The California Escrow Process
1. Deliver Deposit Check or Wire Transfer. Sign your Purchase Agreement, and deliver your initial deposit (usually 3% of the purchase price) to escrow.
2. Prepare Escrow Instructions. The escrow instructions are a set of papers outlining all the terms of the agreement that the principals (buyer and seller) have agreed to. It also lists the financial obligations and the amount of the initial deposit.
3. Order Title Search. A title search is performed on the subject property, resulting in a “Preliminary Report” from a title company. The title company was determined by the Buyer and Seller in the purchase agreement. The escrow holder examines this report for items not negotiated in the purchase agreement. For example, is there a lien (or additional loan) on the property that wasn’t reported? The seller must clear any such item or it must be brought to the attention of the buyer.
4. Request Demands and/or Beneficiary Statements. This request for information goes to any lenders of record.
5. Accept Structural Pest Control Report and Other Reports or Inspections. These reports might include plumbing or roofing reports. They all pertain to the property’s condition, and are kept in escrow.
6. Accept New Loan Instructions and Documents. This happens if the buyer is obtaining new financing for the home. The escrow holder also obtains the buyer’s approval/execution of the documents. The escrow agent must also satisfy all lender’s instructions before using the lender’s funds to complete the transaction.
7. Accept Fire Insurance Policies and Complete Settlement. It is necessary for the Buyer to obtain their own fire insurance policy on the subject property prior to the close of escrow, and deliver a copy of that policy to escrow.
Escrow also makes any required payments for property taxes, which are prorated to the date of the close of escrow. In most cases, the Buyer will also receive a supplemental property tax bill which reflects the difference between the Seller’s assessed value and the new purchase price.
8. Request Closing Funds. The escrow holder cannot disburse any funds until all items, such as checks or drafts, have cleared and become available for withdrawal.
9. Audit File in Preparation for Closing. The escrow holder makes sure all required documents have been received and signed, and distributes the closing funds to the parties due money. This could include the Seller, the Seller’s mortgage company, the real estate agents’ commissions, and payment for any inspections or reports performed during escrow.
10. Order Recording. At this point, the escrow holder orders that title be recorded at the county clerk’s office in the new owner’s name. This can happen at any point in the day, but usually occurs by 5pm. You cannot take possession of your new home until this has been completed, for liability reasons.