Family moving house, unloading truck

Question:  Cynthia, my client is in escrow for the purchase of their new home, and we just received an offer from a buyer for the purchase of their current home, can both escrows close concurrently on the same day?

Answer:  Concurrent closings take a lot of coordination, and are not always possible. Let’s review the closing process first, and then we can talk about concurrent closings.

On a basic level, the job of the escrow company is to 1) collect money from or on behalf of the buyer, 2) collect a deed conveying title from seller to buyer from the seller, 3) once all conditions are met, record the deed for the buyer, give the money to the seller.

Of course, there are a lot of other things we do, but in a nutshell, that’s escrow’s job. We are governed by California State laws, which require, among other things, that an escrow holder have “good funds” prior to recording or closing the escrow. Good funds are defined as funds that have been cleared by the bank and are held in the trust account of the escrow company. Glen Oaks Escrow (and increasingly, the industry as a whole) requires wired funds to close an escrow, whether those funds come from the buyer, the buyer’s lender, or another escrow for the sale of the buyer’s previous home.

Complying with “good funds” laws is one of the issues that may cause difficulty when attempting a concurrent close.

So, if Mr. and Mrs. Smith are the seller of “A Street” at one Escrow Company, and the buyer of “B Street” at another Escrow Company, the funds have to move, from A to B. If we fund both loans on the same day, and record together the next, the Escrow on B Street is closing WITHOUT good funds. This will be based on the expectation (and signed authorizations) that the A Street escrow will transfer sufficient funds to cover the cash needed by Mr. and Mrs. Smith in the Purchase of B Street, but AFTER the escrow closes (generally the same day). This process is NOT without risk. The risks include the possibility, due to human error or so unknown fact (such as a unknown lien requiring payment), which could cause a shortfall in the amount of funds being transferred from Escrow A to Escrow B.

Another potential road block to the concurrent closing of two escrows could be restrictions on the part of the lender in Escrow B. Mr. and Mrs. Smith’s lender for their purchase of Property B may want proof that Escrow A is closed and that funds have been RECEIVED by Escrow B, before the lender will release funds to close Escrow B.

Is your head spinning yet? Even the funds required to make the payoff to the seller’s current loans can come into play, and requirements of the title company when determining if a concurrent close is possible.

The biggest issue for Mr. and Mrs. Smith, is that they don’t want to be “homeless”. They want to be able to move into B Street, at the same time that they have to move out of A Street. We refer to that as “possession” on the purchase agreements we commonly use. Because it is NOT always possible to close concurrently, I recommend to Realtors that when they are negotiating on the part of a client in the position of Mr. and Mrs. Smith, they provide a couple of extra days possession AFTER the close of escrow on A Street, so that if B Street ends up closing a day or two after A Street, the Smith Family is not homeless.

While it is possible to have two escrows close concurrently, it is not guaranteed, and not without risk. The best possible situation to increase the likelihood of a concurrent close is if both escrows are with the same escrow company, and the same title company. This will allow the movement of funds between the two escrows to be instantaneous. Having the same title company, even if there are two different escrow companies, can also make the process more likely to succeed.

What is important to keep in mind is that the closing process can be complex, and to be conservative, building a gap of a couple days for closing between escrow A and escrow B, and providing for adequate “possession” days, can make the difference between a smooth closing, and a couple of frustrating nights in a hotel room, with the Smith Family’s belongings on a moving truck!

Cynthia Moller