What is an escrow and what happens in Escrows?
An escrow is an arrangement in which a neutral third party, in Utah, a Title Company, holds legal documents from the buyer, the seller and the lender, and funds on behalf of a buyer and seller, and distributes the funds according the buyer and seller’s instructions via a purchase contract. In Utah there can be a split closing. That is when the buyer and the seller use different title companies. Each party then has a separate title company looking out for their best interest.
People buying and selling real estate open an escrow for their protection. The buyer instructs the title company (via the contract) to disburse the purchase price only upon the satisfaction of certain prerequisites and conditions.
The seller instructs the title company (via the contract) 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 their title company to carry out faithfully their mutually consistent instructions relating to the transaction and to advise them if any of their instructions are not consistent or cannot be carried out.
An escrow is important in that both can move forward separately but simultaneously in providing inspections, reports, loan commitments and funds, deeds and many other items, using the title company as the central depositing entity.
If the instructions from all parties to an escrow are clearly drafted, fully detailed and mutually consistent, the title company can take many actions on their behalf without further consultation. This saves time and facilitates the closing transaction.
Typical instructions to the Title Company
The method by which the title company is to receive and hold the monies to be paid by the buyer.
The conditions under which a lapse or breach of purchase contract provision will terminate the escrow without a closing.
The instruction and authorization to the title company to disburse funds for recording fees, title insurance policy, real estate commissions, and any other closing costs incurred through escrow.
Instructions as to the pro-ration of insurance and taxes.
Instructions to the title company on the payment of prior liens and charges against the property and distribution of the net sales proceeds.
The duties of the Title Company
Opens the order for title insurance (provided by seller to buyer at closing).
Obtains approvals from the buyer on the Preliminary Report, pest and other inspections.
Receives funds from the buyer and/or any lender.
Prorates insurance, taxes, rents, homeowner association fees, 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.