The escrow process – in action
Escrow is a process in which an escrow officer coordinates the closing of a real estate transaction through the exchange of documents and money between a buyer and seller.
Consider a buyer and seller who enter into a purchase agreement for the sale of the seller’s one-to-four unit residence. As provided in the purchase agreement, escrow is opened to handle the closing of the transaction.
In modern real estate practice, opening escrow simply means establishing a depository for the instruments (deeds, money and other items) with accompanying instructions for their use. Escrow instructions are signed by all necessary persons (the buyer and seller in the case of a sale), each authorizing escrow to transfer or hand their instruments to the other person or third parties on closing. [See RPI Form 401; Montgomery v. Bank of America National Trust & Savings Association (1948) 85 CA2d 550]
Before accepting any instruments as an escrow holder for a transaction, an agent of the buyer or seller dictates instructions to the escrow officer. The purpose for this communication is to establish precisely when and under what circumstances the documents and monies deposited with escrow are to change hands.
When receiving instructions from an agent, the escrow officer prepares a “take sheet” noting all the tasks they are to undertake to handle and close escrow. When drafting escrow instructions, the officer relies on the take sheet as a checklist to determine the contents of the instructions.
Increasingly, agents simply email a copy of the purchase agreement to the named escrow company. The escrow officer then drafts escrow instructions as needed for the buyer and seller to comply with their obligations under the purchase agreement. When prepared, the officer sends the written instructions to the agent to verify they conform to the intent of the persons in the transaction.
As a checklist for “going to escrow,” a worksheet helps the seller’s and buyer’s agents to organize the collection of facts and supporting papers the escrow officer needs to draw instructions, clear title conditions and close escrow. [See RPI Form 403]
