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How Does it Work?

The escrow holder acts as a central authority to make sure that the entire transaction is carried out according to the terms of the agreement between the parties.

Escrow instructions

Escrow instructions are written documents, signed by the principals to the transaction, which direct the escrow officer to perform specific steps to be completed prior to the close of escrow. Typical instructions would include the following:
  • The method by which the escrow holder is to receive and hold the purchase price to be paid by the buyer.
  • The conditions under which a lapse of time or breach of purchase contract provision will terminate the escrow without a closing.
  • The instructions and authorization to the escrow holder to disburse funds for recording fees, title insurance policy, real estate commissions, and any other closing costs incurred through escrow.
  • Instructions as to the prorating of insurance, taxes and possibly home owners association dues.
  • Instruction to the escrow holder on the payment of property liens and charges against the property and distribution of the net sale proceeds.
Since the escrow holder can only follow the instructions as stated and may not exceed them, it is extremely important that the instructions be stated clearly and be complete in all details.


Once all the terms and conditions of the instructions of both parties have been fulfilled, and all closing conditions satisfied, the escrow is closed and the safe and accurate transfer of property and money has been accomplished.


The method of dividing the charges for the services performed through escrow or as a result of escrow varies from county to county. The fee and service charges to be divided may include, for example, the owner and lenderís title insurance policy premium, escrow fee, transfer tax, recordation fees, inspection reports and costs in connection with any loan being obtained. Care must be taken in following the desires of the parties and advising the escrow holder as to the division of charges in order that the proper party is assessed correctly at the close of escrow.
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