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Understanding Escrow


Escrow refers to a type of account in which the money, deed or other instrument, is held by a third party until the condtions of an agreement are met. Whether you're the buyer or the seller, you want the certainty that no funds or property will change hands until all of the instructions (accounting of the funds and other documents necessary to complete the transaction) by both parties have been followed. The escrow holder has the responsibility to safeguard the funds and/or documents, and to disperse funds and/or convey title only when all the provisions of the escrow have been complied with. The escrow officer is an independent representative for both parties of the transaction and receives a fee for their services.

Principles to an escrow are teh buyer (and borrower), seller, and lender. The escrow instructions they create during the transaction are usually in writing, and are signed and delivered to the escrow officer. The real estate agent working with the buyer will usually make the arrangments to "open escrow" once negotiations are concluded and the purchase contract has been ratified. Choosing the escrow holder (or Title company) is between the principles, but oftentimes they defer to the recommendations of the participating agent. Referral fees to escrow holders and affiliates are forbidden by law, which helps to assure the consumer of the best possible escrow services, without compromise.

The escrow holder must: follow the instructions given by the principles in the timely manner; handle the funds and documents in accordance with the instructions and accounting for the same.

It's important that you read and understand your escrow instructions. If you don't understand them, ask your escrow office to explain them. Always ak what you can do to help with a timely close of escrow. If asked for additional funds, bring a cashier's check or wire-transfer the funds - writing a check could delay the closing!

If you're getting a mortgage, your escrow officer will contact your lender and will deliver the escrow instructions, preliminary title report, and any other related documents, as well as to comply with the lender's instructions. Loan documents are usually signed at escrow. If you have questions or concerns, you can request that a representative of the lender be present at the time of signing, or arrange to meet with the lender and sign the loan documents in their office.

Title insurance, which insures the owner and/or lender of ownership of the property, is usually obtained when purchasing real property. There are different kinds of coverage. Th ALTA policy is often required by many lenders since it has more extensive coverage. The one-time fee for the title policy is paid at the close of escrow, and who pays for it varies from county to county in California. In Marin County, it is customary for the buyer to pay this fee. However, in FHA and VA transactions, the escrow holder must follow the guidelines set forth by the lender and/or government. The title policy is written after an extensive review of public records and recording of all documents in the escrow.

Prior to close of escrow, the escrow officer will provide the buyer and seller with closing statements, which is an accounting and shows the charges and credits to each account. It reflects the purchase price, funds deposited and credited, payoffs on loans and other related obligations, cost of services and a determination of the amount of funds that you're entitled to at the close of escrow. Review this statement carefully, as it reflects the fianncial aspects of your transaction. If you have questions, don't hesitate to ask your escrow officer for an explanation. You will receive a copy of the closing statements for your records, and keep it in a safe place, as this is valuable document and is proof of costs and/or profit from the sale, and will be needed for tax purposes, and possible future related agency inquiries.

If for some reason, the escrow is cancelled, any funds on deposit will be refunded only after the escrow holder obtains mutual cancellation instructions signed by the principles. A cancellation fee may be charged by the escrow holder.

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