So how does one explain what an Escrow is and why we need it? And how does it compare to closing procedures in other parts of the US?
Well its simple. Escrow is nothing more than having a neutral third-party who has the job of intermediary in a real estate transaction. Basically an Escrow officer will dot the I’s, cross the T’s and handle the money exchange (loan funding too) and recording with the County Assessor’s office.
In other parts of the country, Title Companies, Lawyers, and Notaries handle closings. Here is Southern California, its done with an Escrow Company whose sole job is to handle the details ion the transaction and all the finances.
They duties include but are not limited to:
- Order HOA docs
- Order the Preliminary Title Report
- Determine closing costs for each party and prepare the preliminary and final HUD report
- Draw up the Escrow Instructions or in other words, they take the signed agreement between buyer and seller and put that into a new legal format used by all parties and for recording to the county.
- Send out for signing and receive back all contractual and transaction related documents.
- Handle all the loan documents and help ensure everything is ready for closing
- Answer buyer questions about title and vesting
- And a good escrow company will also help ensure the deal keeps moving forward to meet the closing date.
What do I do to prepare for Escrow?
There are several pieces of information that you must to supply to your escrow officer.
The following is a brief list of items that you must provide and/or deliver to your escrow officer:
- Correct spelling of your name and up-to-date contact information
- Contact information for lender (and/or mortgage broker) if new financing is being obtained
- Mortgage loan account information (lender or loan servicer’s name, address, and account number) if you are selling or refinancing a piece of property; plus any other tax, mortgage, bond or other lien information
- Fire and home insurance policy information
- Title vesting choice (Escrow can help on this but you may need to contact a legal pro or financial advisor)
- Copies of Trust Documents if taking title in trust or selling from a Trust
- Any relevant corporate, partnership or LLC documents if taking title in the name of one of those entities, or selling from one of those entities
When escrow opens, everyone moves quickly and gets their job done. Escrow dumps out a whole bunch of paperwork, and you get to read and sign it all. So we’re moving along in the transaction and we’re all doing our jobs right? Inspections happen, the loan process begins, disclosures reviewed and signed, etc.
As your agents have submitted everything required and you have done all that you’ve been asked to do.
Right. And then the lender wakes up, it’s the eleventh hour and all hell breaks loose.
The following is an accounting of what happens during the final hours.
Understanding the closing escrow process.
The last 3 days of your escrow!
1. Well almost everything is completed in the first couple of weeks. In fact, if you are paying cash we can close an escrow or complete a transaction in less than 4 days. But if there is a loan, (most of us don’t have hundreds of thousands of dollars on hand to buy a home). You and I borrow it. And that process takes time. The lender, loan officer and underwriter all have a hand in what happens during the entire loan approval process.
2. The final loan preparation happens within the last 3 to 4 days and this is where the Underwriter can toss in that big monkey wrench they have kept under their desk just waiting for this moment. So now is when they take their final look at your application and begin to ask questions, check on your bank accounts, your funds, etc. And if anything is out-of-place, the process STOPS! Which is why…….
3. Loan docs consistently arrive late. See #2 above as one reason or it’s because the borrower didn’t get the requested information to the loan officer on time.
This is what happens in the last 3 or 4 days.
1. Once the loan package has arrived the escrow officer reads the entire package and must follow it exactly to a “T”. (A loan package is averages 12 to 24 pages)
2. The HUD statement finished. This is the final accounting report for your transaction
3. The estimated Closing statement, (HUD1) is sent for approval from the Lender, Buyer’s agent and Listing agent. It must be approved by all.
4. Escrow ensures the loan package is fully executed or signed by all parties.
5. The loan package goes back to the lender for final approval (Fingers crossed here)
6. Recording package is prepared for the county clerk
7. Escrow package goes to the lender so funding is approved.
8. Lender approves funding amount and the entire package.
9. You wire in your funds by a certain date (hopefully you did)
10. Upon receipt of the wired money and final instructions, escrow instructs Title to set the property up to record at the county recorders office.
11. On recording day, escrow contacts Buyer, Seller, and all agents of confirmation.
This is just a rough outline and I probably have forgotten some steps. There can be dozens of calls, many of which you never receive.
All deals vary but this will help you understand the process in Southern California.
Final Note: Remember that at no time from when you begin your search to the day of closing should you make any changes to your credit or bank accounts without consulting with your loan officer. You don’t want to sink the deal by changing credit status.
If you have questions, give me a call at 760-660-0010.