What is Escrow?

In California, properties are typically purchased using escrow. Escrow is a process that evolved to ensure protection for all parties to a real estate transaction. An escrow is created when money and/or documents are deposited with an escrow officer, who is employed by an independent escrow company or title company. The escrow officer’s authority is strictly governed by written instructions, mutually agreed upon by the parties involved. The instructions direct the escrow holder to perform duties necessary to complete the transaction.

A few tasks that may be required

Receive and deposit earnest money
Order information for payoff of existing liens
Calculate and/or prorate taxes, liens, interest, rents, and insurance policies
Make arrangements for title insurance protection for the buyer and lender
Prepare and/or receive documents relating to the escrow
Request and receive funding from new lender when conditions have been satisfied
Arrange for recording of the conveyance documents and any other legal instruments required to transfer title to the property pursuant to the terms of the purchase agreement
Close the escrow and disburse funds as agreed upon in the instructions
Prepare a closing statement for the parties showing disposition of funds

Definition of “Escrow” from Black’s Law Dictionary

A writing, deed, money, stock or other property delivered by the grantor, promissor or obligor into the hands of a third person, to be held by the latter until the happening of a contingency or performance of a condition, and then by him delivered to the grantee, promissee or obligee. A system of document transfer in which a deed, bond or funds is delivered to a third person to hold until all conditions in a contract are fulfilled.

Fun Fact

Escrow practices evolved from English common law. The word “escrow” is actually derived from the Middle English (12th to 15th century) word for “scroll”, on which all of the escrow instructions and lists of properties were recorded.