Understanding Your Escrow Transaction


The escrow is the process of having a neutral party manage the exchange of money for real property.  The escrow holder is known as an escrow or settlement officer or agent.  The buyer deposits funds and the seller deposits a deed with the escrow holder along with all of the other documents required to remove all ‘contingencies’ (conditions and approvals) in the purchase agreement prior to closing.



PTC Life-of-an-Escrow-chart

(Courtesy of Placer Title Company)

Thinking About Buying a Home? Understand The Terms.

Be familiar with the following terms when buying a home:

AMENDMENTS:  A change – either to alter, add to, or correct – part of an agreement without changing the principal idea or essence.

APPRAISAL:  An estimate of value of property resulting from analysis of facts about the property; an opinion of value.

ASSUMPTION:  Taking over another person’s financial obligation; taking title to a parcel of real property with the buyer assuming liability for paying an existing note secured by a deed of trust against the real property.

BENEFICIARY:  The recipients of benefits, often for a deed of trust; usually the lender.

CLOSE OF ESCROW:  Generally the date the documents are recorded and title passes from Seller to Buyer.  On this date, the buyer becomes the legal owner, and title insurance becomes effective.

COMPARABLE SALES:  Sales that have similar characteristics as the subject real property, used for analysis in the appraisal.  Commonly called “comps”.

DEED OF TRUST:  An instrument used in many states in place of a mortgage.

DEED RESTRICTIONS:  Limitations in the deed to a parcel of real property that dictate certain uses that may or may not be made of the real property.

EARNEST MONEY DEPOSIT:  Down payment made by a purchaser of real property as evidence of good faith; a deposit or partial payment.

EASEMENT:  A right, privilege or interest limited to a specific purpose that one party has in the land of another.

HAZARD INSURANCE:  Real estate insurance protecting against fire, some natural causes, vandalism, etc., depending upon the policy.  Buyer often adds liability insurance and extended coverage for personal property.

IMPOUNDS:  A trust type of account established by lenders for the accumulation of borrower’s funds to meet periodic payments of taxes, mortgage insurance premiums and/or future insurance policy premiums, required to protect their security.

LEGAL DESCRIPTION:  A description of land recognized by law, based on government surveys, spelling out the exact boundaries of the entire parcel of land.  It should so thoroughly identify a parcel of land that it cannot be confused with any other.

LIEN:  A form of encumbrance that usually makes a specific parcel of real property the security for the payment of a debt or discharge of an obligation.  For example, judgments, taxes, mortgages, deeds of trust.

MORTGAGE:  The instrument by which real property is pledged as security for repayment of a loan.

PITI:  A payment that combines Principal, Interest, Taxes, and Insurance

POWER OF ATTORNEY:  A written instrument whereby a principal gives authority to an agent.  The agent acting under such a grant is sometimes called an “Attorney-In-Fact”.

PURCHASE AGREEMENT:  The purchase contract between the Buyer and Seller.  It is usually completed by the real estate agent and signed by the Buyer and Seller.

QUITCLAIM DEED:  A deed operating as a release, intending to pass any title, interest, or claim which the grantor may have in the property, but not containing any warranty of a valid interest or title by the grantor.

RECORDING:  Filing documents affecting real property with the County Recorder as a matter of public record.

REALTOR:  A Realtor is a licensed real estate agent and a member of the National Association of Realtors, a real estate trade association.  Realtors also belong to their state and local Association of Realtors.

REAL ESTATE AGENT:  A real estate agent is licensed by the state to represent parties in the transfer of property.  Every Realtor is a real estate agent, but not every real estate agent has the professional designation of a Realtor.

LISTING AGENT:  A key role of the listing agent or broker is to form a legal relationship with the homeowner to sell the property and place the property in the Multiple Listing Service.

BUYER’S AGENT:  A key role of the buyer’s agent or broker is to work with the buyer to locate a suitable property and negotiate a successful home purchase.

MULTIPLE LISTING SERVICE (MLS):  The MLS is a database of properties listed for sale by Realtors who are members of the local Association of Realtors.  Information on an MLS property is available to thousands of Realtors.

TITLE COMPANY:  These are the people who carry out the title search and examination, work with you to eliminate the title exceptions you are not willing to take subject to, and provide the policy of title insurance regarding title to the real property.

ESCROW OFFICER:  An escrow officer leads the facilitation of your escrow, including escrow instructions preparation, document preparation, funds disbursement, and more.

(Source – First American Title Home Buyer’s Guide)