Understanding the Escrow Process

Understanding the Escrow Process 

Understanding the escrow process can be intimidating for even the most experienced real estate professionals. This is primarily because every escrow is different. While the sale of one real property may require a simple exchange of a free and clear title from the selling party to the buyer, the very next property sale could have a long list of unique problems or requirements to work through. 

For example, there may be liens on the property’s title report that need to be verified and paid before title can be transferred to the buyer. There may be one or more HOAs assigned to a home, requiring escrow officers to request payoff demands from multiple entities. The selling party could be a corporation or an LLC, which would require several signers to participate in document signing, some of whom may not be local. The property could be listed in a trust and require specific documents to be reviewed during the escrow process, or in probate with the courts. Payoff demands for the seller’s previous loans could come in on a loan that was paid in full decades ago; and state, county, and city regulations may require additional documentation for various reasons. 

All of this is to say, if you don’t understand escrow, you are not alone. Escrow can get complicated from a back-end perspective, but if you work with a professional real estate agent that communicates well, and an escrow company as dedicated and knowledgeable as Cardinal Escrow, you should feel prepared, confident, and excited to close your deal. 

Here is a general map of what the escrow process looks like: 

Before Escrow is Opened 

• The seller selects an agent. 
• The seller prepares the house for showing and selling. 
• Meanwhile, the buyer gets preapproved for a loan and selects a real estate agent. 
• The buyer views homes with their real estate agent. 
• The buyer selects a home and submits a contract to the selling party with a loan status report (LSR). 
• The seller reviews and accepts the contract from the buyer. 
• Escrow is opened – The seller’s agent sends the purchase contract to the escrow company. Escrow orders a preliminary title report from the title company and begins with a review of the purchase contract. 

During Escrow 

• Escrow will obtain contact information for all parties and prepare opening escrow documents for review/signing. Documents will include escrow instructions for both parties in the real estate transaction; these detail the information in the purchase contract and require review and approval. Escrow will provide forms and request any additional documentation/information from both parties as needed. 
• An EMD (earnest money deposit) will be required from the buyer. Instructions will be sent to the buyers, advising them how to complete the required wire transfer. 
• THE BUYER WILL VERIFY THE WIRE INSTRUCTIONS ARE VALID BY LOOKING UP THE ESCROW COMPANY ONLINE AND CALLING THEM DIRECTLY TO CONFIRM LEGITIMACY. Once confirmed, the buyer can initiate the wire with their bank. 
• Various inspections of the property are ordered. 
• Inspection reports will be sent to the applicable party; these will be reviewed, and notifications will be sent accordingly. 
• The preliminary title report is received and approved by the buyer. 
• An appraisal is ordered by and completed for lender. 
• The buyer advises the escrow company of their selected home insurance company. 
• The buyer receives a final loan approval from the lender. 
• Loan documents are prepared by the lender and sent to escrow. 
• Closing documents are compiled by escrow which include the loan documents for the buyer noted above. 
• Separate signing appointments are set for the buyer & the seller. 
• The buyer deposits the required funds. 
• Loan documents (signed by the buyer) are returned to lender for review. 
• Escrow reviews documentation and ensures that all contract conditions have been met. 
• The lender “funds the loan” (sends money to escrow). 
• Documents are recorded by the title company with the county, and escrow is closed. 
• Escrow disburses funds (sends money to the selling party) & keys can be given to the buyer. 

After Escrow Closes 

• The buyer receives their new house keys from their real estate professional. 
• Final documents are sent to interested parties.