Escrow Instructions

Download the Form

This form is used by an agent or an escrow officer when preparing a purchase agreement (as an attachment) or preparing instructions to open a purchase escrow, to instruct escrow to prepare documents and gather instruments necessary for the buyer and seller to perform under their purchase agreement.

Your use of RPI Form 401

The execution of a purchase agreement

Escrow is a process employing an agent, called an escrow officer, acting independent of the principals in a transaction, to manage and coordinate the closing of a real estate transaction. The process includes the exchange of documents and money between two principals who must now complete a transaction they agreed to, such as a buyer and seller.

Escrow activities are typically based on an underlying primary agreement between the principals, such as a purchase agreement, option or exchange agreement. [Calif. Financial Code §17003(a)]

Escrow activity employed to close a real estate transaction consists of:

principals, such as a seller and buyer of real estate, who deliver documents and money, collectively called instruments, to the escrow officer. The purpose served by the instruments is for each principal to fully perform their obligations owed to others under a prior primary agreement between the principals, such as a sale, mortgage origination or lease; and
the escrow officer who receives documents and money for delivery to others, such as the buyer, seller and third parties, on the occurrence of a specified event or the clearance of conditions, such as the approval of reports or the issuance of a title insurance policy. [Fin C §17003(a)]

Escrow companies and escrow officers

An individual engaged in the business of acting as an escrow agent is called an escrow officer. The officer is employed by an escrow company and needs to be licensed. Likewise, the escrow company is licensed by the Department of Financial Protection and Innovation (DFPI), unless exempt. [Fin C §17200]

Individuals exempt from the escrow licensing requirements when performing escrow activities include:

a licensed real estate broker, either individual or corporate, who represents a person in the real estate transaction while the broker is providing escrow services;
a licensed attorney who does not hold themselves out as an escrow agent;
a bank, trust company or insurance company; and
a title insurance company whose principal business is preparing abstracts or conducting title searches used for issuing title insurance policies. [Fin C §17006]

The services rendered by the escrow officer typically include:

receiving funds and collecting necessary documents, such as property reports, disclosure statements and title reports called for in the escrow instructions [See RPI Form 401];
preparing or obtaining documents necessary for conveyancing and mortgaging a property required for escrow to close;
calculating prorations and adjustments; and
disbursing funds and transferring documents on a closing when all conditions for their release have been met. [Fin C §17003(a)]

The specific duties of the escrow officer, outlined in the escrow instructions, vary according to local real estate custom. [See RPI Form 401]

An escrow officer performs only as instructed and follows instructions strictly with full performance. Escrow instructions are generally prepared by the escrow officer based on the information received from one of the transaction agents about the agreement between the principals. [See RPI Form 401]

In practice, the escrow officer preparing their instructions use forms designed for this purpose. Once completed, the instructions are forwarded to the agents of the principals in the transaction for their signatures and returned to escrow. When returned, escrow is then open for the person who signed and returned the instructions.

Two types of escrow instructions are used in California:

bilateral; and
unilateral

Throughout most of California, escrow instructions used in real estate sales transactions are bilateral. When escrow instructions are bilateral, the copies of the single set of instructions are signed by the buyer and seller and handed to escrow. [See RPI Form 401]

In some areas of Northern California, separate sets of unilateral escrow instructions are prepared, usually written up when the transaction is ready to close. Each set of instructions contain only the activities to be performed by or on behalf of one principal; one set as the buyer’s instructions, the other set the seller’s instructions. When escrow determines it has all documents necessary to call for funding and closing the transaction, only then does the officer prepare the separate instructions for signatures of the respective buyers and sellers.

The documents work together

Today’s real estate sales transactions depend on both the purchase agreement and the escrow instructions working in tandem and are entered into to document the purchase agreement and to close the transaction.

Both the purchase agreement and the escrow instructions are contracts regarding interests in real estate. Both documents are written as required for enforcement under the Statute of Frauds. [Calif. Civil Code §1624]

A purchase agreement sets forth the:

sales price;
terms of payment; and
conditions to be met before closing. [See RPI Form 150]

Escrow instructions constitute an additional agreement, contemplated by the purchase agreement, entered into by the buyer and seller with an escrow company. As instructed, escrow facilitates the completion of the performance required of the buyer and seller in their purchase agreement.

Escrow instructions do not replace the purchase agreement. Instead, the instructions function as directives an escrow officer follows to coordinate a closing intended by the terms of the purchase agreement. [Claussen v. First American Title Guaranty Co. (1986) 186 CA3d 429]

Escrow instructions occasionally add exactness and completeness, providing the enforceability sometimes lacking in purchase agreements prepared by brokers or their agents.

A written and signed purchase agreement typically is the primary document underlying a real estate sales transaction. All further agreements, including the escrow instructions, need to comply with the primary document, unless the parties intend to modify the terms of that original agreement.

The agents negotiating a transaction are responsible for ensuring the escrow instructions prepared by the escrow officer conform to the purchase agreement. Thus, each transaction agent reviews the instructions prepared by the escrow officer to ensure the intentions of the buyer and seller are clear. Their review takes place prior to submitting instructions to their clients for review and signatures.

In some instances, or principal to principal agreements to buy and sell a property, the transaction is orally negotiated, and the principals go directly to escrow. In this case, they do not first memorialize their negotiations in a written purchase agreement. Here, no primary written purchase agreement is generated prior to opening escrow.

