WHAT HAPPENS IN ESCROW?
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 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 consistent 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 of the transaction.
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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Acting as the impartial "stake-holder," or depository of documents and funds
Processing and coordinating the flow of documents and funds
Keeping all parties informed of progress on the escrow
Responding to the lender's requirements
Securing a title insurance policy
Obtaining approvals of reports and documents from the parties as required
Prorating and adjusting insurance, taxes, rents, etc.
Recording the deed and loan documents
Maintaining security and accountability of monies owed and owing.
LIFE OF AN ESCROW
It all begins with the offer and acceptance skillfully negotiated by the real
estate agents representing Buyer and Seller.
Tenders a written offer to purchase (or accepts the Seller's counter-offer)
accompanied by a good faith deposit amount.
Approves and signs the escrow instructions and other related instruments
required to complete the transaction.
Approves the preliminary report and any property, disclosure or inspection
report called by the purchase and sale agreement. (Deposit Receipt)
Approves and signs new loan documents and fulfills any remaining conditions
contained in the contract, lender's instructions and/or the escrow
Deposits funds necessary to close the escrow. Approves any changes by signing
amendments in the escrow instructions.
The Lender (when applicable)
Accepts the new loan application and other related documents from the Buyer(s)
and begins the qualification process.
Orders and reviews the property appraisal, credit report, verification of
employment, verification of deposit(s), preliminary report and other related
Submits the entire package to the loan committee and/or underwriters for
approval. When approved, loan conditions and title insurance requirements are
Informs Buyer(s) of loan approval terms, commitment expiration date and
provides a good faith estimate of the closing costs.
Deposits the new loan documents and instructions with the escrow holder for
Buyer's approval and signature.
Reviews and approves the executed loan package and coordinates the loan funding
with the escrow officer.
The Escrow Officer
Receives an order for escrow and title services.
Orders the preliminary report and examination on the subject property from
Acts as the impartial "stakeholder" or depository, in a fiduciary capacity, for
all documents and monies required to complete the transaction per written
instructions of the principals.
Prepares the escrow instructions and required documents in accordance with
terms of the sale.
With the authorization from the real estate agent or principal, orders demands
on existing deeds of trust and liens or judgments, if any. For assumption or
subject to loan, orders the beneficiary's statement or formal assumption
Reviews documents received in the escrow: preliminary report, payoff or
assumption statements, new loan package and other related instruments. Reviews
the conditions in the lender's instructions including the hazard and title
Presents the documents, statements, loan package(s), estimated closing
statements and other related documents to the principal(s) for approval and
signature, and requests the balance of the buyer's funds.
Reviews the proceeds of the loan(s) from the lender(s).
Determines when the transaction will be in the position to close and advises
Assisted by title personnel, records the deed, deed of trust and other
documents required to complete the transaction with the County Recorder and
orders the title insurance policies.
Closes the escrow by preparing the final settlement statements, disbursing the
proceeds to the Seller, paying off the existing encumbrances and other
obligations. Delivers the appropriate statements, funds and remaining documents
to the principals, agents and/or lenders.
Accepts Buyer's Offer to Purchase and initial good faith deposit to open
Submits documents and information to escrow holder, such as: addresses of lien
holders, tax receipts, equipment warranties, home warranty contracts, any
leases and/or rental agreements.
Approves and signs the escrow instructions, grant deed and other related
documents required to complete the transaction.
Orders inspections, receives clearances and approves final reports and/or
repairs to the property as required by the terms of the purchase and sale
agreement (Deposit Receipt).
Fulfills any remaining conditions specified in the contract and/or escrow
instructions; approves the pay off demands and/or beneficiary's statements.
Approves any final changes by signing amendments to the escrow instructions or
Receives an order for title service.
Examines the public records affecting the real property and issues a
Determines the requirements and documents needed to complete the transaction
and advises the escrow officer and/or agents.
Reviews and approves the signed documents, releases and the order for title
insurance, prior to the closing date.
When authorized by the escrow officer, Chicago Title records the signed
documents with the County Recorder's office and prepares to issue the title
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WHO MAY HOLD ESCROWS?
