An escrow is an arrangement in which a neutral third party (the escrow agent) assembles and processes all of the components of a real estate transaction (including legal documents), records the transaction, and ultimately, disburses and distributes funds according to the buyer's and seller's instructions. Your transaction is typically closed by an Escrow Officer or LPO (Limited Practice Officer) in Washington State.
People buying and selling real estate often open an escrow for their protection and convenience. Hiring an escrow is not required but it is highly recommended. Both the buyer and seller rely on the escrow agent to carry out their mutually consistent instructions relating to the transaction and to advise them if any of their instructions are not mutually consistent or cannot be carried out. If the instructions from all parties to an escrow are clearly drafted, the escrow officer can take many actions on behalf of the buyer and seller without consultation. This saves time and facilitates the closing of the transaction.
Typical Roles in the Escrow Process
The Escrow Agent
- Obtains the order for title insurance
- Obtains approvals from the buyer(s), the commitment for title insurance, and any other inspections that are called for in the purchase and sale agreement.
- Obtains any required payoffs / release documents required to clear title.
- Receives funds from the buyer and/or lender.
- In most cases, prepares vesting documents and excise tax affidavit on seller's behalf.
- Prorates insurance, taxes, rents, etc.
- Prepares a final statement (commonly referred to as the "HUD Statement","HUD1", or "Settlement Statement") for each party, indicating amounts paid in the conjunction with the closing of your transaction.
- Oversees the signing of a loan documents.
- Forwards deed to the county for recording.
The Seller / Agent
- Delivers a fully executed purchase and sale agreement to the escrow agent.
- Executes the paperwork necessary to close the transaction.
- Deposits any amendments to the purchase and sale agreement.
The Buyer / Agent
- Deposits funds required to close (in addition to the purchase price) with the escrow agent.
- Approves any inspection reports, commitment for title insurance, or other items as called for by the purchase and sale agreement.
- Fulfills any other conditions specified in the purchase and sale agreement.
The Lender (when applicable
- Deposits proceeds of the loan.
- Directs the escrow agent on the conditions under which the loan funds maybe used.