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Chapter 10_updated - Chapter 10 Escrow and Title Insurance...

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Chapter 10: Escrow and Title Insurance Hua Sun Department of Accounting and Finance California State University, San Bernardino March 03, 2009 Hua Sun (CSUSB) Escrow and Title Insurance March 03, 2009 1 / 23
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Escrow Escrow: possession of money or instruments received from one party to a transaction by a neutral third person, to be delivered to the other party to the transaction on the performance of one or more conditions. I Purpose in real estate: handling all the paperwork and disbursement of funds to close out a real estate transaction. Escrow Law is found in California Financial Code Escrow can involve: I Real property: sale, transfer, encumbering, or leasing, etc. I Personal property: business opportunity Escrow holder (agent): the person who performs escrow duties Settlement statement: itemizes all receipts and disbursements, provided by escrow holder to each party at close of escrow. Hua Sun (CSUSB) Escrow and Title Insurance March 03, 2009 2 / 23
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Escrow Purpose of escrow holder: not to force parties to fulfill their obligations, but to make sure all obligations are met before closing of a sale. Functions of an escrow holder in a sale of real estate: I the sale itself, and I the loan that finances the sale. Hua Sun (CSUSB) Escrow and Title Insurance March 03, 2009 3 / 23
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Creating an Escrow To create a valid escrow I A binding contract such as a purchasing agreement etc, and I Conditional delivery of the instruments of transfer to the escrow holder F money F the deed transferring title from grantor to grantee F loan documents F other required paperwork Hua Sun (CSUSB) Escrow and Title Insurance March 03, 2009 4 / 23
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Escrow Instructions Escrow holder can act only on escrow instructions I In written and signed I If they differ from the terms of the underlying contract between the parties, the most recent in time will be followed (typically the escrow instructions). I Bilateral: given by the parties jointly; popular in southern California I Unilateral: given separately by each of the parties; popular in northern California F The escrow instructions are then compared by escrow holder to determine whether the parties are in mutual agreement. I After transmittal to the escrow agent (signed by parties), escrow instructions can be changed only by signed agreement of both parties. With conflicting escrow instructions: I Escrow holder refuses to proceed until the parties settle their differences I Escrow holder may bring an action in court forcing the principals to litigate their differences. F This legal action is called an interpleader action . Hua Sun (CSUSB) Escrow and Title Insurance March 03, 2009 5 / 23
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Escrow as Agent The escrow holder: agent of both parties initially, and agent of each separately as various conditions to closing are performed. I When escrow is first created: agent to both parties I When the deed is delivered to the grantee: agent of the grantor I When delivering the purchase price to the grantor: agent of the grantee Escrow holder should not be a party to the transaction.
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