What is Escrow?
Escrow, according to the Online Etymology Dictionary, is a “deed delivered to a third person until a future condition is satisfied.”
Let’s do a backyard bargain example of escrow. Bob is selling a lawn mower for $400.00, and Joe wants to buy it, but Joe and Bob don’t know each other very well. They both, however, know Fred very well. Joe has $50.00 in his pocket, but he’ll need to come up with the balance by borrowing it. He’ll also need to have a mechanic take a look at it before he commits to buying it. Bob accepts $50.00 from Joe to hold the lawn mower until it is inspected and the loan comes through, but since Joe doesn’t know Bob very well, Joe tells Bob that Fred will hold the $50.00 for both of them until the deal goes through. Joe gets the loan, inspects the lawn mower, and decides to move forward with the purchase. Joe’s bank wires the funds to Fred, Fred tells Bob that the funds are good, and Bob tells Fred that it’s okay to release the lawn mower to Joe.
As a buyer or seller, it’s important to be sure that all of the conditions of the property sale have been met before the property and money changes hands. It is:
“A transaction where one party engages in the sale, transfer, or lease of real or personal property with another person who delivers a written instrument, money or other item(s) of value to a neutral third party.”
In the case of real estate in Arizona, this would be the Title/Escrow company. The escrow company holds the money or the items until a specified condition has been met, at which point the item(s) or money is released.
The escrow holder, who is impartial to the terms of the transaction, carries out the written instructions given them by the people involved in the transaction (the buyer and the seller.) The instructions are in the terms and conditions of the purchase contract. Included in this is the receiving of funds and documents necessary to comply with those instructions, and completing or obtaining the required forms and handling delivery of all of the items to the proper parties upon a successful completion of the escrow period.
When all of the instructions have been carried out, including providing tax statements, loan documents, earnest deposit(s), and other particular services to be paid to principals to the transaction, a successful closing can take place and the property ownership transfer can be recorded at the county recorder’s office. This is when title to the property changes hands and title insurance policies are issued.