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What is escrow?
Escrow is a service which
provides the public with a means of protection in the handling of funds
and/or documents. Escrow enables the buyer and the seller to transact
business with each other through a neutral party, thereby minimizing
their risk.
In the escrow, all parties involved give
their instructions to this neutral intermediary, the "escrow
holder" whose duty it is to assure that no funds or property will
change hands until all instructions have been carried to completion.
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What types of transactions go
through escrow?
Most contracts that involve the transfer, lease or financing of real or
personal property can be placed in escrow. You may be involved in escrow
not only when you buy or sell a home, but also when you buy a mobile
home, sell a business or transfer stock in a closely held business.
Prizefighters have even been known to have their purses guaranteed
through an escrow depository. The buyer or seller should demand the
protection of escrow for any transaction which involves a substantial
investment.
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Why do I need escrow?
Whether you are the buyer or
the seller, you want assurance that no funds or property will change
hands until all of your instructions have been followed. With the
increasing complexity of business, law and tax structures, it takes a
trained professional to supervise the transaction.
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Who handles the escrow transaction?
The escrow officer is a
trained and experienced professional. He or she can provide you with the
assistance required to close your transaction quickly and effectively.
This professional person may, under the terms of the instructions, make
the decision that the conditions of escrow have been met, and then order
the transfer of the affected real or personal property to the interested
parties.
Many escrow officers proudly display their professional designations of
certification and show these designations on their business cards and
letterhead. The designations indicate that this person has met the high
standards of education and experience required for certification by the
California Escrow Association.
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As a buyer entering into escrow,
what must I do?
If the transaction is
contingent upon a new loan, it is your responsibility to arrange this
loan. Your real estate agent can be most helpful in obtaining a lender,
since he or she is more knowledgeable about which lenders are currently
active and their financing terms.
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The instructions are ready--now
what?
When the escrow instructions
have been prepared, read them carefully to determine that they are
complete and properly reflect your total agreement. If you have any
questions or corrections, discuss them with the escrow holder before
signing. Once the instructions have been signed, they become the basis
for the conduct of the escrow.
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Can I get legal advice from the
escrow officer?
An escrow officer is not a
legal counselor and cannot give you advice. Remember, the purpose of
escrow is to take, and comply with, instructions to carry out the mutual
agreement of the principals. In the event of disagreement of the
parties, the escrow officer must remain neutral until agreement is
reached.
The transaction should not be negotiated in the escrow office, nor
should an escrow officer become involved in the negotiation.
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If I still have questions about the
transaction, where can I go for answers?
If negotiations have been
conducted through a real estate agent, that person, or his/her broker,
should be your primary consultant.
The role as an independent agent prohibits the escrow officer from
answering many of your questions. However, a knowledgeable escrow
officer, whose responsibility is giving impartial service to all the
parties, will refer you to the proper source for your answers. An escrow
officer will often suggest that the customer seek the advice of legal
counsel or a tax consultant.
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What happens at the closing?
When instructions of all
parties to the escrow have been carried out, the closing can take place.
All outstanding funds are collected at this time and all costs must be
paid. Title to the property, whether real or personal, will then be
transferred. All specified documents are recorded or filed at this time.
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What fees must I pay at closing?
Fees and charges are
controlled by many factors and depend largely upon the type of
transaction and the terms of your agreement. However, there are certain
charges which are considered to be normal. These would include fees
charged by a lender in connection with obtaining a new loan or in paying
off the old one. They may also include recording fees, title insurance
policy premium, documentary transfer taxes, prepaid taxes and insurance
and escrow fees. Your escrow officer will provide your with an itemized
statement.
Your closing funds should be in the form of a wire transfer or a
cashier's check made payable to the escrow holder in the amount
requested. Do not bring a personal check to close a transaction. It will
only delay the closing, since the funds must be collected before the
closing can take place. An out-of-town check can cause a week to ten
days delay in closing.
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As a seller entering into escrow,
what must I do?
To be fully prepared when you
enter the transaction, you should have sufficient information relative
to your ownership available. This would include information concerning
any loans, taxes, insurance and, if appropriate, rental data. Items
which would be the sources of this information are your original deed or
title policy, fire insurance policy and a year-end statement from the
existing lender. A copy of the most recent structural pest control
report may be helpful, or in some cases even required, in a real estate
transaction.
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What is the fee for the escrow
service?
The escrow fee is normally
based on the size and complexity of the transaction. Since there are so
many types of escrows and every transaction is different, there are no
set fees. Usually the escrow fee is divided in accordance with the
agreement of the parties.
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The closing is complete--now what?
Upon closing, review the
closing statement to determine that the costs were allocated in
accordance with your instructions.
It normally takes a period of time after closing before the hazard and
title insurance policies can be delivered to you. Any recorded documents
to which you are entitled will be mailed to you after the escrow has
closed. Frequently these documents will come to you directly from the
office of the recorder or the Secretary of State in the case of personal
property filing.
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If the transaction isn't completed,
is my deposit refundable and who pays the fees?
When a transaction fails to
close, a cancellation agreement must be reached between the parties.
This cancellation agreement must be put in the form of a written
instruction, just as your contract was. Since the deposit is part of the
escrow contract, both the buyer and the seller must mutually agree to
its disposition. Instructions for the disposition of this deposit should
include, among other things, provisions for payment of charges incurred
during the escrow. This would include fees and costs incurred by the
escrow holder and charges such as loan processing and title insurance
fees as specified in the escrow instructions.
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