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QUESTIONS AND ANSWERS
This information has been provided by your escrow
officer in order to inform you about some of the aspects of
escrow, including a clarification of the role of the escrow
holder and knowledge that will help you through the escrow
process.
Escrow - What Is It?
Very simply defined, an escrow is a deposit of funds, a deed or
other instrument by one party for the delivery to another party
upon completion of a particular condition or event. The
California Escrow Law - Section 17003 of the Financial Code -
provides the legal definition.
Why Do I Need An Escrow?
Whether you are the buyer, seller, lender or borrower, you want
the assurance that no funds or property will change hands until
all of the instructions in the transaction have been followed.
The escrow holder has the obligation to safeguard the funds
and/or documents while they are in the possession of the escrow
holder, and to disburse funds and/or convey title only when all
provisions of the escrow have been compiled with.
Escrow - How Does It Work?
The principles to the escrow - buyer, seller, lender, borrower -
cause escrow instructions, most usually in writing, to be
created, signed and delivered to the escrow officer. If a broker
is involved, he will normally provide the escrow officer with
the information necessary for the preparation of your escrow
instructions and documents.
The escrow officer will process the escrow, in accordance with
the escrow instructions, and when all conditions required in the
escrow can be met or achieved, the escrow ill be "closed." Each
escrow, although following a similar pattern, will be different
in some respects, as it deals with your property and the
transaction at hand.
The duties of an escrow holder include: following the
instructions given by the principals and parties to the
transaction in a timely manner, handling the funds and/or
documents in accordance with instructions, paying all bills as
authorized; responding to authorized requests from the
principals; closing the escrow only when all terms and
conditions have been met, and distributing the funds in
accordance with instructions and provide an accounting for same
- the Closing or Settlement Statement.
Who Chooses The Escrow?
The selection of the escrow holder is normally done by agreement
between the principals. If a real estate broker is involved in
the transaction, the broker may recommend an escrow holder.
However, it is the right of the principals to use an escrow
holder who is competent and who is experienced in handling the
type of escrow at hand. There are laws that prohibit the payment
of referral fees; this affords the consumer the best possible
escrow services without any compromise caused by a person
receiving a referral fee.
What Do I Have To Do While In Escrow?
The key to any transaction is to READ and understand your escrow
instructions. If you do not understand them, you should ask your
escrow officer to explain the instructions.
Your escrow officer is not an attorney and cannot practice law;
you should consult your lawyer for legal advice. Do not expect
your escrow officer to advise you as to whether or not you have
a "good deal" or are doing things the right way. The escrow
officer is there to follow the instructions given by the
principals in the escrow.
In order to expedite the closing of the escrow, you should check
with your escrow officer as to what specific items you could do
to assist. Ask the question -"What can I do to expedite the
closing of this escrow"?
Respond quickly to correspondence. This will assist in the
timely closing of the transaction.
If you are required to deliver funds into the escrow, make sure
that you provide "good" funds in the form required by the escrow
officer. Company procedures differ in this regard, and there are
ways that you can help at the time of closing; check with your
escrow officer. Do not give the escrow officer a personal check
and expect the escrow to close immediately; the escrow can only
close on cleared funds, and the processing of a personal check
can take days, possibly even a week or more.
When the escrow officer closes the escrow, some of you may want
the closing papers, checks, title policies, statements, etc.
made available immediately. There are many aspects to the
closing of the escrow, and some of these cannot be processed on
the day of the closing; they may take several days. If you have
a special need for example a cashier's check on the day of
closing, you should communicate that need to the escrow officer
early in the processing of the escrow.
Escrow And Your New Loan?
If you are obtaining a new loan, your escrow officer will be in
touch with the lender who will need copies of the escrow
instructions, the preliminary title report and any other
documents escrow could supply. In the processing and the closing
of the escrow, the escrow holder is obligated to comply with the
lender's instructions.
It has become a practice of some lenders to forward their loan
documents to escrow for signing. You should be ware that these
papers are lender's documents and CANNOT be explained or
interpreted by the escrow officer. You have the option of
requesting a representative from the lender's office to be
present for explanation, or arrange to meet with your lender to
sign the documents in their office.
What Is A Closing Statement?
A closing statement is an accounting, in writing, prepared at
the close of escrow, which sets forth the charges, and credits
of your account. The items shown on the statement will reflect
the purchase price, the funds deposited or credited to your
account, payoffs on existing encumbrances and/or liens, the
costs for all services and a determination of the funds you are
entitled to at the close of the escrow. When you receive your
closing papers, review the closing statement; it is extremely
logical and reflects the financial aspects of YOUR transaction.
If anything doesn’t make sense to you, you should ask your
escrow officer for an explanation.
When going through your closing papers, examine all of them;
there may even be a refund check hiding in there. Cash the check
quickly, please. Be sure to have the check properly endorsed.
All payees must endorse the check. This will eliminate the check
being returned unpaid due to irregular or missing endorsements.
