What is escrow?
Escrow is a legal arrangement in which a third party temporarily holds money or property until a particular condition has been met – such as the fulfillment of a purchase agreement. Typically, once a buyer and seller agree to a purchase agreement, the seller will open escrow and the buyer will send a percentage of the purchase money to escrow. Escrow will hold the deposit money, review the purchase agreement, and calendar important dates in the transaction. If the Escrow does not close, the buyer will be refunded all or some of their deposit and the escrow will be terminated. If the transaction moves forward, escrow will disburse transaction funds for prorated property taxes, title insurance fees, real estate agent fees and ensure all documents are signed and prepare a new deed naming the buyer the property owner.
Why work with an independent escrow company?
Independent escrow companies are standalone providers that only execute escrows. Independent escrow companies are heavily regulated by the state of CA and are required to:
- Hold a valid state-issued escrow license.
- Maintain bonding requirements.
- Employ a Manager of Escrow with experience requirements.
- Undergo Department of Justice investigation of all employees.
- Maintain financial liquidity requirements.
- Undergo annual CPA audit.
- Undergo regulatory audits amongst additional state regulations.
Escrow can be provided by banks, real estate brokerages, and title companies, however, these escrow providers undergo little of the regulatory processes required of independent escrow companies and are not required to comply with items 1 – 7 above.
Is my money safe?
Nearly all banks have insurance through the Federal Deposit Insurance Corporation (FDIC). This protection covers $250,000 “per depositor, per insured bank, for each account ownership category.” This insurance covers a range of deposit accounts, including checking, savings and money market accounts. The issue with the recent bank closures is that companies and high-net-worth individuals had deposits far above what is covered by the FDIC. However, the U.S. government has said it will fully protect all depositors at Silicon Valley Bank and Signature Bank and ensure that everyone has full access to their funds, including deposits that exceed the FDIC limit. Although the FDIC protected Silicon Valley Bank and Signature Bank depositors, there is no guarantee the FDIC will take such protective actions in the future.
What is title and title insurance?
A title company is a company that helps to ensure that the seller of a property actually has the right to sell the property. They do this by reviewing the title of the property thru public records related to the property to look for any problems with the title and then issue a title report before the real estate closing. A title company will also issue a title insurance policy, which protects the buyer and lender from any losses that may occur if there are problems with the title. Title reports and title insurance are required by mortgage lenders. Therefore, if there is anything wrong with the title, the seller will need to fix it so the sale can proceed.
Please contact us should you have any questions about these FAQs.
