Short Answer: An Escrow Is a Neutral Third Party
The escrow is a legal procedure for handling the details of the transaction from the time the purchase agreement is ratified until the title is transferred and the sale is completed. The escrow is managed by a title company.
The escrow officer, a neutral third party in the transaction, must complete specific instructions, received from the buyer’s and seller’s agents, before title is transferred and funds are disbursed. The buyer’s and seller’s instructions must match in order for the escrow to move forward.
The escrow is usually opened by the next business day after mutual acceptance of the purchase agreement and the buyer’s earnest money is deposited into the escrow.
Preliminary Title Report – The title company searches the public records for pertinent information about the property. Who is the owner of the record? What liens exist against the property? What easements affect the property? Are there any judgments that might have to be cleared before title can be transferred? Any such items must be resolved during the escrow period.
Title Insurance – The title insurance policy is protection for the buyer against forgeries, errors in public records and other specific items. A CLTA (California Land Title Association) title insurance policy is issued to protect the buyer and the ALTA (American Land Title Association) title insurance policy is issued to protect the lender.