The escrow holder may be any 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. 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, such as Chicago Title, 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 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:
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 method by which the escrow holder is to receive and hold the purchase price
to be paid by the buyer.
The conditions under which a lapse of time or breach of purchase contract
provision will terminate the escrow without a closing.
The instruction and authorization to the escrow holder to disburse funds for
recording fees, title insurance policy, real estate commissions, and any other
closing costs incurred through escrow.
Instructions as to the proration of insurance and taxes.
Instructions to the escrow holder on the payment of prior liens and charges
against the property and distribution of the net sale proceeds.
WHAT EACH PARTY DOES IN ESCROW
Deposits the executed deed to the buyer with the escrow holder.
Deposits evidence of pest inspection and any required repair work.
Deposits other required documents such as tax receipts, addresses of mortgage
holders, insurance policies, equipment warranties or home warranty contracts,
The Lender (if applicable):
Deposits the funds required, in addition to any borrowed funds, to pay the
purchase price with the escrow holder
Deposits funds sufficient for home and title
Arranges for any borrowed funds to be delivered to the escrow holder.
Deposits any deed of trust or mortgages necessary to secure loans.
Approves any inspection reports, the Preliminary Report for title insurance,
etc., called for by the purchase and sale agreements.
Fulfills any other conditions specified in the escrow instructions.
The Escrow Holder:
Deposits proceeds of the loan to the purchaser.
Directs the escrow holder on the conditions under which the loan funds may be
Opens the order for title insurance.
Obtains approvals from the buyer on the Preliminary Report, pest and other
Receives funds from the buyer and/or any lender.
Prorates insurance, taxes, rents, etc.
Disburses funds for title insurance, recording fees, real estate commissions,
lien clearance, etc.
Prepares a final statement for each party, indicating amounts to be disbursed
for services and any further amounts necessary to close escrow.
Records deed and loan documents, delivers the deed to the buyer, loan documents
to the lender and funds to the seller, closing the escrow.
If you have questions about the escrow process, please call your local Chicago
Title office. Click on Employee/Office Locator in the Title Bar above.
CLOSING THE ESCROW AND DIVISION OF CHARGES
Closing the Escrow
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.
Division of Charges
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 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.
WHAT IS TITLE INSURANCE?
A Word About Real Estate
Real estate has traditionally been a family's most valuable asset. It is a form
of wealth that is protected by many laws. These laws have been enacted to
protect one's ownership of real estate and the improvements located on the
land. The owner, the owner's family, and the owner's heirs have extremely b
rights or claims in and to the property that you are buying. Those who may have
an interest in or lien upon the property could be governmental bodies,
contractors, lenders, judgment creditors, the Internal Revenue Service, or
various other individuals or corporations. The real estate may be sold to you
without the knowledge of the party having a right or claim in and to the
property. In addition, you may purchase the real estate without having any
knowledge of these rights or claims. In either event, these rights or claims
remain attached to the title to the property that you are buying until they are
The Past Can Determine Your Future
Generally, a person thinks of insurance in terms of the payment of future loss
due to the occurrence of some future event. For instance, a party obtains
automobile insurance in order to pay for future loss occasioned by a future
"fender bender" or for the future theft of the car. Title insurance is a unique
form of insurance. It provides coverage for future claims or future losses due
to title defects which are created by some past event (i.e., event prior to the
acquisition of the property.) These risks are far less obvious than those
protected against by automobile insurance, but can be just as devastating. The
following information will answer some commonly asked questions about title
Will You Get Clear Title?
It is of utmost importance that you receive clear title to the property when
you purchase real estate. In order to do so, you must first be informed of any
existing rights or claims that may, in the future, threaten your title and
possession to the property. Title insurance provides you with this twofold
How Do You Find Out What Claims Exist?
In order to determine the status of title, Chicago Title conducts a diligent
search of the public records for those documents associated with the property.
Chicago Title then examines those recorded documents in order to determine if
there are any rights or claims that may have an impact upon the title to the
property. The title search may reveal the existence of recorded defects, liens
or encumbrances upon the title such as unpaid taxes, unsatisfied mortgages,
judgments and tax liens against the current or past owners, easements,
restrictions and court actions. These recorded defects, liens and encumbrances
are reported to you prior to your purchase of the property. Once reported,
these matters can be accepted, resolved or extinguished prior to the closing of
the transaction. In addition, you are protected against any recorded defects,
liens or encumbrances upon the title that are unreported to you and which are
within the coverage of the particular policy issued in the transaction. This is
the first benefit you receive from title insurance.
