A Look Inside Escrow For Real Estate Investors!

Almost all real estate transactions are processed through something called an "Escrow". But what the heck is that?

Escrow is a neutral party that holds funds, acts upon
documents and follows the instructions of the parties
to a real estate transaction.

The escrow holder takes written instructions from
sellers, buyers, lenders, inspectors and others.
Those instructions define the terms and conditions under which the transaction will be completed.

In most states escrow can only be handled by a licensed corporation or an attorney. In some areas most escrows
and transaction settlement are handled by the same
company the writes the title insurance.

Escrow reduces the risk to both buyer and seller.

The Escrow Company, Title Company or Attorney Acts as:
- A custodian for funds and documents.
- A clearing house for payments of all demands.
- An agency to perform the clerical details between parties.

A title insurance company issues a preliminary title report
that shows the ownership details of a specific parcel of
land and lists title defects, liens and encumbrances.

The report might also show recorded restrictions which
have been placed in a prior deed. The report can also show
details of any covenants, conditions and restrictions (CC&Rs)
contained in a prior deed. These can limit the use of the property.

The report gives the buyer the chance to ask the seller to
remove any item disclosed in the preliminary title report that
he finds objectionable prior to purchase.

Title insurance is real estate ownership insurance.
It insures an owner's rights and interests. Title polices are
issued to both the buyer and the lender.

An Escrow Officer's Responsibilities include:
Reviews preliminary report
Provides copies of preliminary report to all parties
Receives and prepares seller's & buyer's escrow instructions
Receives buyer's funds for escrow
Arranges hazard insurance with buyer
Complies with lender's instructions
Arranges new loan funding with lender
Prepares documents and special instructions
Records documents with county recorder
Disburses monies and documents to the appropriate parties
Prepares final closing statements for buyers and sellers
Issues title insurance policy.

It is good practice to read every document you will be signing before the day of closing. You can arrange this with your escrow officer. Make notes of everything you don't understand and ask the escrow officer to explain.

During peak home selling periods escrow holders are often
swamped with work and miss the scheduled closing date by a few days. If you plan on that happening it won't be a problem.
About The Author Mark Walters is an investor and author. You can find his published material at