There are a whole bunch of terms specific to real estate. Given that most people buy and sell very few pieces of property in their lifetimes, learning the language of real estate isn’t something the average person really cares to do with their time. In an effort to help educate you — our astute reader — we’ll be providing a real estate term definition here at least weekly.
Many people have asked us, “What the heck does escrow mean?“.
Here are several “book definitions” of the word escrow:
The holding of funds, documents, securities, or other property by an impartial third party for the other two participants in a business transaction. When the transaction is completed, the escrow agent releases the entrusted property.
An account in which a neutral third party holds the documents and money in a real-estate transfer until all conditions of a sale are met. Also, an account in which money for property taxes and insurance is held until paid; money is added to the account every time a mortgage payment is made.
The placement of money or documents with a third party for safekeeping pending the fulfillment or performance of a specific act or condition.
The state of a deed, funds, etc. put in the care of a third party until certain conditions are fulfilled.
You get the idea…. a key element in all of these definitions is “third party”. In Arizona, the third party is typically a title company. An attorney can also serve as an escrow agent (but really, why involve an attorney any more than absolutely necessary?!?). Some full-service banks still have escrow departments. But 99%+ of all escrow activity (at least in Arizona) are handled by title companies. And it isn’t hard to find a title company—just get in your car, point it in any random direction and drive. Within 5 minutes you’ll come across a title company.
Not all title companies are created equal though. We have our favorite, and a couple more that are very good. We also have a few title companies on “the list”… we avoid doing business with these title companies whenever possible.
This is what takes place immediately after both the buyer and seller, assisted by a qualified Real Estate Agent, have agreed to the provisions of a contract and have signed that contract. The Real Estate Agent then takes the contract to a competent Escrow Agent and the work of transferring the title to the property begins. A complete search of public records pertaining to the subject property is made to determine if, in fact, that property has marketable title. Simultaneously, proper instruments are prepared, taxes are prorated, lenders are contacted, assumptions and/or payoffs are ordered and inspections are completed. The Escrow Officer and Real Estate Agent work together to compile all needed paperwork and funds essential to close the transaction in an orderly manner. When the closing date comes, the Escrow Officer is then ready to disburse funds to the proper parties and record the new documents of ownership. The sellers receive the funds due to them and the buyers legally own their new property, with the assurance that the title to that property is free of any defects.
Clear as mud? There is a LOT that goes on “in escrow”. A title company is one of the key players in ensuring a smooth real estate transaction. A great title company can help overcome many obstacles. A bad title company can create a lot of obstacles. Choose carefully!