San Dieguito Escrow Home » Escrow FAQs
What is Escrow?


Escrow is defined as an impartial, neutral holding place for documents and funds that are used to complete the transfer of real property.

California Civil Code Section 1057 provides this description of an escrow: A grant may be deposited by the grantor with a third person, to be delivered on the performance of a condition, and, on delivery by the depositary, it will take effect. While in the possession of the third person, and subject to condition, it is called an escrow.”

And, in Section 17003 of the Financial Code: “Escrow means any transaction wherein one person, for the purpose of effecting the sale, transfer, encumbering or leasing of real or personal property to another person, delivers any written instrument, money, evidence of title to real or personal property, or other thing of value to a third person to be held by such third person until the happening of a specified event or the performance of a prescribed condition, when it is then to be delivered by such third person to a grantee, grantor, promisee, promisor, obligee, obligor, bailee, bailor, or any agent or employee of any of the latter.”

The two essential requirements for a valid sale escrow are a binding contract between buyer and seller and the conditional delivery of transfer instruments to a third party. The binding contract can appear in any legal form, including a deposit receipt, agreement of sale, exchange agreement, option or mutual escrow instructions of the buyer and the seller.

 
How Does Escrow Work?
The principals to the escrow - buyer, seller, lender, borrower - cause escrow instructions, most usually in writing, to be created, sign and delivered to the escrow officer. If a broker is involved, he or she 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 will 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 instruction given by the principals and parties to the transaction in a timely manner; handling the funds and/or documents in accordance with instruction; 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 providing 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 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 due you 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 does not 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. The IRS and other agencies may require you to prove your costs and/or profit on the sale of any property. The closing statement will assist in this task.

Do not rely on your escrow holder always retaining the escrow file so that you can call and get copies of the closing statement. Most escrow holders will destroy 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.
 
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