What Is Needed to Open Escrow in California?
In California, when an escrow is opened, it refers to a transaction between two parties, a buyer and seller, who engage an escrow company to act as a neutral third party in some form of purchase transaction. Funds are deposited in the escrow to enable the purchase. An escrow transaction is opened when a buyer and seller sign formal escrow instructions drawn up by the escrow company that allows the escrow company to act on their behalf. Escrow companies are commonly used in real estate transactions, however, escrow companies are also used in some personal property transactions such as the exchange of a valuable collectible. A California escrow company can only act based on the written instructions of a buyer and seller.
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The Purchase Agreement
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To open an escrow in California, you’ll need a fully executed – signed – purchase agreement that spells out all the specific details of a transaction between a buyer and seller.
This is necessary because the escrow company will need to prepare “escrow instructions” based on this agreement that spells out the terms of the transaction, such as the length of escrow, purchase price, terms and good faith deposit. Once an escrow company receives signed escrow instructions by both the buyer and seller, the escrow company can then represent them both in the transaction.
Information Needed to Open Escrow
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California escrow companies need the complete contact information of the buyer and seller, including phone numbers and addresses. If the escrow transaction involves the payoff of an existing loan, which is typical in a real estate transaction, the company will need the payoff information on the loan, which includes the loan number, customer service contact information and estimated payoff balance. These items can usually be found on the seller’s last loan-payment coupon. Escrow companies will also need to know which title company to use for title insurance as well as the insurance carrier that will insure the property when the buyers take possession.
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Escrow Deposit Funds and Title Transfer
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Most escrow transactions in California involve some form of initial good-faith deposit from a buyer, which is given to the escrow company to hold until the transaction closes. An escrow employee will deposit these funds into a trust account. The escrow company will also need a grant deed from the seller that grants legal title from the seller to the buyer. If the escrow transaction doesn't involve real estate, then personal property evidence of title such as a pink slip or receipt might be held by escrow. If the escrow company prepares the initial transfer deed, they’ll need to know how the buyers will wish to hold title, such as joint tenancy or tenants in common.
Considerations
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If you’re unsure about which escrow company to use for your transaction, contact a local broker in your area for a recommendation. Most title companies offer escrow services. When you open an escrow, you should receive an estimated listing of all charges and services that will be required, such as title insurance, appraisals, credit reports and pest control inspections.
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