WHAT IS ESCROW AND WHY IS IT NEEDED?
Escrow is an arrangement in which a disinterested third party (an escrow holder), holds legal documents and disburses funds on behalf of a buyer and seller, and distributes them according to the buyer and seller’s instructions.
People buying and selling real estate often open escrow for their protection and convenience. The buyer can instruct the escrow holder to disburse the purchase price only upon the satisfaction of certain prerequisites and conditions. The seller can instruct the escrow holder to retain possession of the deed to the buyer until the seller’s requirements, including receipt of the purchase price, are met. Both rely on the escrow holder to faithfully carry out their mutually consistent instructions relating to the transaction and to advise them if any of their instructions are not mutually consistent or cannot be carried out.
Escrow is convenient for the buyer and seller because both can move forward separately but simultaneously in providing inspections, reports, loan commitments, funds, deeds, and many other items, using the escrow holder as the central deposit point. If the instructions from all parties to escrow are clearly drafted, fully detailed and mutually consistent, the escrow holder can take many actions without further consultation. This saves much time and facilitates a smooth closing of the transaction.
WHAT EACH PARTY DOES IN THE ESCROW PROCESS
• Deposits the executed deed to the buyer with the escrow holder.
• Deposits evidence of pest inspection and any required repair work, per the
purchase and sale agreement.
• Deposits required documents such as addresses of mortgage holders.
• Deposits the funds required, in addition to any borrowed funds, to pay the purchase price with the escrow holder.