Escrow Instructions

For most homebuyers or sellers  “escrow” is the often-misunderstood final stage of the real estate purchase transaction.  However, the escrow process begins with clearly defined “escrow instructions” in order that this final stage of the transaction will be done smoothly, efficiently and legally.

What are Escrow instructions?

According to the California Department of Real Estate (“DRE”), “Escrow Instructions…identify all of the terms and conditions of the escrow, as well as the escrow holder’s general provisions and legal responsibilities and limitations.”

The DRE further explains that the instructions are a tool to help the escrow officer “for every situation” in the escrow process.  The instructions also act as a legal protection for all the principal parties involved, with special emphasis in protecting the buyer and seller.

What’s in the Escrow Instructions?

Escrow instructions normally identify the escrow holders contact information, license number, along with the escrow number assigned to the transaction.  In addition they will include important dates such as the date escrow opened and the expected escrow closing date.  Also included will be the names of the parties in the escrow transaction, the property address and a legal description of the property, with the purchase price and terms.

Additional information included in the instructions define “how the buyer’s title is to vest, proration adjustments, any matters of record to which the buyer is subject when they acquire title, disbursements to be made, all fees and charges and who is responsible for payment.” There will be instructions as to documents to be signed, delivered, or recorded, and a  “roadmap” that the escrow holder must follow in handling the escrow.

Responsibilities of the Escrow Agent

Escrow instructions, says the DRE, normally “reflect the agreements made between the parties with respect to the escrow.”  The above noted road map lays out the responsibilities of the escrow officer.  These “responsibilities” may include (but are not limited to), ordering a title search, requesting payoff demands and beneficiary statements.  Duties also may include facilitating the receipt and approval of reports, and making prorations and adjustments, the paying of bills, obtaining the buyer or borrower’s signature when needed on any documents.

Other duties include requesting closing funds, authorizing recording and closing the escrow after confirmation of recording, along with preparing final closing statements, disbursing funds and delivering documents to the appropriate parties. As the DRE says, “In sum, escrow instructionsindicate all of the specific steps to be completed and conditions that must be satisfied before the escrow is complete.”

The instruction should be clear, specific and avoid all ambiguity, and must accurately reflect the intention of the parties involved.  Any changes to the original instructions must be signed off or initialed by all pertinent parties.   “When fully executed by all parties, the instructions become an enforceable contract and the escrow becomes effective.”