FREQUENTLY ASKED QUESTIONS
Question: Which party selects the escrow company?
Answer: The buyer or the buyer’s real estate agent usually chooses the escrow company. The seller can agree to the buyer’s selection or counter with another choice.
Although the seller generally acquiesces to the buyer’s suggestion, the selection of the escrow company is negotiable. If the buyer and seller can’t agree on the escrow company, the negotiations to purchase the property can fail.
Q: Does the buyer or seller pay the cost of escrow?
A: Nearly all closing costs, including the costs of escrow, are negotiable. In Southern California (practices differ elsewhere), the buyer and seller customarily split the cost of escrow services.
The seller typically pays for the title policy and the realty agents’ commissions, as well as a hefty documentary transfer tax. (The tax can range from $1.10 per thousand to more than $8 per thousand, depending on where in California the property is located.)
Q: Can the escrow officer solve disputes between the parties?
A: California law prohibits an escrow officer from favoring the lender, the buyer or the seller. An escrow officer’s power is strictly limited to following the escrow instructions agreed to at the time of purchase and written modifications to those instructions signed by both parties. The escrow officer does not have the power to referee disputes between the parties.
Where the buyer and seller have a dispute concerning a contingency, the escrow company will wait until the buyer and seller settle the dispute and issue a joint instruction. Where the parties cannot resolve the dispute on their own, they may seek court intervention.
Q: Does an escrow officer have to be licensed?
A: Although escrow agencies that employ escrow officers have to comply with various state licensing requirements, individual escrow officers--the person who actually handles the escrow--are not licensed. (However, many escrow officers receive continuing education through their local branch of the California Escrow Assn.)
California permits several types of escrow companies. Each type is controlled by a different regulatory agency.
Independent escrow companies process the majority of the transactions initiated in Southern California and are regulated by California’s Department of Corporations. They are required by law to maintain a specific level of liquid assets and have at least one experienced escrow officer on duty at all times.
Title insurance companies, a popular option for escrows in Northern California, are regulated by California’s Department of Insurance.
Banks and savings and loans frequently provide escrow services and are typically regulated by the same agency (the state banking commissioner or FDIC) that regulates the bank. Similarly, broker-owned escrow providers are regulated by California’s real estate commissioner.
If you are not certain as to what type of escrow agency is handling your escrow, check your escrow instructions. Under California law, all instructions must contain the name of the escrow company, its regulatory agency and its license number.
Q: What factors should be considered when choosing an escrow company?
A: Escrow is a relationship business. Your broker will typically recommend an escrow officer whom he or she has successfully worked with in the past.
Important factors to consider are the level of experience of the individual who will be acting as the escrow officer, the financial strength and stability of the company and the price charged for escrow services. It would also be wise to inquire whether or not the escrow officer will be available throughout the escrow period (no planned vacations or leave).
Q: If the buyer and seller are unhappy with the service being provided, can they switch companies in the middle of escrow?
A: Yes. The catch is that both the buyer and seller must agree on two things: first, that the escrow company should be terminated, and second, they must agree on the new escrow company.
When the buyer and seller satisfy these prerequisites they must notify the original escrow officer of the change in writing and instruct the original officer to transfer the deposit and relevant documents to the new company.
Q: What if the conditions set forth in the escrow instructions and real estate agreement cannot be performed before the closing date?
A: If both the seller and the buyer agree, the closing date can be extended by written instruction to the escrow officer. However, if the seller wants to back out of the deal for whatever reason, he can choose not to extend the time. Assuming that the seller wants the deal to close (which is generally the case), the seller may request an increase in the deposit.
If the only condition that has not been satisfied involves a contractor making repairs or changes to the property identified by the home inspector, the parties can instruct the escrow officer to hold funds to be paid to the contractor until after the sale closes and the work is completed.
Q: If the escrow officer fails to follow the escrow instructions, what remedies are available?
A: The Department of Corporations regulates independent escrow companies. In the event that the buyer or seller is having a problem with the escrow company, he or she may contact the Department of Corporations at (800) 347-6995 or go through its Web site at www.corp.ca.gov.
If the Department of Corporations determines that a violation has occurred, the escrow company will be required to make a correction or issue a refund.
The Department of Corporations received about 100 escrow-related complaints in 2001. Nearly one-half of the complaints concerned an escrow agent’s alleged failure to follow escrow instructions.
For complaints concerning escrow services supplied through a title insurance company, contact the Department of Insurance at (800) 927-4357 or on the Web go through www.insurance.ca.gov.
Q: What can a buyer and seller do to ensure that escrow proceeds smoothly?
A: The single most important thing that the buyer and seller can do is to read the escrow instructions.
The escrow instructions, contained in the real estate purchase agreement, identify which party must do what and when.
As soon as you have consummated a deal to purchase or sell a home, make a list of the relevant events that need to be completed, making sure to identify the relevant period of time for completion.
Always check all documents to make sure that names, including middle names and initials, are spelled correctly. If you notice a mistake, notify the escrow officer in writing immediately.
It is wise for you or your broker to contact your escrow agent regularly throughout the escrow period to ensure that everything is proceeding on schedule.
Q: If escrow doesn’t close, is the buyer entitled to have his or her deposit returned?
A: According to California Civil Code section 1057.3, it is “the obligation of a buyer and seller who enter into a contract to purchase and sell real property to ensure that all funds deposited into an escrow account are returned to the person who deposited the funds or who is otherwise entitled to the funds under the contract, if the purchase of the property is not completed by the date set forth in the contract for the close of escrow or any [extension].”
If a buyer or seller fails to sign off on a document that would release the escrow funds within 30 days and there is no real dispute over these funds, then the party who fails to sign the release may be liable for three times the amount wrongfully held (not less than $100 and not more than $1,000) and attorney’s fees.
If one party sues the other to receive the funds, the escrow holder must deposit the sum in dispute with the court.
Q: How is the length of escrow determined?
A: The realty agent will typically negotiate a closing date based on the time that it takes for a lending institution to process a loan, and for the contingencies agreed to in the purchase agreement to be satisfied. Unless the deal is all cash, a minimum of 30 days is generally needed for the loan to fund and for the necessary inspections to be completed.
