deed, bond or funds is delivered to a third
person to hold until all conditions in a contract are fulfilled.
Fun Fact
Escrow practices evolved from English common law. The word “escrow”
is actually derived from the Middle English (12th to 15th century) word for
“scroll”, on which all of the escrow instructions and lists of properties were
recorded.
This material may not be reproduced except for explicit use by registered NoWaitArt.com members
Paul Kaplan
760-285-8559
Paulkaplan5@aol.com
Pacific Union
GMAC Real Estate