Further, the escrow instructions now function as the binding contract documenting the sale as it is the only written agreement signed by the principals. While the instructions provide for performance and closing of the agreement between the principals, the written escrow instructions constitute a binding contract between the buyer and seller, satisfying the Statute of Frauds permitting enforcement. [Amen v. Merced County Title Co. (1962) 58 C2d 528]

To provide for a timely closing, the transaction agents collect and hand to the escrow officer all the information necessary to prepare documents for closing.

Modifying escrow instructions

When a dispute between the buyer and seller arises over a point not addressed in the purchase agreement or escrow instructions, the agents need to mediate an agreeable solution.

The negotiated resolution is added to the escrow instructions by an amendment signed by the buyer and the seller. Signed amended instructions bind the buyer and seller to the terms agreed to in the amended instructions as part of their contractual obligations in the transaction. [U.S. Hertz, Inc. v. Niobara Farms (1974) 41 CA3d 68]

Escrow instructions which modify the intentions stated or implied in the purchase agreement need to be written, signed and returned to escrow by both the buyer and seller. Proposed modifications signed by some but not all principals are not binding on a principal who has not agreed to the modifications. [Louisan v. Vohanan (1981) 117 CA3d 258]

Analyzing the escrow instructions

An agent or escrow officer uses the Escrow Instructions published by Realty Publications, Inc. (RPI) when preparing a purchase agreement (as an attachment) or preparing separate instructions to open a purchase escrow. The form instructs the escrow officer to gather instruments and draft documents necessary for the buyer and seller to perform under their purchase agreement so escrow can close. [See RPI Form 401]

The Escrow Instructions contains:

basic information, including the:
- date;
- escrow number;
- escrow/brokerage company;
- department issuing a license;
- license number;
- escrow officer;
- address;
- phone number;
- fax; and
- buyer and seller identities [See RPI Form 401];
terms of sale, including:
- the total consideration seller is to receive from the buyer;
- assessment bond paid with property taxes;
- first trust deed of record;
- second trust deed of record;
- trust deed(s) to record;
- cash through escrow; and
- other consideration [See RPI Form 401]
buyer and seller initials regarding postponement and cancellation fees;
the buyer’s deposit [See RPI Form 401 §1.1];
the closing date and total deposits due on closing [See RPI Form 401 §1.2];
the title insurance to be used and any endorsements [See RPI Form 401 §2];
the amount of the title insurance, and the common and legal addresses of the real estate [See RPI Form 401 §2.1];
how the title is vested [See RPI Form 401 §2.2];
the sale is subject to the following:
- the fiscal year for which taxes apply [See RPI Form 401 §2.3(a)];
- unpaid assessment and bond amounts [See RPI Form 401 §2.3(b)];
- first and second encumbrances and their unpaid balances, monthly amounts and annual interest rates [See RPI Form 401 §§2.3(d) and (e)];
- trust deed amount(s) [See RPI Form 401 §§2.3(f) and (g)];
- trust deed with assignment of rents amount, including annual interest, monthly installment amounts, commencement and end dates and address for delivery of note payments [See RPI Form 401 §2.3(h)];
beneficiary statements the escrow officer obtains at the seller’s expense for any existing trust deed liens [See RPI Form 401 §3];
whether the escrow officer obtains a UCC-3 clearance on personal property, listed here and UCC-1 financing statement information, when applicable [See RPI Form 401 §4];
a checkbox indicating the seller has handed the escrow officer a structural pest control clearance [See RPI Form 401 §6];
a homeowner’s warranty policy information [See RPI Form 401 §7];
when the home is located in a homeowners’ association (HOA), whether the buyer received:
- a statement of condition of assessments;
- copies of the association articles, bylaws, CC&Rs, collection and lien enforcement policies, operating rules, CPA’s financial review, insurance policy summary and any age restriction statement; and
- copies from the association of any notice to seller of CC&R violations, any list of construction defects, and any assessment charges not yet payable [See RPI Form 401 §8];
whether there are any assignments for existing lease/rental agreements [See RPI Form 401 §9];
prorations and adjustments to be computed by the escrow officer on a monthly basis, including:
- taxes;
- hazard (fire) insurance premium;
- interest on existing note(s) and trust deed(s);
- rents and deposits;
- impounds;
- HOA assessments; and
- other [See RPI Form 401 §10];
the amount of time the buyer has to approve or disapprove and cancel the transaction based on conditions in the preliminary title report on the property from a title company [See RPI Form 401 §11];
the address in space provided on the grant deed for mailing tax statements [See RPI Form 401 §12];
the purchase agreement and counteroffer date the escrow instructions are based on [See RPI Form 401 §13];
items the seller is charged for, including:
- bonds, assessments, taxes and other liens of record to show title;
- documentary transfer taxes;
- broker fees;
- transaction coordinator fees;
- title insurance premium on the policy to be issued to the buyer;
- costs of recording the seller’s grant deed;
- escrow fees;
- payables submitted to escrow for payment by the seller or seller broker;
- attorney fees; and
- other [See RPI Form 401 §18];
items the buyer is charged for, including:
- escrow fees;
- costs of and lender’s charges for recording or assuming any trust deeds, including a policy of title insurance for any new lender;
- attorney fees;
- broker fees;
- title insurance premium on the policy to be issued to the buyer; and
- other [See RPI Form 401 §19];
a blank for listing miscellaneous provisions [See RPI Form 401 §20]; and
signatures of the seller and buyer. [See RPI Form 401]