What is Escrow?
Escrow is a method of closing in which a neutral third party is authorized to act as escrow agent and coordinate the closing activities. The escrow agent holds monies and legal documents on behalf of the Buyer and Seller and handles them according to their instructions in order to close (or complete) the sale.

Aren't Escrow & Closing the Same Thing?
The word “closing” is consistently misused in the real estate industry. Technically, closing is the date on which legal documents are recorded by the County, and monies are disbursed. When you go to escrow to sign the papers for closing, the home will not necessarily “close” on that day. Ideally, you will be called to sign your closing documents at least two days prior to closing.

If there will be a new mortgage on the home, the signed documents must be returned to the lender for final approval. Since this takes time, there needs to be a day or two for funding. Once the lender releases the funds and all final items are completed, the escrow company will deliver the documents (usually physically - someone actually walks in to the County office) and obtain a recording number. Only upon issuance of the recording number is the home “closed” and any proceeds released to the Seller.

When Is the Home No Longer Mine?
The time you relinquish possession of your home is determined by your Purchase and Sale Agreement. A reference to “Possession at Closing” is not quite that - you relinquish possession at 9:00 PM on the day it closes. Note that even if the home closes at noon, your Buyer still does not legally have the right to possess the home until 9:00 PM. The times of closing and possession are negotiable in the Purchase and Sale Agreement, so make sure you discuss this with your Realtor.

Top 9 Potential Escrow Closing Problems
The closing can go smoothly, but hinges on so many factors that any single element has the potential to delay the closing or turn it into a chaotic dash. You and your Realtor should be aware of possible complications so that you can respond accordingly, should the need arise.

1. Loan documents received by escrow too late
   Ideally, loan documents are received five days in advance by escrow, escrow then puts together your Buyer's HUD statement. Your Buyer receives a phone call with the exact amount of money (s)he needs to bring to closing and you make an appointment with the escrow agent for the signing.

   And now for the reality, as seen by us in about 85% of transactions. The lender sends the loan documents late (not always their fault - the Buyer, appraiser, or courier could have a hand in this). Your Buyer gets a call in the morning to drop everything and rush in to the escrow office to sign the papers. As a result, the escrow officer has not had a chance to put together the HUD Statement yet, and your Buyer does not know the exact amount of money to bring to closing. The escrow officer then must rush to get all the documents back to the lender by 1:00 PM so the loan can be approved for funding that day. The approval is then back at escrow the next morning. Escrow then rushes to County to record the documents.

   Here’s the good news: despite the chaos, the home usually closes on time. Escrow is, unfortunately, used to this.

2. Month-end closings
   Escrow companies close up to 50% of their volume in the last week of the month. Not only are they on overload, so are all the lenders who are funding the purchases. And so are all the courier services that handle loan documents. If possible, try to close in the beginning or middle of the month.

3. Inadequate notice for signing
   In some cases, the Buyer or Seller simply may not be able to sign on short notice and closing will be delayed.

4. VA and FHA charges to Sellers - hidden costs
   Some listing agents fail to inform the Seller of the costs of VA and FHA loans. Make sure you work with a Realtor who will provide you a “Seller’s Net Proceeds” estimate with details of VA or FHA charges if the Buyer plans to get such a loan.

5. Personal checks, out-of-area cashier’s checks
   Escrow funds due at closing need to be either in the form of a cashier’s check or a wire transfer. Moreover, the cashier’s check should be from a local bank. It could take days to clear a cashier’s check drawn on an East Coast bank and it takes up to ten (10) days to clear a Canadian cashier’s check.

6. Leased equipment not reflected
   The main items in a home that may be leased are the hot water heater and the alarm system. If these items are to be conveyed through escrow, they must appear on the Purchase and Sale Agreement.

7. Utility payoff requirements not disclosed
   For instance, oil tanks need to be read and balances reported to escrow so that existing oil in tanks can be pro-rated at closing. Old oil tanks may also need to be decommissioned.

8. Escrow holdbacks not explicit
   On rare occasions, escrow may be required to hold back monies for specific items (e.g. repairs that were not completed by closing). If the instructions are not complete, explicit and lender-approved, closing may be delayed.

9. Problems with Homeowner’s Association
   A Homeowner’s Association that can not be located or is not responsive can delay closing by not providing a resale certificate in a timely manner or by not providing other documents as required.