ESCROW 101

Opening an Escrow is a crucial step in various financial transactions, providing a secure and neutral intermediary to facilitate the exchange of assets or funds between parties involved. This process is commonly employed in real estate transactions, mergers and acquisitions, and other complex agreements where trust and a systematic approach are essential.

When initiating an escrow, the involved parties, such as buyers, sellers, and sometimes lenders, entrust a third – party entity known as the escrow agent or escrow company. This neutral party ensures a fair and transparent process by holding assets, documents, or funds until specific conditions outlined in the agreement are met. This safeguards the interests of all parties involved, minimizing the risk of fraud or non- compliance with the terms of transaction.

The escrow process typically involves the following key steps:

THE LIFE OF AN ESCROW

1. Seller and Buyer deposit a signed PSA with Escrow Holder.
2. Buyer deposits earnest money with Escrow Holder
   • Seller delivers the Buyer due diligence materials outside of escrow provided in the PSA.
   • Escrow Holder reads the contract and determines escrow requirements. The escrow officer will send out documentation not provided for in the PSA but necessary to close the escrow.
3. Due Diligence Review
   • Contingencies are approved/waived or disapproved.
   • If disapproved, cancellation and disbursement of earnest money follows.
4. Seller and Buyer provide requested paperwork and information to escrow.
   • Payoff demands and Association statements are requested, if applicable.
5. Buyer’s lender contacts escrow and loan processing begins, if applicable.
6. Seller gathers information necessary for prorations, if any, and deposits the data with escrow.
   • Prorations should be in accordance with the purchase agreement.
   • Prorations are done on a 30-day month unless specified otherwise in the PSA.
   • A credit to a Buyer is not a purchase price reduction.
7. Seller’s and/or Buyer’s attorney  may prepare Seller/Buyer deliveries as required under the PSA and circulate them for signature. (Typically exhibits to the PSA).
8. Buyer’s lender submits loan documents to escrow for signature.
   • Escrow prepares closing statement.
   • Documents are prepped and made ready for signing.
   • Buyer signs loan documents and arranges for the equity contribution to be sent to escrow.
   • Documents are packaged for the lender’s review and funding conditions are identified.
9. Payoff demands are received from lenders of record and associations enabling escrow to prepare Seller’s closing statement.
10. Escrow does a pre-closing audit and determines what is outstanding to close.
11. Seller and Buyer make their deliveries as required under the PSA.
12. Buyer’s funds are deposited with escrow.
13. Escrow orders loan funds.
14. Closing statements are signed.
15. Escrow releases the recordable documents to record with the county.
    • Recording times vary from county to county.

SECTION 1031 TAX DEFERRED EXCHANGE

• The exchange must be set up prior to the close of escrow.
• The exchange company is the Qualified Intermediary or Accommodator.
• Property sold through an exchange is the Relinquished Property. The property purchased is the Replacement Property.
• The Exchanger has 180 days from the close of the Relinquished Property to close escrow on their replacement property.
• Exchanger must identify their replacement property within 45 days of closing on the Relinquished property.
• Exchanger is not allowed to receive funds they intend to use in the exchange. They go to the Accommodator.

CLOSING VS. RECORDING

• The purpose of recording is to notify 3rd parties of a transaction or agreement affecting an asset or individual/entity.
• Recording does not make your transaction “more official.”

CONFIDENTIALITY

• Escrow files are confidential. Escrow personnel are the only staff privy to the escrow files. Third parties requesting information will not be accommodated without express written consent of the principals.
• Seller and Buyer closing statements are kept separate and not shared.
• Files are stored for 5 years as required by law.

CONFLICTS/DISPUTES

• Escrow is disarmed the moment there is a disagreement between parties.
• Escrow Holder may continue the escrow process only after a mutual agreement is reached between the parties in writing.
• Escrow Holders reserve the right to interplead the file.
• Escrow Holders reserve the right to resign from an escrow at any given time.

In conclusion, the process of opening an escrow account is a fundamental and strategic step in various financial transactions, offering a structured and secure framework for parties involved in complex agreements. This impartial intermediary, the escrow agent or company, plays a pivotal role in ensuring the fair and transparent exchange of assets, funds, or documents. By establishing an escrow, parties can navigate intricate transactions with confidence, knowing that their interests are protected, and the conditions outlined in the escrow instructions are diligently met.

Opening an escrow account is not merely a procedural formality but a strategic decision that enhances the integrity of complex financial dealings. Whether in real estate transactions, mergers and acquisitions, or other intricate agreements, the escrow process stands as a reliable mechanism, providing a secure pathway for parties to navigate through the complexities of their transactions, ultimately leading to successful and trustworthy outcomes.

Our team is based out of Las Vegas with an extensive national presence that allows us to close your transactions on a national scale, simplifying your processes. Our nationwide platform means you are taken care of no matter what state you choose to do business in. Whether your deal is complex or straightforward; large or small; local or national, you have a partner with the Seibold Group.

Have questions about your own commercial escrow transaction? Shoot us an email, michele@seiboldgroup.com to see how we can help.