You want the assurance that no funds or property will change hands until all of the instructions in the transaction have been followed. The escrow holder safeguards the funds and/or documents until all provisions of the escrow have been complied with. The escrow holder will then disburse funds and convey title.
The selection of the escrow holder is normally done by agreement between the principals in any transaction. If a real estate agent/broker is involved in the transaction, the broker may recommend an escrow holder. However, it is the right of the principals to use an escrow holder who is competent and who is experienced in handling the type of escrow at hand.
Please keep in mind that an escrow officer cannot give legal advice. The purpose of escrow is to carry out the mutual instructions of the buyer and seller. If there are any disagreements between the principals, the escrow officer remains neutral until an agreement is negotiated. Furthermore, the escrow officer will never become involved in the negotiations. Your primary consultant should be your real estate agent/broker if the negotiations have been conducted through them. The escrow officer will often refer you to the real estate agent/broker, legal counsel, or quite possibly a tax adviser.
If you are selling your property, a Franchise Tax Board form (593) Real Estate Withhold Certificate will come to you with your initial paperwork from escrow. This form asks questions that will qualify whether or not it is necessary to send a portion of your sale proceeds to the Franchise Tax Board as prepayment of income taxes. NOTE: If you are selling your primary residence, you have lived in the home 2 out of the last 5 years, you are doing a 1031 tax deferred exchange or are subject to a loss, you will not be subject to real estate withholding.
Proration’s are a debit/credit through escrow for taxes and homeowner's association dues for the current installment. Example: If you are closing escrow in September, 1st installment taxes began 7/1 but are not due yet. The seller would credit the buyer from the first day of the installment (7/1) to the day you close escrow (last day property was owned by seller) based on the latest available tax bill. Buyer will be responsible to pay the full amount of taxes when due in November, but has already been credited from seller for the time the seller owned the property.
The closing can take place when all instructions have been complied with and both sides of the transaction have fully performed. After all funds have been collected and costs paid, the property title can be transferred. Parties are not present for closing and once the documents are recorded with the county title is transferred and escrow considered closed. Recorded documents and new title policies will be mailed to you after closing from the county and title company.
