WHAT IS AN ESCROW?

For a real estate sale to be completed properly, many things must happen.  The buyer must obtain title.  The seller must be paid.  Old liens against the property have to be released.  The new deed of trust securing the buyer’s purchase money loan must be recorded.  Depending upon the deal, many other contingencies may need to be fulfilled.

Making this harder, all of this has to happen simultaneously.  Ordinarily, the seller cannot be paid, until the buyer’s loan funds.  The buyer’s loan will not usually fund, however, until the old mortgage is released.  The old mortgage will not be released, until it is paid, which requires the new loan to fund.  It is all a circle.  As a rule, none of it can happen until all of it happens.

To solve this problem, virtually every real estate sale in California goes through escrow.  An escrow is a neutral third party stakeholder, which facilitates the transaction.  The seller will give the title deed, not directly to the buyer, but to the escrow company.  The buyer will give the purchase money, not directly to the seller, but to the escrow company.  The escrow company has instructions from all parties, not to release the money, or to record the deed, until all contingencies are fulfilled.

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