Opening Escrow
Q: What exactly is an escrow?
A: An escrow is an independent “stakeholder” account and is the vehicle by which the interests of all parties to the transaction are protected. Your escrow is created shortly after you execute your contract to purchase your home. The escrow becomes the depository for all monies, instructions and documents pertaining to the purchase of your home. Some aspects of the purchase are not part of the escrow. For example, the buyer and the seller must decide which fixtures or personal property items are included in the purchase. Similarly, loan negotiations are between the buyer and the lender. Your real estate agent can guide you in these non-escrow matters.
Q: How does the escrow process work?
A: The escrow is a depository for all monies, instructions and documents necessary for the purchase of your home, including your funds for the down payment and your lender’s funds and documents for the new loan. The escrow officer takes instructions based on the terms of your purchase agreement and your lender’s requirements. The escrow officer can hold inspection reports and bills for work performed as required by your purchase agreement. Other elements of the escrow include hazard insurance, title insurance and the grant deed from the seller to you. Escrow cannot be completed until the instructions (requirements) have been satisfied, and all parties have signed escrow documents.
Q: How do I open an escrow?
A: Your real estate agent will open the escrow for you. As soon as you execute your purchase agreement, your agent will place your initial deposit into an escrow account at First American Title or into the real estate broker’s trust account.
Q: How will I know where [earnest deposit] money has gone?
A: Written evidence of [the buyer's] deposit is generally included in both the buyer's and seller's copy of the purchase contract. The funds will then be deposited into a separate escrow or trust account and processed through the buyer's local bank.
Q: What information will I have to provide?
A: You may be asked to complete a statement of identity as part of the necessary paperwork. Because many people have the same name, the statement of identity is used to identify the specific person in the transaction through such information as date of birth, social security number, etc. This information is kept confidential.
Q: How long is the escrow?
A: The length of an escrow is determined by the terms of the purchase agreement and can range from a few days to several months. An escrow often takes an average time of 30 to 45 days. Now that you have selected your home, executed your purchase agreement, made your purchase deposit and an escrow has been opened your next step is to apply for a mortgage loan. Your real estate agent will be able to assist you in selecting a lender.
Escrow Instructions
Q: What are escrow instructions?
A: Escrow instructions define all the conditions that must occur before the transaction can be finalized. Your escrow instructions specify, in a debit and credit format, the disposition of your purchase funds. They also provide for title protection for your home.
Q: When do I sign escrow instructions and where do I do this?
A: Your escrow officer or real estate agent will contact you to make an appointment for you to sign your escrow instructions and final loan papers. At this time, the escrow officer will also tell you the amount of money you will need (in addition to your loan funds) to purchase your new home. Your loan funds will be sent directly to the escrow by the lender. You may sign your escrow instructions and loan documents at a First American office, your real estate agent’s office or some other location agreed upon by all parties.
General Questions
Q: Why do I pay interest from the day before closing on my new loan?
A: The California Good Funds Law states that all funds must be deposited with the title company the day before recording. Interest begins to accrue from the date of deposit.
Q: If I already made my March mortgage payment, why am I paying interest from March 1st?
A: Interest is paid in arrears.
Q: What period do property taxes cover?
A: 1st Installment taxes cover July 1st through December 31st. 2nd Installment taxes cover January 1st through June 30th.
Q: If my 1st Installment taxes do not have to be paid until December 10th then why do I have to pay them at close of escrow on November 1st?
A: The 1st Installment taxes become due November 1st therefore they are payable at the time of close of escrow.
Q: If the termite work is not done by close of escrow and the money must be held from the seller's proceeds do we have to notify the new lender?
A: Yes. In order to hold funds in escrow we need mutual instructions from both buyer and seller. Any instructions given by the buyer must be approved by their lender.
Q: If I am not paying for the termite report, why do I have to sign it?
A: Both buyers and sellers must sign all reports and inspections deposited into escrow regardless of who is responsible for payment.
Q: If the title company records first thing in the morning, why is it that I cannot pick up my proceeds check until after 12:00?
A: Due to the large number of title companies it takes several hours for the county to report to the title company that the documents are confirmed recorded. The title company cannot release funds until this confirmation is received.
Q: Why do I have to give a thumb print now? I never had to do it before.
A: As of January 1st 1996 The Secretary of State made a requirement that all parties executing a Deed or Deed of Trust must provide the notary with a thumb print.
