Escrow Holder - Functions

Buying or selling real property such as a home, generally involves the transfer of significant funds and important documents. It is therefore imperative that the transfer of these funds and documents from one party to another be handled in a neutral, secure and knowledgeable manner. For the protection of the buyer, seller, lender, and any homeowner association, the escrow process was developed.

As a buyer or seller, you must be certain that all conditions of the sale have been met before title to the property and any funds change hands. The technical definition of an escrow is a transaction where each party engaged in the sale of real property with another person, delivers written documents, money or other items of value to a neutral third person, called an escrow agent or escrow holder. This third person holds the money or items of value and documents for distribution upon the happening of specified events, or the performance of specified conditions.

In short, the escrow holder impartially carries out the written instructions provided by the principals to the transaction. This includes receiving funds and documents necessary to comply with those instructions, completing or obtaining required forms and documents, and handling the final the delivery of all funds and documents to the proper parties upon the successful completion of the escrow.


Parties to a Sale Escrow




The buyer wants a policy of title insurance insuring marketable title subject only to approved encumbrances and conditions of title.

Provides to Escrow

Funds required to close the escrow.




The seller wants to receive cash representing his or her net equity after paying any outstanding loans and costs.

Provides to Escrow

A grant deed conveying title to the buyer.


New Lender


The lender wants a signed promissory note and deed of trust together with a policy of title insurance, subject only to approved conditions and exclusions, insuring its interest in first position.

Provides to Escrow

Funds required to close the escrow limited to the amount approved.


Homeowner Association


The HOA wants to receive payment of all assessments owing up through the date that escrow is closed. This may include late fees, penalties, special assessments, collection costs, and other amounts owing.

Provides to Escrow

A demand letter setting forth the amount owing through the close of escrow and various HOA documents, plus a certification for the benefit of the new lender.


Existing Lender


To receive full payment of all principle, interest, and any other amounts owing through the date of closing.

 Provides to Escrow

A demand letter setting forth the amount owning through the close of escrow and a full reconveyance of its interest.


Escrow Company


To comply with the instructions of every party to the escrow as their agents and for their protection. To be paid for the service provided. The escrow company prepares the escrow instructions for signature by the parties.

The escrow holder must be provided with all necessary information and documents to close the transaction. This may include loan documents, tax bills, a fire insurance policy and the sales contract.

If the transaction is dependent on arranging new financing, it is the buyer's responsibility to make the necessary arrangements. Signed documentation for the new loan must be in the possession of the escrow holder before the transfer of the property can take place.

When all of the instructions to the escrow have been carried out, the closing can take place.

Receipt of funds by the escrow holder must be in a form acceptable to the escrow.

Following is a list of what an escrow holder generally does and does not do:

The Escrow Holder:

  • Serves as the neutral "stakeholder" and the communications link to all parties the transaction
  • Prepares the escrow instructions to be signed
  • Requests a preliminary title search to determine the current condition of title to the subject property so that a title policy can be issued the existing real estate loan
  • Requests a beneficiary statement if the existing real estate loan is to be assumed by the buyer
  • Complies with the lender's requirements
  • Complies with any homeowner association requirements
  • Receives the purchase funds from the buyer and/or the buyer’s lender
  • Prepares or receives the deed or other documents related to the escrow
  • Prorates taxes, interest, insurance and any rents according to the purchase agreement
  • Secures releases of all contingencies or other conditions
  • Records the deed and any other documents as instructed
  • Requests issuance of the title insurance policy
  • Closes escrow when all instructions of the buyer and seller have been completed
  • Disburses the funds as authorized by instructions, including but not limited to charges for title insurance, recording fees, real estate commissions, loan payoffs, and any amounts owing to the homeowner association, if applicable
  • Prepares final statements for the parties


The Escrow Holder Does Not:

  • Offer legal advice
  • Negotiate any terms or conditions
  • Offer investment advice


 Concurrent Escrows:

Sometimes, an escrow cannot close until funds become available from the closing of another escrow. This generally happens when a buyer must close escrow on his or her existing home before they can buy their new home. This situation requires two escrows where one escrow is dependent upon the closing of the other escrow.


Refinance Escrows:

A refinance escrow is established when a homeowner is refinancing their home with either their existing lender or a new lender. The only parties involved are the homeowner/borrower, the lender, and the homeowner association if applicable.



Glossary of Escrow Terms

Coast Management of California