What Is Escrow?

“Escrow” means any transaction where the parties — for the purpose of closing a sale or refinancing — deliver documents and/or money to a third party — an Escrow Agent, until certain events happen or until the performance of certain conditions occurs. At that time, the documents and/or money are delivered to those parties specified in written instructions given to the Escrow Agent by each party (seller, buyer, lender, borrower).

An Escrow Outline

Receive request to open escrow

  • Earnest money agreement (from buyer, seller or real estate agent)
  • Loan application (Form 1003) and good faith estimate (from borrower, lender or mortgage broker)

Order Preliminary Commitment for Title Insurance (title report). Information required:

  • Buyer and seller or borrower name(s)
  • Property legal description and street address
  • Amount of coverage (sale price or loan amount)

Send Preliminary Escrow Instructions and Limited Practice Officer’s Disclosure to buyer and seller or borrower; enclose copy of title report if available, or follow later

Send request for payoff or assumption statement to existing lender(s)

Clear title encumbrances and/or defects:

  • Judgments and liens, including existing mortgages and deeds of trust
  • Assessments
  • Homeowner’s dues
  • Leased fixtures
  • Probate matters
  • ALTA clearance for lender’s policy
  • Encroachments

Communicate with realtor, mortgage broker and lender regarding new loan documents, closing date, lender’s conditions, etc.

Receive loan documents from new lender:

  • Review and complete lender’s documents where necessary
  • Order hazard (fire) insurance binder from buyer’s/borrower’s agent
  • Clear lender’s conditions
  • Follow all of lender’s instructions

Prepare closing documents:

  • Closing Escrow Instructions and Limited Practice Officer’s disclosures
  • Estimated Settlement Statement
  • 1099 information for seller
  • Warranty Deed and Excise Tax Affidavit
  • Any other legal documents required and which the Limited Practice Officer is authorized to prepare

Schedule and attend separate appointments for buyer and seller or borrower to sign documents. Appointments are approx. 45 minutes to one hour in length; either party may sign first. At this time all money due to close the transaction must be submitted into escrow. The Washington Collected Funds Law requires that these funds be in the form of a wire transfer or a cashier’s check drawn on a Washington bank, delivered to the Escrow Agent at least 24 hours prior to closing an disbursement.

Assemble document package for delivery to lender for its review and approval prior to closing

Receive lender’s approval for closing with itemization of funding amount

Authorize title company to record documents with county recorder; pay excise sales tax to county treasurer

Audit file and prepare final settlement statement

Prepare checks (usually 6-10 per escrow); disburse all money and documents held in trust in accordance with parties’ instructions and settlement statements:

  • Deliver payoff checks to former lenders with interest sufficient to date received
  • Disburse commission checks to realtors
  • Disburse fees to mortgage broker
  • Disburse funds due to seller and/or refunds due to buyer or borrower
  • Pay out any other amounts identified on settlement statement, including title insurance premiums

Prevail upon paid off lender for issuance and recording of release of mortgage or deed of trust