We've reached a purchase agreement and survived the severe doubts that accompany both buyers and sellers remorse. All that's left to do now is "close" the transaction.
Escrow customs vary widely by area and this discussion is intended to reflect practices in Southern California. The principle ideas remain the same.
Opening An Escrow
To open an escrow typically the listing agent will contact the agreed upon escrow company and tell them to prepare escrow instructions which reflect the purchase contract. It is not escrows job to interpret the purchase contract since they are not a party to it. Escrow acts as an independent third party and only by mutual written instruction.
The escrow instructions can become very complicated and we'll only cover a very basic transaction. Escrow instructions spell out how much is being paid for the property, the legal description of the property (123 Main St. is not good enough), when the escrow is to be completed (Close), how title is to be vested (Community Property for instance), any encumbrances to the title which convey to the buyer (i.e. Property Taxes are always a lien), any prorations to be made, and any special instructions (credits to buyer, etc...).
While all these details may seem overwhelming at first it really boils down to the fact that the seller, buyer , lender, title company and agents have to know the following: That the seller is really the seller and really owns the property that is being sold and that they don't owe anyone money secured by the property that theyre not admitting to, that the buyer is really the buyer and they don't owe anyone money that theyre not admitting to that might become a lien on the property, that the property is really the property (Im not kidding), and that everyone will be paid upon the close of escrow for their part in the sale of the property.
Please note that lawyers are not typically part of the team for real estate transactions in California. We have institutionalized our layers into Title Insurance Companies. Instead of providing an Abstract of Title or some similar, non-binding opinion of the condition of the title, these companies issue insurance against conditions which adversely affect the title (with a list of exclusions, of course). In fact we have an old saying here: What's the fastest way to insure that a deal won't close, get a lawyer involved in it. People come from all over the country and demand that their lawyers get involved in simple purchase transactions here in California. This is simply not necessary for simple transactions.
After you have read, understood and signed your escrow instructions and brought your deposit and a Statement of Information in, you are "in escrow". Being "in escrow" can be troubling there's not much for the buyer to do. What you are unaware of is the escrow company ordering demand statements, forwarding information to the title company, preparing the deed and handling any unusual requirements.
For the seller, being in escrow can get more complicated, any liens against the seller or the property must be accounted for. Compliance with various laws (Federal, State and local) must be ensured.
The buyers next contact with escrow is usually to sign the loan documents. Once the loan documents have been signed and reviewed were ready for the main event, closing.
Once all the paperwork (we kill so many trees in this business) has been signed, notarized, reviewed, copied, faxed, and FEDEXed its time to close the escrow. Everyone has completed their escrow instructions and our journey is near the end. The lender "funds" the loan, the title company makes sure the liens are paid as agreed and that the Deeds are properly recorded at the county recorders office, and the balance of funds are sent to the escrow company for final distribution. Closing statements are prepared showing where all the money went and checks are issued. You pick up your keys.
CONGRATULATIONS, YOUR NOW A HOMEOWNER !
NOW WHAT ARE YOU GOING TO DO WITH ALL THAT CASH?