HOW ESCROW AND CLOSINGS WORKS
Escrows and Closings are handled differently depending on where the transaction is.
Some states use Escrows and others Lawyers or Title Companies, or a combination of two or three of the closing methods. In Southern California we use Escrow.
SUMMARY OF ESCROW: An Escrow company is considered as an “Independent Non Partial Party” who handles transaction documents and documentation. The parties to the escrow provide documents, information, funds, etc. to escrow, and escrow takes care of disbursing them to the parties when escrow closes.
BUYER’S RESPONSIBILITY IN ESCROW:
- BUYER DEPOSIT – Buyer’s Earnest Money Funds (Deposit) are Deposited into Escrow when there is an accepted offer. Unless stated differently the offer, funds are usually deposited with a Cashiers Check or are Wired within 24 hours of Acceptance. Caution is given when wiring, because of the recent rise and wire fraud. Make sure you discuss this with your bank and escrow company.
- ESCROW INSTRUCTIONS – The Buyer, receives, reviews, approves and signs the escrow instructions to open the escrow. The Escrow is not officially opened until instructions are signed by the principals. Instructions in most cases do not supersede the Purchase Agreement, however, can be amended with the consent and signatures from BOTH the Buyer and Seller. All agreements must be in writing.
- ESCROW QUESTIONAIRE & STATEMENT OF INFORMATION – The Buyer receives, reviews and completes a questionnaire from escrow and the Title Company. The title company requests a “statement of information” be competed by the buyer, so, they can verify identity for legal and recording purposes. The title company and lender, if there is one, will review these documents and request further information if needed.
- INSPECTION CONTINGENCY PERIOD (Due Diligence Period) - The number of days allowed is negotiated in the purchase agreement. Buyers are allowed a period for completing inspections, to satisfy themselves with the condition of the property, to ask for repairs, or cancel the transaction. The Seller is not obligated to do inspections, make requested repairs, or complete termite work, unless they agreed to do the work as part of the purchase agreement. All items not specified in the purchase agreement will need to be negotiated if a request is made. Though not required, the Buyer and Seller can agree to extend this period, if items of concern have not been resolved. ALL CONTINGENCIES MUST BE REMOVED IN WRITING.
- LOAN CONTINGENCY PERIOD: A loan contingency period is not the same as the inspection period. There is a section in the purchase agreement specifically for loans, and the number of days needed should be discussed with your lender. Though Seller's are often agreeable to extending this period they may decide to ask for cancellation of escrow, especially if they have received a higher backup offer. It is better to not take chances, and to give yourself enough time for this contingency, as not removing it in time can be costly. DURING THIS PERIOD THE LENDER SHOUL PROVIDE YOU WITH A TRUTH IN LENDING STATEMENT THAT PRIVIDES THE TERMS AND COST OF THE LOANS.
- CLOSING THE ESCROW - If you are using a loan to close the transaction, you will need to sign Loan Documents a few days prior to closing. The Loan Documents will then be sent to an underwriter, who makes sure all the documents are in and signed properly. Because of the number of loans being processed in todays market, it is common for lenders to under perform, and underwrites to request additional documentation during this time, so you will want to make your self available. Make sure you read these documents carefully, as they contain the terms you will have to adhere to for the life of the loan. SELLER'S WILL OFTEN WANT LOAN CONTINGENCIES REMOVED AT LEAST TEN DAYS BEFORE CLOSING, TO ALLOW TIME FOR THEIR MOVE. No one wants to move when there is uncertainty, so you will want to remove all your contingencies as soon as possible, if you are satisfied in doing so.
- REMOVAL OF ALL CONTINGENCIES - DO NOT REMOVE ALL CONTINGENCIES IF YOUR ARE NOT SURE - Releasing your contingencies leaves you liable if you don't close. You will likely loose your earnest money and be liable for more, depending on the damages caused. If you are purchasing your home "Contingent Upon the Sale of your Property" , you will not want to release that contingency until the property you are selling has closed and you have received enough funds to close the purchase escrow, or leave the contingency in until the concurrent close of your sale escrow and purchase escrow. Once escrow is closed, you will receive possession of the property as agreed upon with the Seller. Most Seller's want to be given a few days to move after close, especially when a big move is ahead for them.
- IF YOU USING THE FUNDS FROM THE SALE OF YOUR PROPERTY - When selling your home to purchase, it is wise to allow enough time for your sale escrow to close days before closing your purchase escrow. You may also consider keeping possession of the home you are selling for a few days after closing, especially when you are planning a long move. The extra time will allow you comfort of knowing you have time to transfer funds to the purchase escrow, before you have the moving trucks come. You will want to be considerate of the seller as well, so you don't show up early to a home that is not ready for you. Make sure you discuss this item in detail with your agent, as it can have a great impact.
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SELLER’S RESPONSIBILITY IN ESCROW –
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