Unlocking a front door photo

Now You’re In Escrow

Unlocking a front door photoCongratulations!  You’ve found the perfect home to purchase, you’ve made an offer, the homeowner has accepted your offer, you’ve handed over earnest money and you’ve signed the contract.  Now you’re in escrow!  But what exactly does that mean?

According to Dictionary.com, Escrow refers to “a contract, deed, bond, or other written agreement deposited with a third person, by whom it is to be delivered to the grantee or promisee on the fulfillment of some condition.”   In other words, escrow refers to the process where the buyer and seller deposit money and the real estate contract with a neutral third-party, the title company, until the conditions are met for a real estate transaction.  Here in Arizona, the escrow process is provided by a title insurance company, generally speaking, instead of an attorney as is required in other states.  So, in Arizona, title companies handle both the title and the escrow part of a transaction.

Once escrow is “opened”, the title company begins to “vet” or research the buyer, seller and the property itself so they can issue title insurance.   So, when the real estate transaction is “in escrow”, the real estate contract, along with any earnest money, has been presented to the title company.  Also, the title company has opened a file with the names of the parties in the contract.  This real estate transaction stays in escrow until it is “out of escrow” by closing the transaction according to the contract terms.  If something goes wrong such as the buyer doesn’t qualify for the loan, the transaction will fall out of escrow.

Why is escrow necessary?  Simply put, whether you are the buyer or seller, you want the assurance that no funds or property will change hands until all of the transaction instructions have been followed.  The title company (ie, escrow holder) has the legal obligation to safeguard all funds and documents during their possession, and to convey title and/or disburse the funds only when all provisions have been met.

The escrow process can range from a few days to several months, depending on the terms of the purchase agreement.  Generally speaking, the Deed of Trust is recorded within one business day of the title company’s receipt of loan funds, signaling the “close of escrow”.  The escrow officer will verify with the local records office that the documents have been recorded and legal transfer has been made from seller to buyer.

While this is a simplified description of the escrow process, I hope this has clarified a sometimes-confusing term in a real estate transaction.  Every transaction is different, and I look forward to helping you navigate your own process with clarity and ease.

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