The Escrow Process - Part 2: Who are the Various Parties and their Roles in an Escrow?
Typically in an escrow the parties to the transaction are:
- Seller
- Buyer
- Buyer's Lender (if they are obtaining a loan)
- Seller's Agent and Broker
- Buyer's Agent and Broker
- Escrow Officer and Escrow Company
- Title Representative and Title Company
- The bank that holds the mortgage on the property
The seller's responsibilities during an escrow are to provide the seller with whatever documentation regarding the property that is stated in the purchase contract. Some of these items may include a Transfer Disclosure Statement, Seller Property Questionairre, Local Area Disclosures, Termite Report, Preliminary Title Report, Homeowner's Association documents (if an HOA exists on the property), retrofitting report, natural hazard report, and any city or county related documents required in the contract.
The buyer's responsibilities during an escrow are to provide proof of funding, proof of loan pre-qualification, and to remove, at various stages, the contingencies written into the contract at the stated timelines such as inspection contingency, loan contingency, seller-related reports contingency, termite clearance contingency, and other various reports that are due to the seller. It is also the responsibility of the buyer to bring the down payment funds stated in the contract into escrow towards the end of the escrow. And finally, the buyer needs to submit a property verification of condition report, typically referred to as the "final walk-through", to state whether or not the property is in the same state and physical condition it was when they first submitted the offer, and if not, the buyer will note the exceptions to that on that form.
The buyer's lender's responsibilites during an escrow are to perform an appraisal on the property to support the agreed upon purchase price, and/or any requirements related to that buyer's particular loan package related to the physical condition of the property, and/or any required documents related to the property. The lender will usually have to provide evidence of full loan approval by a date stated in the contract, and lastly they are responsible for wiring the funds from the buyer's obtained loan to escrow for distribution.
The seller's agent and broker's responsibilities during an escrow are to assist the seller with complying with the residential purchase agreement (contract) by helping them to execute and submit any required documents required by either escrow or perhaps the buyer's broker. The seller's agent (typically referred to as the "listing agent") will usually be required to fill out and submit an "Agent's Visual Inspection Disclosure (AVID)". This is a form that basically states what the agent sees about the property from an outwardly visual glance, and/or if there is anything abnormal that they see. It is important to note that the seller's agent DOES NOT act in the capacity of an inspector with this. It is just an outward visual glance and notation of anything appearing abnormal.
The buyer's agent and broker's responsibilities during an escrow are to assist the buyer with complying with the purchase contract by helping them to execute and submit any required documents required by either escrow or perhaps the seller's broker. The buyer's agent (typically referred to as the "selling agent") will usually also be required to fill out and submit an "Agent's Visual Inspection Disclosure (AVID)" identical to the one stated for the listing agent. It is very important for the buyer's agent to assist the buyer in meeting the contingency deadlines stated in the contract. They play a critical role in making sure the buyer understands all forms and elements of the purchase contract.
The escrow officer's responsibilities during and escrow are to make sure that and required documents have been executed completely and legally, and that both buyer and seller adhere to the requirements and deadlines of the purchase contract. When all of those requirements have been met, they see to it that funds are distributed to all parties of the contract as stated in the contract. Escrow does not play a role in any broker required documents, just those required in the purchase contract. I like to refer to escrow as the neutral 3rd party or "referee" if you will.
The title officer's responsibilites during an escrow are to provide the parties with a preliminary title report on the property, and then at the very end of the escrow, to wire the net proceeds to the mortgage holder on the property for payoff, and through escrow with any remaining proceeds to the seller of the property, and then record the grant deed with the county assessor's office. If there are any issues or sometimes referred to as "clouds" on the title of the property that prohibit it's free and clear transfer of title, they may assist with working those issues out and/or obtaining whatever administrative remedies required to provide free and clear transfer of title. The title company will also obtain a title insurance policy for the buyer, usually paid for by the seller.
The bank that holds the mortgage on the property will play a varied role depending on whether or not the property is a "distressed" property, commonly referred to as foreclosure, pre-foreclosure, or short sale. In a standard sale that is not a distressed property, the bank will simply provide a payoff amount on the mortgage to escrow, which is a payoff amount required by a specific date. If that date cannot be met, then they will typically require more funds to payoff the loan due to additional interest being accrued. If it is a distressed property, then the bank will play a larger role in the escrow transaction, and depending on the type of distressed property, will provide additional terms and approvals for the sale in the form of either a bank addendum or written short sale approval with their terms of sale.
Now, of course there are other parties who play a supporting role in the transaction such as a physical inspector, termite inspector, retrofitting company, appraiser, etc., all of which help supply some of the documents required for the contract and escrow.
OK, kids. That's pretty much it in a nutshell. Now go play nice!
This is Part 2 of a 7 part series in which we will discuss the various elements of an escrow in great detail:
Part 1 - What is an Escrow?
Part 2 - Who are the Various Parties and their Roles in an Escrow?
Part 3 - What are Different Escrow Fees and what do they mean?
Part 4 - What are the Legalities Surrounding an Escrow?
Part 5 - Escrow Timelines brokend down in Layman's Terms
Part 6 - Escrow Cancellations: Why and How does This Happen?
Part 7 - The Escrow Closing: The Details of Doing the Snoopy Dance
