Simply stated, escrow is a deposit of funds, deed, or other collateral by one party for delivery to another party upon the completion of a condition or event. For example, when you enter an agreement to purchase a house, you agree to earnest money to secure your commitment to purchase. Because the transaction is not complete, the money needs to be held by a third party or escrow until the purchase of the property is complete. The third party is a trusted neutral party trusted by both the buyer and seller.
Now for the strict legal definition of escrow from the California Escrow Law: Section 17003 of the Financial Code.
Yes. There are closing costs for a third party escrow to hold your deposit. They are paid directly to the escrow or title company that sets up escrow for your transaction. The fees are not merely for holding your money, but covers the cost of paperwork such as recording the deed.
The price of the escrow fee is usually based on the percentage of the total sale price of the transaction.
Many times one party, the buyer or seller, will negotiate to pay the fees in the transaction.
At LightSpeed escrow, we are not only about speed and flawless execution of transactions, but pride ourselves at having the lowest fees in Southern California. The technology we use for error-free, fast closings also allow us to provide the most competitive rates for your transaction.
Whether this is your first transaction or you a pro at real estate transaction, you’ve heard the terms “title” and “escrow”. You may have thought they were interchangeable and there was no difference between the two.
There are actually two different jobs.
The title of a property refers to the owner’s legal rights to own and use a specific piece of property. The title company insure your title and that there are no other claims to the title. They will issue a policy to protect you. This policy protects you against any problems with the title such as unknown liens or even fraud.
Escrow arranges the management of the transaction and the transfer of funds between the two parties. The escrow company works will all parties involved including the title company to make sure the transaction is accurate and each dollar goes to the right people so the contract can be executed legally.
Escrow companies will partner and possibly own a title company so they can manage every aspect of the transaction without the buyer or seller having to negotiate with multiple parties and resources to close a contract.
There are multiple parties or principals in a transaction: the buyer, the seller, the lender, and the borrower.
Each party has different sets of instructions needed to be completed for the transactions to be completed.
The escrow gathers all this information in one central place, organizing it and checking for accuracy so the transaction can run smoothly.
Several of the duties may include: following a timeline of instructions by the party to meet deadlines, handling funds and documents, paying bills as authorized, responding to official requests for the principals, closing the escrow when all terms have been met.
Choosing an escrow company is usually done by agreement between the principals in the transaction. If a real estate broker is involved, they may recommend an escrow holder. However, it is within the rights of the principals to make this selection.
Trust and experience are key in choosing an escrow company.
Reputation for speed of transaction and competitive fees is important. In some cases, escrow fees can be substantial, and you need to find an escrow company that is competitive and offers low rates on the transactions.
Speed of transaction and meeting deadlines with make closings go smoothly. Open communication is critical to ensuring the success of the transaction. If the escrow company is slow to discuss fees and timings, this could be an indicator they may not be the right company for you.
Escrow law in California states an escrow must be a corporation and licensed by the California Corporations Commissioner.
All escrow agents in California are either “licensed” or “controlled” companies. A licensed escrow company is also known as an independent escrow company and licensed by the Department of Business Oversight.
A controlled escrow company is not licensed by the DBO and could be owned and operated by a real estate broker or title insurance company.