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Escrow Decisions

Buying a property is an exciting yet scary time. Escrow is the last hurdle before the sale closes and it can provide buyers and sellers with one final chance to back out of the sale depending on whether the contingencies or escrow instructions are followed.

Below are the various decisions you will need to make regarding your escrow:

1. What type of escrow holder?

  1. Title insurance company;

  2. Independent escrow company;

  3. Financial institution;

  4. Real estate broker; or

  5. Attorney

The most commonly used escrow holders are either title insurance companies or independent escrow companies.

When deciding what type of escrow holder to choose, make sure to consider their financial strength and their experience. These two considerations are the most important to ensure that the escrow process flows smoothy. Other considerations include impartiality, reputation, accessibility, and cost.

2. Will you submit joint or separate escrow instructions?

Separate escrow instructions are generally less complex and easier to prepare than joint escrow instructions. However, any savings in initial drafting time must be weighed against the additional time that may be required to review separate instructions and eliminate any material inconsistencies between the seller’s and buyer’s instructions.

3. What obligations must be performed by seller?

Ensure that the seller has proper title, that there is title insurance, and that any additional encumbrances are clear (easements, neighboring wall agreements, boundary agreements, etc.).

If personal property (i.e. furniture) is going to be conveyed to the buyer ensure that the escrow clearly details what furniture is going to be left.

If the property is in an HOA ensure that there is a smooth assignment/transfer between the seller and the buyer in the HOAs system.

If the seller needs to conduct pest control, fix pipes or water damage, etc. before the sale, ensure that is covered in the escrow instructions as a contingency to close.

Buyer will want to detail the type of inspection or corrective work to be done by the seller.

If seller's insurance, maintenance agreements, service agreements, rental agreements, etc. are being assigned to the buyer ensure that the seller does so before escrow closes.

4. What obligations are owed from the buyer?

Detail the deposits, their amount, how often, how they will be made (i.e. check, cash, wire, etc.). Execute a promissory note that evidences the debt that correctly states the amount and due date.

Seller will want a deed of trust to secure the promissory note in the event that the buyer defaults. This will ensure that the seller has a secured interest in the property in order to recoup their funds. If the mortgage is a seller carry-back then the deed of trust will be treated as a purchase money mortgage and will be given super priority.

Detail what insurance and how much insurance will be tied to the property/sale.

Detail any other agreements that buyer must enter into with a third party.

5. When will escrow close? Are their contingencies to close?

Do you need additional actions to be performed in order for escrow to close? If so ensure you allow yourself enough time for the escrow as a whole.

If there are contingencies to close (i.e. buyer getting financing, seller finding a new home, buyer obtaining proper permits, etc.) ensure that the escrow length reflects that it will not close until the contingencies are met. Put in a "drop dead" date -- meaning that if so much time has elapsed and contingencies still have not been met, that the escrow is canceled.

6. How will the escrow be canceled?

There could either be an occurrence or nonoccurrence of a condition that automatically cancels the escrow, or the escrow can be closed is someone asserts their right to cancel.

7. Is the contract prorated?

Consider the real property taxes, special assessments, maintenance fees, HOA dues, insurance policies to be transferred, utility bills, or rents paid to buyer.

Proration through escrow is less important if the amount that is likely to be credited or debited is nominal in relation to other amounts involved in the transaction. Your goal however is not to complicate the escrow, which may delay closing. So weigh the cost and benefits of prorating inside the escrow.

8. Who is obligated to pay for the following:

  1. Real estate commission.

  2. Cost of preliminary report and title insurance policy.

  3. Initial pest control report.

  4. Corrective pest control work, if any.

  5. Fees for building and/or health code inspection and report and cost of necessary corrective work.

  6. Documentary transfer tax and any local transfer tax.

  7. Fee for reconveyance of existing deed of trust.

  8. Recording fees.

  9. Fees and charges for services of escrow holder.

Determine whether any of above costs and expenses should be paid by parties outside of escrow. Consider the nature of the cost, amount, custom, feasibility, creditor's willingness to pay, likelihood of despite, and effect of providing for payment out of escrow in event of dispute.


If you need help making these decisions or want one of our attorneys to review your escrow instructions and/or contingencies, contact us today for a FREE phone consultation: (800)-233-8521.

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