Buying a Home – The 10 Steps of an Escrow

Posted on February 20, 2008 | by Denny Oh

What does your Escrow Officer do during your escrow period?

1. Prepare Escrow Instructions. These are done on the escrow holders printed forms. All principals “ the buyer and seller — sign the instructions, which set forth the parties understanding of the transaction. An initial deposit usually accompanies the instructions. For a home purchase, the instructions must include:

¢ Purchase price and terms;
¢ Agreement as to mortgages;
¢ How buyers title is to appear (called vesting);
¢ Matters of record subject to which buyer is to acquire title;
¢ Inspection reports to be delivered into escrow;
¢ Proration adjustments (involves taxes and insurance);
¢ Date of buyers possession of the property;
¢ Documents to be signed by the parties, delivered into escrow, and recorded;
¢ Disbursements to be made, costs and charges and who pays for them; and
¢ Date of closing.

2. Order Title Search. This title search is performed on the subject property, resulting in a Preliminary Report from a title company. The escrow holder examines this report for items not contemplated in the instructions. For example, is there a lien (or additional loan) on the property that wasnt reported? The seller must clear any such item or it must be brought to the attention of the buyer.

3. Request Demands and/or Beneficiary Statements. This request for information goes to any lenders of record. The document will be either:

¢ a Demand for Pay-off, if the sellers existing loan is to be paid in full through escrow; or
¢ a Beneficiary Statement, if buyer is purchasing the property subject to or assuming a loan.

4. Accept Structural Pest Control Report and Other Reports. These reports might include plumbing or roofing reports. They all pertain to the propertys condition, and are kept in escrow. The escrow holder might also obtain any necessary approvals from the seller or buyer due to information in a report. For example, whether the home needs to be sprayed for insects. The reports are delivered at close of escrow.

5. Accept New Loan Instructions and Documents. This happens if the buyer is obtaining new financing for the home. The escrow holder also obtains the buyers approval/execution of the documents. The escrow agent must also satisfy all lenders instructions before using the lenders funds to complete the transaction.

6. Accept Fire Insurance Policies and Complete Settlement. By this step, its almost time to close the transaction. Here, following the buyers and sellers instructions, the escrow holder:

¢ accepts and delivers any fire insurance policy and transfers the insurance;
¢ makes all payments on property taxes and insurance (called prorations);
¢ completes the accounting (settlement) details; and
¢ informs the principals that escrow is ready to proceed.

7. Request Closing Funds. The escrow holder cannot disburse any funds until all items, such as checks or drafts, have cleared and become available for withdrawal.

8. Audit File in Preparation for Closing. In this step, the escrow holder:
¢ accounts for all funds and documents; and
¢ determines that the parties have complied with all escrow instructions.

9. Order Recording. At this point, the escrow holder authorizes the title company to run the sellers title and to record the necessary documents. This can happen provided no change has occurred in the sellers title since the preliminary title report was issued.

10. Close Escrow. This is what youve been waiting for! Closing the deal. The escrow holder can close escrow after confirming recording, by:
¢ preparing settlement statements for buyer and seller;
¢ disbursing all funds; and
¢ delivering documents to the party or parties involved

And in a nutshell, thats what happens when you buy a home. If you have any questions, please contact Denny Oh at 858.243.2092  [email protected], or you can contact Laura Ghosn of Pickford Escrow.

Other Must Reads:

How to Buy a Home “ From a Lenders Perspective
What Can SanDiegOh Do For You?

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