Closing escrow is the final step in purchasing a self-storage property. The process can go smoothly if you take a few precautions. This article provides a “pocket guide” to the process, summarizing the major steps and procedures involved in closing a real estate transaction.
Escrow is a means for the transfer of ownership. It engages a neutral third party into the transaction to ensure buyer and seller perform as they have contractually agreed. The escrow holder is a disinterested party hired for the benefit of the selling and buying entities, and the main obligation of escrow is to guarantee the integrity and legality of the transaction.
Escrow provides a clearinghouse for funds and documents and a means for making sure all the conditions of the real estate transaction are met before the property changes hands. Moreover, the escrow officer must comply with the terms and conditions of the instructions and keep funds safely deposited in a separate escrow account.
To open escrow, basic criteria needs to be satisfied, including an executed contract stating the terms and conditions, competent parties, valid consideration, and an asset or property. The buyer and seller are then considered primary parties or “principals” in the escrow. If a lender is part of the transaction, it too becomes a primary party. The written contract used in the deal is generally called a "real estate purchase and sale agreement and receipt for deposit." The terms of the contract, among other things, include written escrow and closing instructions.
In most cases, the listing agent will open escrow. The transaction will be assigned to an escrow officer who will assign an escrow or file number. In no particular order, the escrow officer will then begin processing the following tasks:
- Order the title search, showing the current status of the property.
- Secure payoff amounts from existing lenders of all amounts owing on the property and request releases from the lender of any mortgages or deeds of trust to be paid off at closing.
- Obtain instructions and loan documents from the buyer’s lender.
- Resolve any outstanding liens against the property.
- Issue receipts for deposits of documents and funds.
- Prorate taxes, interest, rents, etc.
- Prepare buyer’s and seller’s escrow instructions and ensure all documents are properly executed.
- Get title insurance for the buyer and/or lender.
- Record documents including grant deeds, deeds of trust, powers of attorney, substitutions of liability and reconveyances.
- Distribute funds to the proper parties, deliver documents and prepare the final closing statements.