What About Undiscovered Claims?
The title to the property that you have purchased could be seriously threatened
or lost completely by hazards which are considered "hidden risks." "Hidden
Risks" are those matters, rights or claims that are not shown by the public
records and, therefore, are not discoverable by a search and examination of
those public records. Matters such as forgery, incompetency or incapacity of
the parties, fraudulent impersonation, and unknown errors in the records are
examples of "hidden risks" which could provide a basis for a claim after you
have purchased the property. In order to protect you against this possibility,
Chicago Title provides insurance coverage for such claims. This is the second
benefit you receive from title insurance.
How Does a Title Insurance Policy Protect Against All These Claims?
If a claim is made against your insured title, Chicago Title Insurance Company
protects you by: (1) Defending your title, in court if necessary, at no cost to
you, and (2) Bearing the cost of settling the case, if it proves valid, in
order to protect your title and maintain your possession of your property.
Title Insurance Protects Your Asset
Title insurance gives you the assurance that possible clouds on title to the
property you are purchasing - which can be discovered from the public records -
have been called to your attention that such defects can be corrected before
you buy. Additionally, it is insurance that if any undiscovered claims covered
by your policy arises out of the past to threaten your ownership of real
estate, it will be disposed of, or you will be reimbursed exactly as your title
insurance policy provides.
Only One Premium
Unlike other forms of insurance, the original premium is your only cost as long
as you or your heirs own the property. There are no annual payments to keep
your Owner's Title Insurance Policy in force.
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WHY DO YOU NEED TITLE INSURANCE?
To protect possibly the most important investment you'll ever make - the
investment in your home.
With a title insurance policy, you as owner, have an indemnity contract that
will reimburse you for loss in the event someone asserts a claim against your
property that is covered by the policy.
How can there be a title defect if the title has been searched?
Title insurance is issued after a careful examination of copies of the public
records. But even the most thorough search cannot absolutely assure that no
title hazards are present, despite the knowledge and experience of professional
title examiners. In addition to matters shown by public records, other title
problems may exist that cannot be disclosed in a search.
What title insurance protects against
Here are just a few of the most common hidden risks that can cause a loss of
title or create an encumbrance on title:
False impersonation of the true owner of the property
Forged deed, releases or wills, Instruments executed under invalid or expired
power of attorney;
Undisclosed or missing heirs; Mistakes in recording legal documents
Misinterpretations of wills Deeds by persons of unsound mind
Deeds by minors
Deeds by persons supposedly single, but in fact married
Liens for unpaid estate, inheritance, income or gift taxes
What protection does title insurance provide against defects and hidden risks?
Title insurance will pay for defending against any lawsuit attacking your title
as insured, and will either clear up title problems or pay the insured's
losses. For a one-time premium, an owner's title insurance policy remains in
effect as long as you, or your heirs, retain an interest in the property.
What this means to you
The peace of mind in knowing that the investment you've made in your home is a
Call Chicago Title
If you have any questions concerning title insurance coverage, please call a
Chicago Title office, or any of our policy issuing agents. We are here to
Adobe PDF document of this information is available
STEPS IN THE TITLE PROCESS
Initial Request for Title Insurance
An order for title insurance is opened with a title officer who produces the
initial response promptly within 24 to 48 hours. A preliminary report can be
issued with the minimum of information; without even identifying the buyer or
the terms of the sale. It shows the record title as it presently exists and is
only an offer to provide insurance. To order a preliminary report contact your
local Chicago Title representative or office.
On-Site Searching and Examining
Your title officer performs three searches: Property, Name, and Tax searches.
