A Step-By-Step Guide to Surviving Escrow
By Jeanie Matten-Bray | February 25, 2019
Congratulations! You’ve made or received an offer on a home, a purchase contract is signed, and you are officially in ”escrow.” Your friends and relatives are ecstatic for you, and at some point, money will be exchanged and the keys will be handed off. But what happens in between?
For many, the complexities of the escrow process are a mystery known only to wizards of the industry. However, while there are nuances of the process specific to the city or state in which the transaction transpires, there are common milestones that that culminate in the successful close of escrow.
First Things First: Who Handles My Process?
Depending on the region of the country, the settlement agent (the person or entity walking you through the process) may be an escrow company, title company or an attorney who coordinates with the real estate agents, lender, buyer and seller (or their respective attorneys where applicable) to facilitate the terms of the purchase contract. Now that you know the players, following is a roadmap of milestones to assist in demystifying the rest of the process.
The Earnest Money Deposit
Once the terms of the contract are accepted by both parties, the buyer provides a good faith or earnest money deposit (“EMD”) to be transferred into an escrow account managed by the settlement agent. This deposit is designed to show the seller that the buyer is serious about purchasing the home. The EMD money is not released to the seller yet; it is held in the escrow account until all conditions of the contract have been finalized.
The Home Inspection
An inspection of the property is conducted on behalf of the buyer to help assess whether he or she wants to move forward with the transaction. A buyer may use the inspection report to ask the seller to make repairs; or discover there are more issues with the property than they are willing to accept. The inspection is important, as it enables a home buyer to avoid costly surprises after the close of escrow.
A title search is ordered to validate that the seller holds title to the property and has the right to transfer it. The title search also determines what outstanding liens, taxes, or other encumbrances need to be paid or resolved as a condition of the contract. The settlement agent coordinates with all parties to meet the conditions required by the title company to deliver a “clear” title (free of encumbrances) at the close of escrow in the form of an Owner’s Title Policy to the buyer, and a Lender’s Title Policy to the lender.
Questions often arise from buyers and sellers regarding documentation needed prior to the actual closing date. The amount of paperwork to be reviewed, signed and sometimes notarized pre-closing varies widely depending on the state or region, but this process is critical to obtaining clear title to the property and complying with consumer protection regulations that make the real estate transaction procedures transparent to the buyer and seller.
A Quick Note: Questions Welcome!
If you have questions about any information being requested, ask, ask, ask! Whatever questions you have are expected and welcomed by your settlement agent. The settlement agent has knowledgeable staff trained to answer your questions, and if you are in a state where you are represented by an attorney, the attorney’s office is absolutely your source of information. Use it!
At the same the escrow pre-closing paperwork is being gathered, the buyer’s lender is working to approve the loan by gathering additional data and documentation required to move into the “clear to close” stage. At this point you, as the buyer, may find yourself fighting the urge to roll into the fetal position, muttering about not remembering your last 5 known addresses, but take heart, there is light at the end of the tunnel and a set of keys on the horizon.
Close of Escrow
Once the transaction is clear to close with the title company and lender, the buyer receives a Closing Disclosure from the lender at least 3 days before the close date and seller receives, usually from the settlement agent, a Seller’s Closing Disclosure or an estimated settlement statement. In each, an itemization of fees and costs associated with the transaction are disclosed, including net proceeds due to the seller and for the buyer, any additional amounts the buyer must provide on or before the close date. For both parties, this is your opportunity to ask and receive an explanation for any item listed on your Closing Disclosure or Estimated Settlement Statement.
You Did It!
So what determines escrow is finally closed, and keys can be handed off? The actual sequence of events varies by state, but following are the most common scenarios: In some states (typically western states) the loan documents are signed on, or just prior to, the close date; and, the deed from the seller transferring title to the buyer, is in the possession of the settlement agent. The closing is considered complete once the mortgage documents and deed are put on record with the county recorder. Keys are handed off the day of recording and funds are authorized for disbursement by the lender.
In other states, buyer and seller sign their respective documents simultaneously, and upon completion of the signing, funds and keys are released, with the recording of the mortgage and transfer deed happening after-the-fact. Your real estate agent will let you know what process is applicable in your region and both buyer and seller will receive a final Closing Disclosure or final settlement statement reflecting an itemization of funds disbursed.
How Long Does the Escrow Process Take?
It varies depending on whether it is a cash or loan transaction. A cash transaction skips all the loan approval steps and can be completed much sooner, typically 14-21 days. A loan transaction depends on the type of loan and the state in which the property is located. The time frame from open to the close escrow can vary between 35 to 75 days. The real estate purchase contract provides a date by which escrow is to be closed. However, if circumstances occur causing the close date to be extended, each of the parties must mutually agree to the new date and sign and addendum to the contract. And while the escrow process may seem a bit mind boggling, it is in place to ensure both buyer and seller have full disclosure and peace of mind their interests are represented fairly and without prejudice.
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