What Should You Know About Escrow Companies?

You will most likely encounter an escrow company or process, when you buy or sell a home. An escrow company provides a neutral third party that acts like a secure holding place for funds “in play” during a property sale. While the funds are secured in a safe place, the parties fulfill their agreements, and then funds are released by the escrow agent at closing.

Escrow is not always money. It can be property or other assets. The purpose of escrow is to establish trust between the buyer and seller by holding the seller accountable for all details of the sale. Without escrow, both parties could lose some financial protection, or even expose themselves to fraud.

How Does An Escrow Company Work?

When a homebuyer wants to make an offer to a seller, they typically supply some earnest money to show they are serious buyers. This takes the property into a sales process involving conditions and contractual obligations of the sale. The escrow agent or company charges a fee for safeguarding these funds (and the home’s title) until all conditions are met.

For example, a successful sale could involve repairs a seller must make, or proof of recent survey, or discovery of questionable aspects of an inspection. While the parties work on these issues, the buyers are assured they are on the way to a sale, and the sellers can’t pocket their escrow money if the going gets rough.  The escrow process is designed to protect both parties from a sloppy or fraudulent transaction.

California Title Companies Can Provide Escrow Services

As long as they are licensed by the California Insurance Commission, title insurance companies can provide escrow services. Title companies already provide the documentation and signing process, the exchange of funds and the liaison to lenders. They are responsible for providing an error-free process for the smooth transfer of funds between the buyer and seller, and the lender.

Real estate transactions in California can happen quickly and involve very large sums of money. It is essential that terms of the sales agreement are met, titles are clear, and funds placed in escrow are managed professionally.

What if My Escrow Company Makes a Mistake?

Mistakes happen. If you purchased a property and discover an error, your escrow company might have liability.  Review all documents carefully before signing them.  You want to review the Seller’s Estimated Settlement Statement for math errors, especially if there are multiple sellers who are taking a different percentage of the sales price.  Escrow companies are liable when mistakes occur.  If you discover an escrow error after your sale was closed, contact a real estate attorney to discuss your options.

Know Your Rights. Protect Yourself.