The real estate sales contract has been signed by both you and your buyer and you have the initial earnest money check in your hands. What's next?
Someone has to hold the initial check, the balance of the earnest money, and handle the paperwork and distribution of funds. That someone is usually and escrow holder and the mechanism by which it happens is called escrow. As a point of information, the seller and the buyer can agree that one of them, or both, (ie, by opening a joint bank account) will hold the money and be responsible for handling the paperwork, etc., but we do not recommend this. Also, most lenders will not be happy with this.
Also called Settlement in some areas, is simply the mechanism by which a disinterested third party, such as an attorney, escrow company or title company (banks and savings & loans often have their own departments) makes sure that ownership of the property is as it's supposedly to be and that the monies due are properly transferred. At the closing, all of the parties meet or have already signed the appropriate documents. You as the seller, provide clear title and the buyer provides the funds. If there is a loan, this is the place and the time it gets funded. It is worth noting that many lenders require that the parties close the deal through thisin order to ensure that every condition has been satisfied and that the paperwork has been properly executed and recorded.
Escrows protect both the seller and the buyer by drawing up necessary documents and recording them; safeguarding all of the documents; receiving and distributing the funds; safeguarding the funds; making sure that each party has complied with the terms of the contract; making sure that all of the conditions within the contract have been satisfied; providing an accounting; and making sure that all of the applicable laws have been complied with. Because the escrow protects both you, the seller, and the buyer, the fee for is usually split between the parties.
Here Is How You Get Started:
Contact the Escrow Holder. Anyone involved in the transaction may open the escrow. It can be either party (or both), either attorney, or a real estate agent, if one is involved. Then the following information and instructions are given to the escrow holder and the earnest money is deposited.
This type of information includes the seller and buyer's names, addresses and telephone numbers; address of the property and legal description; the dates in the contract, including the proposed closing date; terms of the contract, including the sale price, seller's outstanding mortgage, amount of the buyer's proposed loan; how title is held by the seller (s); and how it will be conveyed to the buyer. (ie, joint tenancy, etc.)
Remember, the escrow is a contract between you, your buyer and the holder. Be sure that you read and understand all of the terms of the instructions before you agree to them and sign. If in doubt, ask questions of an attorney, because the escrow officer can not give you legal advice or interpret the documents for you. All that they are allowed to do is explain each item and review how the numbers were calculated.
This is also a good time to note that as the seller it is your responsibility to bring down title. Bringing down down title is the process of arranging with a title insurance company to examine the title to your property in order to make sure you are the legal owner of the property; make sure you are entitled to transfer ownership; make sure there are no liens or other outstanding claims against the property; and secure title insurance.
At The Closing
When all of the conditions of the contract have been met, it is time for the close of escrow. This is the time when the money is paid out after all of the additions and subtractions are made.
The buyer deposits, either personally or through his lender, any remaining money due into the escrow and signs the appropriate papers.
You, the seller, sign the appropriate papers and receive a check (your mortgage lender will receive what it is due).
The holder will record the deed and any mortgage documents, such as the release deed.
Possession is transferred and the keys are turned over when the buyer's mortgage company (or the buyer) funds the money and there is verification that your bank, (or you), has received the money.