Your closing statement and all other escrow papers should be
kept virtually forever for income tax purposes. Your accountant
will need the information about the sale or purchase of the
property. IRS and other agencies may require you to prove your
costs an/or profit on the sale of any property. The closing
statement will assist in this task. Do not rely on your escrow
holder retaining the escrow file so that you can"... always call
and get copies of the closing statement;" most escrow holders
will be destroying the files after the statutory retention
period, usually five years. Maintaining and storing the closed
escrow files is a costly endeavor to the escrow holder.
Therefore, a nominal fee may be charged by your escrow holder
for the retrieval of a file from storage, photocopying the
requested documents and returning the file to storage.
What Fees And Costs Will Be Charged?
Escrow fees are not regulated by the State. Escrow holders, like
any other business, will charge fees that commensurate with the
costs of producing the service, the liability undertaken, and
the overhead expenses, which include a profit factor. Therefore,
the fees will vary between companies and from country to
country. Normally, the escrow holder will follow its minimum fee
schedule, which will provide for extra charges based upon the
differing elements of your escrow. On occasion an additional fee
will be charged for unusual expenditures of time on a given
transaction.
The escrow holder has no control over the costs of other
services that are obtained, such as the title insurance policy,
the lender's charges, insurance, recording charges, etc.
Your escrow officer, upon request, can provide you with an
estimate of the escrow fees and costs as well as fees charged by
others, provided such information is available.
What About Cancellations?
No escrow is opened with the intention that it will cancel, but
there are occasions when a contingency cannot be met or when the
parties disagree during the pendency of the escrow. Some escrow
holders provide for such an event by incorporating an
instruction in the typed or printed General Provisions.
Ordinarily, an escrow holder will take the position that no
funds on deposit can be refunded until the escrow holder is in
receipt of mutual cancellation instructions signed by the
principals. The escrow holder cannot normally make a
determination as to who is the "rightful" party in a dispute on
a cancellation and therefore will not return the funds or
documents until the principals agree; the escrow holder is not a
judge.
Do expect to be charged a cancellation fee, as this is a charge
for professional services rendered and quite often for several
"out of pocket" expenses that have been incurred on the client's
behalf. These fees can vary from company to company depending
upon their policies.
Sometimes, when a dispute exists, the escrow holder may be
forced to allow a court to decide which party is entitled to
what documents or funds; this is called an Interpleaded Action.
Fortunately, most disputes are resolved before the Interpleaded
is filed, as the costs for such legal actions are extreme. Those
costs, incidentally, are normally paid out of the funds on
deposit in the escrow.
What About Title Insurance?
Title insurance is usually obtained when real property is
purchased. The policy of title insurance insures the owner
and/or the lender of ownership of the property. There are
various coverage afforded but a basic policy insured that the
buyer is the owner and that any lender shown on the policy is an
"insured" lender. Many different types of extended coverage are
available; for example, an ALTA policy is quite often required
by institutional lenders to afford them additional protection
under the title insurance policy. The title policy is written
after an extensive examination of the public records is made and
the recording of the required documents as called for in the
escrow.
The title insurance policy fee is a one-time fee, paid at the
close of escrow. The determination of who pays for the policy is
not uniform from county to county in California. In some
counties, the buyer will pay while in others the seller will
pay. In other counties the seller will pay for the owner's
policy and the buyer will pay for the lender's title policy. But
in almost every case, the question of who pays closing costs is
a matter of agreement between the parties. Usually this
agreement is based on the customary practice in your county or
area. In the case of some FHA or VA transaction, the escrow
officer must follow the guidelines as required by the lender
an/or government.
What About Property Taxes?
The terms of your transaction and the resultant escrow
instructions determine how the property taxes will be handled.
If there is no mention of the proration of taxes, your escrow
officer will not deal with any credits of charges for prorated
taxes. However, if your escrow calls for a proration of taxes,
there will be an item in your closing statement that will
reflect either a credit or charge to your account. If the taxes
are not paid (even though there has been a credit or charge
against you account), the buyer is obligated to obtain a tax
bill and pay the taxes. If the buyer does not have a tax bill
from the Tax Collector, send a photocopy of the deed.
Supplemental Property Taxes is another concern of the buyer.
Upon transfer of real property, a supplemental tax bill is
generated. This is accomplished in cooperation with the County
Assessor and the County Tax Collector.
Shortly after the close of an escrow involving the conveyance of
real property, the County Assessor will request information
about the property from the buyer. This information assists the
Assessor in determining the value of the property for taxation
purposes. Some of the information may have previously been
supplied by the escrow holder at the time of the closing of the
escrow, via Preliminary Change of Ownership form that should
accompany each deed when it is recorded.
The Perfect Escrow... Does It Exist?
Perfection is sometimes difficult to achieve, especially in
dealing with the complexities of the escrow, the desires of the
parties and other matters that are sometimes far beyond the
control of the escrow officer. It is human nature to err on
occasion, but your escrow officer has the background, training,
education, support and systems in place necessary in order to
accomplish the objectives of the escrow instructions.
In the event you have any problems in the handling of your
escrow, you should first contact the escrow officer.
If your problem is not resolved, you should next contact the
management or owner of the company.
If the matter requires additional attention, you can call the
proper regulatory agency.
There are five different regulatory agencies governing the
escrow operations in California: Superintendent of Banks,
Department of Corporations, Department of Insurance, The
Department of Real Estate and The Department of Savings and Loan
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