When purchasing or selling a property, the close of escrow is a crucial milestone in the process. It signifies the finalization of the sale, the disbursement of funds, the signing of all necessary documents, and the recording of the deed, formally transferring ownership from the seller to the buyer.
While it may seem simple, reaching this stage involves various deadlines and responsibilities for both parties, as well as coordination with the lender and escrow officer. Understanding the process of close of escrow and what to expect ensures a seamless transition from contract to homeownership.
What does “close of escrow” mean?
Escrow is a neutral arrangement where a third party, often a title company or escrow company, holds money, documents, and potentially other assets until both the buyer and seller fulfill all obligations of the contract.
The close of escrow is the moment when the transaction is officially concluded. At this point, all contractual obligations have been met, funds are disbursed, the deed is recorded, and the buyer becomes the legal owner of the property. It acts as the final checkpoint between signing the purchase agreement and taking possession of the home.
Escrow closes when:
- The buyer’s lender funds the loan.
- All required payments, including closing costs, are collected and distributed.
- Both buyer and seller have signed all necessary documents.
- The deed is officially recorded with the county or local jurisdiction.
Once escrow closes, the seller receives payment, the buyer assumes legal ownership of the property, and the escrow account linked to the transaction is closed.
Are the close of escrow and the closing date the same?
While these terms are often used interchangeably, the close of escrow and closing date do not always coincide.
- Closing date is the date specified in the purchase agreement when the parties agree to finalize the sale. On this day, buyers and sellers typically sign their closing documents.
- Close of escrow is the legal completion of the process, involving the disbursement of funds and the recording of the deed.
In many instances, these steps happen on the same day. However, escrow may close a day or two later in some cases, depending on local practices and recording times. For example, all necessary materials might be exchanged beforehand before the title transfer, enabling escrow to close before the official closing. In such situations, the buyer could receive the title without the seller needing to attend the final closing.
Some states follow a “wet” closing, where funds are transferred and documents signed simultaneously, while “dry” closings allow escrow to close once all requirements are met except for fund disbursement. Knowing the standard type in your state is crucial, as it impacts when the title and funds officially transfer – always consult with your agent or escrow officer.
Timeline and process of closing escrow
The escrow process typically spans 30 to 45 days from offer acceptance to closing escrow. A cash purchase can be much quicker, often closing in as little as one to two weeks.
While timelines differ by state and lender, here’s a general overview of how the escrow process unfolds:
1. Offer accepted and escrow opens
Once the purchase agreement is signed, escrow officially commences. The buyer deposits earnest money into a neutral escrow account, and the escrow or title company starts preparing necessary documents and coordinating subsequent steps, such as ordering a title search and outlining the transaction timeline.
2. Title search and insurance
The title company confirms clear ownership of the property and prepares title insurance for both the lender and buyer.
3. Loan processing and contingency period
The buyer finalizes their mortgage application while the lender orders an appraisal to validate the property’s value. The buyer also conducts inspections, and any issues like required repairs are negotiated. Other contingencies, such as financing or the sale of the buyer’s current home, are addressed.
4. Final loan approval and disclosures
The lender issues final approval, often termed as “clear to close,” and provides the Closing Disclosure, detailing all costs and the exact cash needed for closure. By law, this disclosure must be furnished at least three business days before signing.
This step typically indicates that the escrow process is entering its final phase, with the transaction fully prepared for closure.
5. Final walkthrough
The buyer inspects the property to ensure it matches the agreed-upon condition and that any requested repairs are completed. This usually occurs the day before closing day.
6. Closing day/signing appointment
The buyer and seller sign all required documents, including loan papers, the promissory note, the deed, and any affidavits or disclosures mandated by law. The buyer submits their down payment and closing costs, usually via cashier’s check or proof of wire transfer.
7. Funding, recording, and verification
In most transactions, the lender transfers loan funds to escrow on the same day, and escrow validates the receipt of all payments – including the buyer’s funds, lender funds, and closing costs. The deed is then recorded with the county, officially transferring ownership to the buyer.
8. Disbursement and close of escrow
Escrow disburses funds to the seller, agents, and other involved parties, finalizing the transaction. Keys are handed over as per the contract, indicating the official close of escrow.
Why the close of escrow matters in your real estate transaction
The close of escrow marks the official completion of a real estate transaction. It guarantees that both buyer and seller have fulfilled all contractual obligations, funds are appropriately disbursed, and the deed is recorded with the county, legally transferring ownership.
This step safeguards all parties involved: buyers can be assured that the property is clear of liens, while sellers are assured of receiving their proceeds. It also initiates post-closing procedures, such as establishing an escrow account for taxes and insurance. In essence, the close of escrow transforms the contract into reality, signifying the legal transfer of the home and the culmination of the transaction.
FAQs: Close of escrow
Can escrow close early?
Yes, if all conditions are met, documents are signed, and funds are prepared, escrow can close before the scheduled date. Early closure necessitates coordination among the buyer, seller, lender, and escrow officer. However, an early close of escrow does not necessarily mean early occupancy – always confirm with your agent and escrow officer.
What issues can arise during the close of escrow?
Several issues can impede or complicate the close of escrow. Common problems include last-minute title or lien concerns, appraisal or inspection discrepancies, incomplete repairs, missing documents, or delays in lender funding. Any of these issues may require additional negotiation, documentation, or an extension of escrow to resolve before finalizing the transaction.
What happens if funding is delayed?
If the lender fails to wire funds on time, the closing is postponed until the funds are received. This can impact recording and key delivery, meaning the buyer does not officially own the home until escrow is fully closed.
What occurs if the closing date changes?
Closing dates can be advanced or delayed if all parties, including the lender and escrow officer, are in agreement. Even if escrow closes early, possession and key delivery may still adhere to the terms outlined in the purchase agreement.