From that information, a preliminary report is created. Our on-site customer
service center expedites the process of obtaining hard copies of recorded
documents. Imaging helps to expedite searches with the ability to obtain
The skill and expertise of our title officer is the key to providing you with a
useful, accurate title report. Once the report is issued the review begins by
making a technical analysis of the documents of record. An interpretive view of
all recorded matters is made to evaluate their impact on the title to the
property. Among the questions the examiner asks are: Would any of the recorded
matters prevent the buyer from using the property for its intended purpose? Can
antiquated leases be eliminated from the policy per a review of the current
In anticipation of ALTA coverage, a site inspection is ordered. From the
inspection report, the initial title product is supplemented to show any
encroachments or other off-record matters which would ultimately impact the
Co-Insurance, Re-Insurance, Other Details
If co-insurance or re-insurance is needed for a transaction, we expedite the
confirmation of approval. You, the customer, are never bogged down or delayed
by the action on the part of our title unit. To the contrary, as a resource and
as a facilitator of the transaction, we assume the responsibility for as many
details as possible and are able to direct you to other resources where
necessary (such as for a lost instrument bond).
We Earn Your Respect with our Skills, Service and Solutions
We try not to point out impediments to the close of a transaction without also
offering assistance and solutions. By understanding the sometimes delicate
balance of the interests of the parties to a transaction, and by professionally
and courteously handling issues as they arise, we can capably guide a
transaction to a successful conclusion.
Documents in the Title Process
Commitment - Shows the condition of title in the way we are willing to issue
Pro Forma - Specimen of what the requested policy, as requested, will look
like. Underwriting issues not completed. Not binding upon the company.
Policy - Final product. Contract of indemnity between named insureds and the
21 REASONS FOR TITLE INSURANCE
Buying Property Is A Numbers Business
We Hope You Never Have A Title Claim
Americans have the future in mind when they buy a house, and they purchase
homeowner’s insurance to help protect that future. But with home ownership
comes the need to protect the property against the past, as well as the future.
Title insurance protects a policyholder against challenges to rightful
ownership of real property, challenges that arise from circumstances of past
ownerships. Each successive owner brings the possibility of title challenges to
When you purchase real property, rely on Chicago Title to protect your
interests. You’ll be insured by a company backed by more than 150 years of
successful title operations.
Rely On Chicago Title To Protect Your Investment
Every owner, purchaser and beneficiary, whether by a deed or contract, should
have an insured title.
The entire investment depends upon the quality of title. If you are buying real
estate mortgages, you are paying for a good title and you should see that you
have one. If either fire insurance or title insurance is omitted, your security
is not complete.
Our title policy protects you against unforeseen defects in title that an
abstract or the public records do not show and cannot show…nor any attorney’s
Whether this is your first or fiftieth real estate investment, ask your real
estate agent or broker to specify Chicago Title during your transaction.
A fire destroys only the house and improvements. The ground is left. A
defective title may take away not only the house but also the land on which
it stands. Title insurance protects you (as specified in the policy) against
A deed or mortgage in the chain of title may be a forgery.
A deed or a mortgage may have been signed by a person under age.
A deed or a mortgage may have been made by an insane person or one otherwise
A deed or a mortgage may have been made under a power of attorney after its
termination and would, therefore, be void.
A deed or a mortgage may have been made by a person other than the owner, but
with the same name as the owner.
The testator of a will might have had a child born after the execution of the
will, a fact that would entitle the child to claim his or her share of the
A deed or mortgage may have been procured by fraud or duress.
Title transferred by an heir may be subject to a federal estate tax lien.
An heir or other person presumed dead may appear and recover the property or an
A judgement or levy upon which the title is dependent may be void or voidable
on account of some defect in the proceeding.
Title insurance covers attorneys’ fees and court costs.
Title insurance helps speed negotiations when you’re ready to sell or obtain a
By insuring the title, you can eliminate delays and technicalities when passing
your title on to someone else.
Title insurance reimburses you for the amount of your covered losses.
A deed or mortgage may be voidable because it was signed while the grantor was
Each title insurance policy we write is paid up, in full, by the first premium
for as long as you or your heirs own the property.
There may be a defect in the recording of a document upon which your title is
Claims constantly arise due to marital status and validity of divorces. Only
title insurance protects against claims made by non-existent or divorced
"wives" or "husbands."
Many lawyers, in giving an opinion on a title, protect their clients as well as
themselves, by procuring title insurance.
Over the last 24 years, claims have risen dramatically.