Escrow is to home buying what engagement is to marriage. After a lengthy and often frustrating search, you find the perfect house or spouse. To demonstrate your commitment, you tender a bank-account-breaking deposit or engagement ring.
Next, you agree to a future date on which to exchange title and money (escrow) or rings and vows (marriage). You spend the time in between the proposal and the Big Day investigating whether your potential house or spouse is all that it or he or she appears to be. Meanwhile, your intended is analyzing whether you have the financial means to be partnered for many years.
While most escrows and engagements ultimately lead to commitments, many--experts estimate 10% to 20% of Southern California escrows--do not. Vanessa Garcia learned the hard way that being "in escrow" doesn't necessarily lead to homeownership.
Garcia and her boyfriend, Efrain Sanchez, were initially thrilled when the seller of a home in Oxnard agreed to accept their $229,000 purchase offer. According to the terms of the purchase contract, Garcia and Sanchez deposited a hard-earned $6,000 with Lawyers' Title Co.'s escrow division.
With the help of a counselor at the Cabrillo Economic Development Center, an organization dedicated to helping low-income residents become first-time homeowners, the couple had pre-qualified for a loan.
Troubles began for Garcia and Sanchez shortly after escrow opened. At the time Garcia had entered into the purchase agreement for the home, she was still married to her estranged husband. The lender would not fund the loan without a written release from him, but she was unable to obtain one.
With the closing date looming, Garcia verbally requested an extension. Believing that her request had been granted, Garcia continued to try to obtain financing. In the meantime, the seller had re-listed the home and increased the asking price.
Garcia found out the hard way that she had lost the house to another buyer. While walking past the residence she noticed a moving van. She was shocked to discover that the movers were unloading someone else's furniture into "her" home.
"We were all bummed out--sad and depressed," Garcia said. "I was crying."
Now, nearly a year after making an offer on the property, Garcia and Sanchez still live with Sanchez's parents. To add insult to injury, the escrow company is holding their deposit. Linda McClain, the escrow officer who handled the transaction, said she is unable to release the deposit without joint instructions from the seller too.
Meanwhile, Garcia's and Sanchez's income did not keep pace with the supercharged Southern California real estate market.
"[Comparable] houses have gone up to about $300,000," Garcia said, "so now I feel like we will never be able to afford a house."
Mary Patterson, vice president and Ventura County escrow manager of Fidelity National Title Co., said that a buyer's inability to qualify for a loan--which prevented Garcia's escrow from closing--is a frequent cause of escrow failures.
According to Patterson, who is also a member of the Ventura County Escrow Assn., the other common reasons that escrows fail to close are: the buyer's income decreases; the inspector discovers a substantial defect during the physical inspection; and/or the buyer discovers something negative about the property or the homeowners association during the initial "due diligence" period.
Although escrow today is a rigid and frequently intimidating process, it did not start out that way. In the early days of this country, when legal descriptions of real property might read "from the big oak in front of the Smiths' house to the well on the Jones' farm," the transfer of property from buyer to seller was quick and simple. The seller and buyer, who most likely knew each other well, would simultaneously exchange a deed for cash or a bank check.
But as cities grew, the parties to real estate transactions were less likely to be personally acquainted, causing proof of ownership to become a serious concern. In the 1880s, the first title insurance policies were written to quell anxieties over whether a seller was the legal owner of the property he was attempting to sell.
Approximately a decade after title insurance policies became a common part of real estate transactions, the first escrow in Southern California supposedly occurred when a man, on his way out of town, asked the title insurance clerk to deliver his deed, collect the money from the buyer and send him the sum of $1,000.
Although today's highly regulated and paper-intensive escrows barely resemble their early "I'll give you the title if you give me the cash" predecessors, the basic philosophy underlying the system--permitting a neutral party to participate in real property transactions so that both parties are protected--remains unchanged.
The modern-day escrow officer is legally obligated to precisely follow the escrow instructions agreed to at the beginning of the transaction by the buyer and the seller. The buyer's and seller's personal concerns--"Did I overpay for the property?" "Can I live with green carpet?"--do not fall within the escrow holder's domain.
Lola Levoy, owner of Beverly Hills Escrow and a practicing escrow agent with 37 years' experience, said that she sees more residential properties falling out of escrow today than at any time in her career. Levoy theorizes that the overheated Southern California real estate market is the culprit.
"Buyers are overbidding to get into properties, and sellers spend the time during escrow questioning whether they sold too low. The result is that both the buyer and seller are very nervous that they made a mistake, and may attempt to back out of the deal," she explained.
She sees savvy real estate brokers agreeing to very short escrows so that their clients will not have time to dwell on their decision.
According to Levoy, the best way for a buyer to achieve a positive escrow experience is to carefully read the purchase agreement, and to communicate his intentions to the seller.
"The buyer falls in love with the beautiful Tiffany lamp over the breakfast nook and assumes that it is part of the deal," Levoy said. "Meanwhile, the seller has no intention of parting with Auntie's heirloom. Buyers are so caught up in the house and whether or not their furniture will fit that they don't read the escrow instructions."
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The following timeline is based on a hypothetical 30-day escrow. Individual escrows may follow a different schedule and require different documents.
Buyer and seller sign residential purchase agreement and joint escrow instruction form and any other documents required by real estate agents. Buyer makes a good-faith deposit.
Residential purchase agreement, joint escrow instructions and good-faith deposit are delivered to the escrow company.
Escrow company sends out additional escrow instructions and other pertinent documents to buyer and seller, brokers and buyer's lender.
Buyer and seller return all escrow documents. Buyer proceeds with physical/geological inspections on the property. (Buyer typically has 14 days from the date of acceptance to complete these inspections.) Buyer's lender provides written loan approval and time frame for loan documents.
Termite report is prepared. Preliminary title report, natural hazard disclosures report, city reports, retrofit ordinances and homeowners association documents (if any) are sent to the buyer and seller.
Buyer and seller approve any outstanding conditions.
Loan documents are sent to escrow company.
Buyer signs loan documents. Balance due is wire-transferred to escrow company.
Loan documents are returned to lender.
Lender reviews documents. Buyer's closing funds must be deposited into escrow before lender funds the loan.
Lender schedules transfer of funds.
Title receives lender's wired funds. The escrow company authorizes the title company to release documents for recording the next day.
Escrow closes when escrow holder receives confirmation that title was recorded.
Source: Courtesy of Angela F. Swailes, certified escrow officer and 2002 president of the Los Angeles Escrow Assn.
Wendy Jaffe is a freelance writer who lives in Bell Canyon. She can be reached at firstname.lastname@example.org.