When purchasing a home the escrow process can appear to be complex, especially for a first time home buyer. Following is an overview of the escrow process from the buyers perspective:
Escrow is officially “open” once the Escrow Holder receives a purchase contract signed by both the Buyer and Seller. Escrow holder then assigns an escrow number, opens a title order and follows up on the Buyer’s initial deposit. The initial deposit must be received by the Escrow Holder within 3 business days after acceptance. Now that escrow is open – what happens next?
Like anything else – things usually have a beginning, a middle and an ending. Escrow is no different and we will attempt to demystify the Buyer’s escrow process by breaking it down into three distinct parts:
Opening: The opening phase is the information gathering segment of the escrow. It allows the Escrow Holder to gather the necessary information from the Buyer and to communicate with all applicable parties. In order for the Escrow Holder to do this effectively, it is very important for the Buyer to complete and expediently return all documents in the initial escrow package.
Opening escrow packages for the Buyer will typically contain the following:
1) Escrow Instructions
2) Statement of Identity
3) Vesting Form
4) New Lender Info
5) Fire Insurance Info
7) Buyer’s Affidavit
This may appear to be a mountain of paperwork, but it’s purpose is designed to let the Escrow Holder know who their Buyers are, which lender is in need of an escrow lender package, how the Buyer(s) are taking title and who will be insuring the subject property.
Processing: The second phase of escrow is commonly referred to as the processing phase. In this segment, the Escrow Holder gathers and distributes reports and disclosures to applicable parties. Depending on the specific terms of the purchase contract, reports and disclosures may include all or some of the following:
1) Preliminary Title Report / CC&Rs / Plotted Easements
2) Natural Hazard Disclosures
3) Termite Report – Inspection/Completion
4) Homeowner’s Association Documents
5) City Report
6) Rent Statement
These reports provide information regarding various aspects of the subject property such as title, taxes, liens, hazardous zone determinations, pest infestation assessment and rental amounts to name a few. These disclosures may be information overload but are necessary and mandatory to provide full disclosure to Buyers. Buyers are asked to review all reports/disclosures provided and acknowledge receipt of same via signature within the time frames specified in the purchase contract.
Closing: In the final phase of the escrow process, the Escrow Holder gathers information in the opening and processing segments and incorporates same with terms of either lender financing or an all cash closing.
In the case of lender financing, Escrow Holder will contact Buyers as soon as loan documents have been received and schedule a time for signing with a notary public. Signing of loan documents will take approximately 30-45 minutes and ideally should occur several business days prior to the scheduled close of escrow to allow ample time for the following:
1) Signing of Loan Documents
2) Lender Review of Loan Documents
3) Lender Release of Loan Funds
Upon signing of loan documents, Buyers will review an estimated closing statement prepared by the Escrow Holder. The estimated closing statement provides an accounting of all applicable fees, closing costs, credits and prorations pertinent and particular to the transaction such as lender fees, title and escrow fees, property taxes, HOA dues, and Seller credits etc. The estimated closing statement also provides Buyers with the dollar amount required to close the transaction. Note: all closing funds must be certified and received by Escrow Holder via wire transfer or cashier’s check 2 business days prior to close of escrow.
In an all cash closing, the estimated closing statement and final escrow amendments are also be presented to Buyers for review and signatures. Funds will then be requested from Buyers and the escrow will be considered “funded” upon Escrow Holder’s receipt of Buyer’s certified closing funds.
Upon Escrow Holder’s confirmation that loan funds have been released, Buyer’s certified closing funds received, receipt of signed documents from both Buyer and Seller, and all terms of the purchase contract fulfilled – the transaction is now ready to close/record. Recording typically takes place 1 business day after all of the above has occurred. The term “close” refers to the day on which the transfer deed (grant deed) is stamped and recorded by the County Recorder’s Office. This is the official date on which transfer of ownership occurs and the Buyer becomes the new owner of the subject property.
Upon Escrow Holder’s notification from the title company that the recording has been confirmed – escrow has officially “closed”. The Escrow Holder will then prepare the final accounting of the file and disburse funds and documents accordingly, normally by the next business day.
Escrow is closed – congratulations!
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