Escrow: What is it?
Very simply defined, an escrow is a deposit of funds, a deed or other instrument by one party for the delivery to another party upon completion of a particular condition or event. The California Escrow Law-Section 17003 of the Financial Code-provides the legal definition.

Why do I need an escrow?
Whether you are the buyer, seller, lender or borrower, you want the assurance that no funds or property will change hands until ALL of the instructions in the transaction have been followed.

The escrow holder has the obligation to safeguard the funds and/or documents while they are in the possession of the escrow holder, and to disburse funds and/or convey title only when all provisions of the escrow have been complied with.

The selection of the escrow holder is normally done by agreement between the principals. There are laws that prohibit the payment of referral fees; this affords the consumer the best possible escrow services without any compromise caused by a person receiving a referral fee.

Escrow-how does it work?
The principals to the escrow–buyer, seller, lender, borrower–cause escrow instructions to be created, signed and delivered to the escrow officer.

The escrow officer will process the escrow, in accordance with the escrow instructions, and when all conditions required in the escrow are met, the escrow will be "closed." Each escrow, although following a similar pattern, will be different in some respects, as it deals with your property and the transaction at hand.

The duties of an escrow holder include: following the instructions given by the principals and parties to the transaction in a timely manner; handling the funds and/or documents in accordance with the instruction; paying all bills as authorized; responding to authorized requests from the principals; closing the escrow only when all terms are in accordance with instructions, and provide an accounting for same – the Closing or Settlement Statement.

What is a closing statement?
A closing statement is an accounting, in writing, prepared at the close of escrow which sets forth the charges and credits of your account.

The items shown on the statement will reflect the purchase price, the funds deposited or credited to your account, payoffs on existing encumbrances and/or liens, the costs for all services and a determination of the funds you are entitled to at the close of the escrow.

Your closing statement and all other escrow papers should be kept virtually forever for income tax purposes. Your accountant will need the information about the sale or purchase of the property. IRS and other agencies may require you to prove your costs and/or profit on the sale of any property.

What about Title Insurance?
Title Insurance is usually obtained when real property is purchased. The policy of title insurance insures the owner and/or the lender of ownership of the property. There are various coverages afforded, but a basic policy insures that the buyer is the owner and that any lender shown on the policy is an "insured" lender.

Many different types of extended coverages are available; for example, an ALTA policy is quite often required by institutional lenders to afford them additional protection under the title insurance policy. The title policy is written after an extensive examination of the public record is made and the recording of the required documents as called for in the escrow.

The title insurance policy fee is a one-time fee, paid at the close of escrow. The determination of who pays for the policy is not uniform from county to county in California. In some counties, the buyer will pay, while in others, the seller will pay. In other counties, the seller will pay for the lender’s title policy. But in almost every case, the question of who pays closing costs is a matter of agreement between the parties. Usually this agreement is based on the customary practice in your county or area. In the case of some FHA or VA transactions, the escrow officer must follow the guidelines as required by the lender and/or government.

There are several ways to hold title to a property.
To take title, you must declare the form of ownership in one of several ways. Each state governs how property can be held within its boundaries, so there may be other ways to hold title than just the three discussed here.

• Joint tenancy,
• Tenancy in common, or
• Tenancy by the entirety

The American Land Title Association defines these titles as thus:

"Joint Tenants - Two or more persons who hold title to real estate jointly, with equal rights to share in its enjoyment during their respective lives with the provision that upon the death of a joint tenant, his share in the property passes to the surviving tenants, and so on, until the full title is vested in the last survivor. A joint tenant cannot legally sell or encumber his interest without the consent or joinder of all of the other joint tenants."

If you partner with two other people to purchase a house, this may be one method of title. If one dies, title remains in the surviving joint tenant without required further action. This means if you die, you cannot leave your share to your heirs. Joint tenants are not married, thus not treated as one legal entity. If an owner wants out of the title, he or she may petition the court to divide the property or order its sale. The property can also be divided if a judgment creditor petitions the court to collect the judgment from one of the owner's shares.

"Tenants in Common - Two or more persons in whom title to a single piece of real estate is vested in such a manner that they have a common or equal right to possession and enjoyment of the property, but each holds a separate individual interest or estate in the property. Each owner may sell or encumber his respective interest or dispose of it by will, and if he dies without leaving a will, his heirs inherit his undivided."

Some state laws presume tenants in common unless the deed specifies otherwise. In this case, if one owner dies that share does pass to his or her heirs, not necessarily the surviving owner. Unmarried property owners usually use tenants in common. A tenant in common may sell his interest without approval of the other owner and, unless specified otherwise, the law assumes you meant to have equal ownership.

"Estate by Entireties - An estate or interest in real estate predicated upon the legal fiction that a husband and wife are one person. A conveyance or devise to them (unless contrary intent is expressed) vests title in them as one person. Upon the death of either husband or wife, full title passes to the survivor."

Tenancy by the entirety may only be possible when the joint owners are husband and wife. This type of title provides for a common law right of survivorship, which means property goes automatically to the surviving spouse. No will, probate or other legal action is necessary, thus one spouse can not use a will to leave an interest to someone else.
This form of title follows the ancient legal theory that a married couple is one entity. Conveyance of the property must be done together and the property cannot be divided without the other. If a divorce occurs, tenancy by the entirety automatically converts to tenants in common.

The above is excerpts from Your Escrow and You www.realestateabc.com and Can't Own A Home Without It by M. Anthony Carr.