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Demystifying Escrow

In many states, escrow companies act as closing agents and process much of the paperwork of real estate transactions, including purchases, refinances, and equity loans. The escrow officer tracks the progress of the transaction; handles many of the details and requirements; and collects and distributes the funds.

Knowing what happens in escrow will help you to understand the documents you receive from escrow and requests your escrow officer might make of you. Here's the escrow process for a typical Premier Bancorp transaction:

Step 1 - The broker or real estate agent opens escrow, giving the escrow officer complete information about the nature of the transaction, and contact information for all parties including the lender.

Step 2 - The escrow officer orders a title report from a title company. This is to ensure that the owner has clear title to the property. The title report is sent to all parties.

Step 3 - The escrow officer tracks the progress of the loan toward approval.

Step 4 - If the transaction is a purchase, many states require the seller to disclose to a buyer information regarding the property's condition, proximity to flood zones and earthquake faults, warnings about lead and molds, etc. The escrow officer makes sure these required disclosures have been completed.

Step 5 - The escrow officer obtains any additional documents that may be required, such as homeowners' association rules and financial information, and evidence of insurance.

Step 6 - The escrow company calculates closing costs. These include fees to the escrow company, commissions to brokers and agents, and "prepaid" items such as taxes and mortgage interest.

Step 7 - The escrow company collects any funds needed from the buyer/borrower to cover the closing costs.

Step 8 - Once the loan is approved and everything is in place, the escrow company initiates a "demand" for funding. This signals the lender to transfer the money to the escrow company.

Step 9 - The escrow officer distributes the funds to the seller, to the previous mortgage holder (if any), and to brokers and agents. The officer then prepares a closing statement detailing these distributions.

Step 10 - The escrow officer sends the transaction to the County Clerk where it is recorded; then it is officially closed!