Escrow: An impartial and neutral third party

Escrow – An Impartial and Neutral Third Party Depository

In California, the word “Escrow” may have a couple of meanings. It can be the type of account you set up with a Lender to impound your property taxes, insurance, and mortgage insurance payments. The other meaning, which is used mostly in California and some of the other western states, describes the “settlement service” industry.

In the latter context an “Escrow” is the process of depositing money and documents with an impartial neutral third party who will hold them until all the mutually agreed upon conditions between the parties have been met.

Why do we need this third party? The main reason is because the parties may not “trust” each other. How do I know you will give me what I want once I give you the money? Unlike merchandise, I can’t just walk into a store, hand the money over the counter and get back a Deed to a property free and clear. So here are the main reasons:

1. The lack of “trust” between parties
2. The need for a formal binding contract for all parties to perform
3. The need for title insurance (real property transfer)
4. The need to transfer some type of government license (alcohol license)
5. The need for a clearing house to payoff liens, debts and vendors
6. The need for a full accounting of funds and documents

Together with impartiality and neutrality, we also adhere to the concept of confidentiality and the principle that we will not impart any legal or financial advice.

There are various types of escrow transactions that we handle.

• Sale of real estate property (Sale Escrow)
• Refinance or new loan on real estate property (Loan/Refinance Escrow)
• Sale of a business (Business Opportunity Escrow)
• Delivery of goods or other types of documents, etc. (Holding Escrow)

Different types of escrows involve different types of laws and government regulations which may change from year to year. It is imperative, for the clients’ benefit, that the Escrow Officer is up-to-date on all the laws and changes at all times.

If a simple diagram were to be drawn with respect to the connections between the parties in a sale escrow transaction, you will find the Escrow Holder carrying out instructions pursuant to the Contract between the Buyer and Seller, obtaining the documents and reports necessary, communicating with the Lender for loan documents, getting the funds from Buyer and Lender to close, and finally, paying the liens, the Vendors and disbursing final net proceeds to the Seller. We are in the center of the settlement process.

Please view our short video on “What is an Escrow”.