Northern California Home (NCA Home)

ESCROW AND CLOSING

To finalize the sale of the home a neutral, third party (the escrow holder, a.k.a. escrow agent) is engaged to assure the transaction will close properly and on time. The escrow holder insures that all terms and conditions of the seller's and buyer's agreement are met prior to the sale being finalized, including receiving funds and documents, completing required forms, and obtaining the release documents for any loans or liens that have been paid off with the transaction, assuring you clear title to your property before the purchase price is fully paid.

The documentation the escrow holder may be collecting includes:

Loan documents

Tax statements

Fire and other insurance policies

Title insurance policies

Terms of sale and any seller-assisted financing

Requests for payment for various services to be paid out of escrow funds

Upon completion of all instructions of the escrow, closing can take place. All outstanding payments and fees are collected and paid at this time (covering expenses such as title insurance, inspections, real estate commissions). Title to the property is then transferred to the seller and appropriate title insurance is issued as outlined in the escrow instructions.

At the close of escrow, payment of funds shall be made in an acceptable for to the escrow.

The Escrow Holder Will:

Prepare escrow instructions

Request title search

Comply with lender's requirements as specified in the escrow agreement

Receive funds from the buyer

Prorate insurance, tax, interest and other payments according to instructions

Record deeds and other documents as instructed

Request title insurance policy

Close escrow when all instructions of seller and buyer have been met

Disburse funds and finalize instructions

The Escrow Holder Won't:

Give advice - the escrow holder must maintain neutral, third-party status

Offer opinions about tax implications

ESCROW PRINCIPLES

The following are major escrow principles:

1. Escrow instructions must contain mutuality and the understanding of the principals to the escrow. Properly drawn instructions are clear and certain as to the intentions of the parties, the duties of the escrow holder, and the fact that it is the principals themselves who must perform the escrow contract by complying fully with the instructions. The escrow holder does not have, and must not exercise, discretionary authority.

2. The escrow holder does not act as a mediator or advisor, or participate in customer controversy, or arbitrate disputes. Instructions are drawn so that the parties to the escrow make the promises, perform, and put the escrow holder in a position to close the escrow.

3. The escrow holder is prohibited from offering legal advice and must suggest that disagreeing parties consult an attorney (or real estate broker if it is a transaction matter that may be negotiated).

4. Escrow is a limited agency relationship governed by the content of the escrow instructions. As agent for both parties, the escrow holder acts only upon specific written instructions of the principals. When the escrow is closed, the escrow holder becomes agent for each principal with respect to those things in escrow to which the parties have respectively become completely entitled.

5. When all parties to the escrow have signed mutual (identically conforming) instructions, the escrow becomes effective. If only one party has signed, that party may terminate the proposed escrow at any time prior to the other party's signing. 6. The escrow holder must avoid vague or ambiguous terms and provisions in instructions and documents.

7. The escrow holder must forward immediately to the title company any document which is to be recorded and furnish a copy to any concerned party, so that the document's sufficiency can be determined. This will help avoid delay in closing escrow.

8. Documents and funds not contemplated by the escrow instructions should not be accepted by the escrow holder without authorization of the principals. 9. The escrow trust account must be maintained with extreme care. Overdrawn accounts (debit balances) are strictly forbidden.

10. Escrows are confidential in nature. The escrow holder must not give out any information to third parties concerning an escrow without approval of the escrow principals.

11. The escrow holder is the agent of the principals to the escrow. Legally, any facts known by the escrow agent are imputed to the principals. Any detrimental or new material information, previously undisclosed, made known to the escrow holder and affecting the principals should be disclosed to them for their instructions in the matter.

12. The escrow holder must maintain a high degree of trust, efficient customer service, and good customer relations.

13. The escrow holder must remain strictly neutral, not favoring either party. The escrow holder must not advise either party, as any gain to the one will likely be detriment to the other.

14. The escrow holder must maintain records and files on a daily basis, to be sure that a procedure is not overlooked. Neat and orderly files, complete with check sheets, will help insure smooth progression toward closing.

15. Before closing an escrow, the escrow holder must audit the file, accounting for all items to be handled, recorded and delivered, including cleared funds.

16. The escrow holder must not disburse any funds from an escrow account until all items such as checks, drafts, etc. have cleared, and thus have become available for withdrawal. This "holding period" may range from 1 to 10 days, depending on the type and location of lender.

17. Closing and settlement must be prompt, using forms which are simple and clear.

GENERAL ESCROW PROCEDURES
(May vary according to local custom and practice)

Basic escrow procedures include the following:

1. Prepare Escrow Instructions on the escrow holder's printed form. All principals to the escrow sign instructions which fully set forth the understanding of the parties to the transaction. Usually accompanied by an initial deposit. For a home purchase, the mutual instructions of the principals set forth:

the purchase price and terms;

agreement as to mortgages;

how buyer's title is to vest;

matters of record subject to which buyer is to acquire title;

inspection reports to be delivered into escrow;

proration adjustments;

date of buyer's 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 on the subject property, resulting in a "Preliminary Report" from the title company. The escrow holder examines this report carefully for items not contemplated in the escrow instructions. The seller must clear any such item or it must be brought to the attention of the buyer "for information" and "expression of desire in the matter."

3. Request Demands and/or Beneficiary Statements from any lenders of record. The necessary document will be:

a "Demand for Pay-off" if an existing loan is to be paid in full through escrow; or

a "Beneficiary Statement" if buyer is purchasing "subject to" or assuming a loan.

4. Accept Structural Pest Control Report and Other Reports (such as plumbing or roofing inspections) into escrow and obtain, as instructed, any necessary approvals from the parties in connection with the reports/inspections. Hold the reports (and any funds associated therewith) for delivery to the proper party, or recording, at close of escrow.

5. Accept New Loan Instructions and Documents if the buyer is obtaining new financing. Obtain buyer's approval/execution of the documents. Satisfy all lender's instructions prior to using the lender's funds to complete the transaction.

6. Accept Fire Insurance Policies and Complete Settlement

accepting and delivering any fire insurance policy and transferring the insurance if so instructed by the parties;

making all prorations (e.g., property taxes and insurance) as instructed by the parties;

completing the accounting (settlement) details and informing the principals that escrow is ready to proceed.

7. Request Closing Funds. The law prohibits disbursal of funds from an escrow account until all items such as checks, drafts, etc. have cleared and become available for withdrawal.

8. Audit File in Preparation for Closing by:

accounting for all funds (Cash Reconciliation Statement) and documents;

determining that the parties have complied with all escrow instructions.

9. Order Recording by authorizing the title company to run the seller's title to date and record the necessary documents, provided no change has occurred in the seller's title since issuance of the preliminary title report.

10. Close Escrow, after confirming recording, by:

preparing settlement statements for buyer and seller;

disbursing all funds; and

delivering documents to the party or parties entitled thereto.