What is Escrow?

By
Real Estate Agent with Coldwell Banker - San Francisco's North Bay/Wine Country

In my former career, working as an Escrow Officer in the oh-so-sexy Title Insurance industry, I was frequently asked the question, "what is escrow?"  The term, for me, always brought to mind a limbo-like state, in which homebuyers sit in anticipation of their home officially becoming theirs. In essence, it is a bit of a financial limbo, in which your purchase money sits, not belonging solely to you anymore and not yet the seller's.

The word escrow is derived from an Old French word, "escroue", meaning scrap of paper. This referred to the deed that a third party held until a transaction was completed. The modern day real estate escrow process was adopted as standard practice in the US during the 1930s, with licensing of those third parties implemented a short time later to discourage fraudulent handling of funds.

Today, a traditional escrow holder is a title company. In this situation, the title company takes in the buyer's funds and loan proceeds from their new lender and holds them, requiring mutual instruction from both buyer and seller to proceed with the escrow process.

When a lender is involved in a purchase transaction, the loan documents are received by the escrow officer and the loan terms and figures are merged into a "net sheet" or settlement statement. This document shows each credit and debit that the buyer receives and pays in the transaction. It gives a clear picture of the escrow transaction and ensures that all terms of the deal are intact. The net sheet is acknowledged by the buyer when the loan documents are signed.

The seller traditionally has a smaller amount of paperwork to sign in escrow. Their important document is the grant deed. This document transfers title from seller to buyer and the seller's signature must be notarized. Upon recordation of the grant deed the escrow is closed and the buyer takes posession of the property. At this point, the seller's prior lenders are paid their amount demanded to remove the outstanding loans from public record and the seller receives their sale proceeds.

I hope this explanation has helped shed some light on what is involved in the escrow process. Please remember that I am here to answer any real estate questions you might have. I also appreciate your sharing my name with any family and friends you know who would benefit from my services.

 

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