Escrow is the depositing of funds and documents by the Sellers and Buyers with a neutral third party for delivery upon completion of the terms of the escrow instruction. The word escrow is derived from the French word ‘escroue’ meaning a scroll or roll of writing.
After the funds and documents have been delivered to the Escrow Officer, it is said that they are being held “in escrow”. We may also say the parties have “opened an escrow”.
PURPOSE OF AN ESCROWThe common use of an escrow is to enable the parties in a real estate transaction to deal with each other with less risk, since the escrow holder acts as:
- Custodian for funds and documents
- A clearing house for payment of all demands
- An agency to perform the clerical details for the settlement of the accounts between the parties.
At the time an escrow is opened, a Preliminary Title Report is ordered and copies delivered to all parties. The “Prelim” provides the customer with an analysis of the present status of the property as revealed by the public records filed in the county in which the property is located.Upon receipt of the “Prelim”, an analysis is made to determine the necessary actions and documents required to complete the transaction. i.e. demand for satisfactions of liens; documents for recording; and instructions and requirements of the new lender.