What Happens In Escrow
The following is a description of a typical Escrow transaction and the steps involved. For more information, or for questions regarding a specific transaction, please contact your Chicago Title Escrow Officer.
| What Happens in Escrow | Who May Hold Escrows | Life of an Escrow |
| What Each Party Does in Escrow | Closing & Division of Charges | Instructions to Escrow Officers |
An escrow is an arrangement in which a disinterested third party, called an escrow holder, holds legal documents and funds on behalf of a buyer and seller, and distributes them according to the buyer's and seller's mutual instructions.
People buying and selling real estate often open an escrow for their protection and convenience. The buyer can instruct the escrow holder to disburse the purchase price only upon the satisfaction of certain prerequisites and conditions. The seller can instruct the escrow holder to retain possession of the deed to the buyer until the seller's requirements, including receipt of the purchase price, are met. Both rely on the escrow holder to carry out faithfully their mutually agreed upon instructions relating to the transaction and to advise them if any of their instructions are not mutually consistent or cannot be carried out.
An escrow is convenient for the buyer and seller because both can move forward separately but simultaneously in providing inspections, reports, loan commitments and funds, deeds and many other items, using the escrow holder as the central depositing point. If the instructions from all parties to an escrow are clearly drafted, fully detailed and mutually consistent, the escrow holder can take many actions on their behalf without further consultation. This saves time and facilitates the closing transaction.
The escrow holder is a disinterested third party (although some states require that certain escrow holders be licensed). There are two important reasons for selecting an established, independent escrow firm, an attorney, or an escrow officer with a bank, S&L, or title insurance company. One is that real estate transactions require a tremendous amount of technical experience and knowledge to be handled smoothly. The other is that the escrow holder will generally be responsible for safe-guarding and properly distributing the purchase price. Escrow officers with established firms generally are experienced and trained in real estate procedures, title insurance, taxes, deeds and insurance.
An escrow officer must remain completely impartial throughout the entire escrow process. He or she will normally adopt a courteous but rather formal manner when dealing with parties to the escrow, keeping conversation to the matters at hand in the escrow. This formal behavior is meant for the benefit of all concerned, since the escrow officer must follow the mutual instructions of both parties without bias.
Escrow instructions are written documents, signed by the parties giving them, which direct the Escrow Officer in the specific steps to be completed so the escrow can be closed.
Typical instructions include the following:
Since the escrow holder can only follow the instructions as stated, and may not exceed them, it is extremely important that the instructions be stated clearly and be complete in all details.
The Lender (if applicable):
The Escrow Holder:
Once all the terms and conditions of the instructions of both parties have been fulfilled, and all closing conditions satisfied, the escrow is closed and the safe and accurate transfer of property and money has been accomplished.
The method of dividing the charges for the services performed through escrow or as a result of escrow varies from place to place. The fees and service charges to be divided might include, for example, the title insurance policy premium, escrow fee, any transfer taxes, recordation fees, and cost in connection with any loan being obtained. Unless there is some special agreement between the buyer and the seller as to how these charges are to be paid, local custom will generally be followed in drafting the instructions to the escrow holder as to how they are to be divided.
The escrow process was developed to help facilitate the sale or purchase of your home.
The escrow holder accomplishes this by:
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