How a California home escrow works

Under California law, escrow works like this. One side hands money or documents to a third party. The third party holds them until an agreed event or condition happens, and then passes them on (Financial Code §17003).

That third party is the escrow holder. It follows written instructions signed by both the buyer and the seller. It stays out of their disagreements. It doesn’t represent either side, it isn’t anyone’s lawyer, and it gives no legal or tax advice.

California law requires every escrow company to be a corporation holding a DFPI license (Financial Code §17200). Banks and title companies may act as escrow holders without that license. So may an attorney for a client, or a real estate broker who is a party or an agent in the sale (Financial Code §17006).

Check a licenseSearch the DFPI’s website to check any escrow company’s license. This escrow company holds California Department of Financial Protection and Innovation Escrow License No. 9631912.

1. 01

   Step 1: Opening escrow

   Once both sides sign the purchase contract, the agents send it to us. Next come the escrow instructions. In Southern California that is usually one shared set, listing what must happen before any money moves.

   HeldThe deposit waits in escrow.

   BuyerSend your deposit by the date in your contract. Call us first to confirm the wiring details.

   SellerGive us the name of each lender with a loan on the home, including any home equity line. We’ll ask each one for its payoff amount.

2. 02

   Step 2: The title report

   A title company checks the public records and issues a preliminary report. It names the owner of record and lists the loans and liens (debts attached to the property) recorded against the home.

   BuyerRead the report with your agent, and ask about anything unclear.

   SellerIf the report turns up an unpaid judgment or another old debt against the home, we’ll help you get it cleared before closing.

3. 03

   Step 3: Inspections and disclosures

   The seller hands over the disclosures California requires, and the buyer arranges inspections. Your contract sets a deadline for each.

   BuyerSchedule inspections early. Read each disclosure and sign it before its deadline.

   SellerGet your disclosures to the buyer on time, and answer any repair requests.

4. 04

   Step 4: Loan approval

   If the buyer is borrowing, the lender orders the appraisal and reviews the loan. Before closing, the lender must give the buyer the final loan terms in writing.

   BuyerAnswer your lender quickly. Don’t open new credit, like a card or a car loan, until you close.

   SellerMake the home easy for the appraiser to see.

5. 05

   Step 5: Signing the papers

   Escrow draws up the closing documents, along with an estimated closing statement showing each charge. You sign in front of a notary public.

   HeldThe buyer’s remaining funds join the deposit.

   BuyerBring a photo ID. Before your remaining funds go out, phone us and check the wire instructions.

   SellerBring a photo ID. You’ll sign the grant deed, the document that transfers the home to the buyer.

6. 06

   Step 6: Funding

   The lender wires the loan amount to escrow, and escrow makes sure nothing in the instructions is left undone.

   CheckedAll the money is in. None of it goes out yet.

   BuyerNo action needed. The lender wires the loan funds directly to escrow.

   SellerNo action needed. We’re getting the final payoff figure for your loan and adding up what you will receive.

7. 07

   Step 7: Recording and closing

   The deed is recorded with the county, most often on the next business day after funding. Then escrow pays the old lenders and the seller. Everyone gets a final closing statement.

   ReleasedPaid out once the deed is recorded.

   BuyerThe home is yours. Keep your final closing statement with your records.

   SellerWe pay you the way your signed instructions say, by wire or by check. Never answer an email or a text with your bank details. Unsure how the money will get to you? Call us and ask.

Buyers and sellers in Southern California usually sign one joint set of escrow instructions once escrow opens, as the California Department of Real Estate (DRE) explains. The instructions list the conditions that must be met before money changes hands, such as the price, the loan terms, the key dates and each side’s share of the costs.

The two of you decide who pays each cost. Local habits differ by county, but your contract is what counts.

Read the instructions carefully before signing. Anything that doesn’t match your contract is worth raising with your agent first. A later change needs both the buyer’s and the seller’s signatures.

Early on, the title company combs the public records and reports what it finds in a preliminary report. The report names the owner of record and lists what is recorded against the home, such as a mortgage or a lien (a debt attached to the property).

It’s an early look, not the title insurance policy itself. Review it with your agent. When it shows an old debt, escrow and the seller arrange to pay it off or clear it before closing.

After the signing, and once the conditions are satisfied, the lender wires the loan amount to escrow. This step is called funding. Recording usually follows on the next business day (DRE).

The deed is recorded in the county where the home is. For an Orange County home, that’s the Orange County Clerk-Recorder. For a home in the San Gabriel Valley or elsewhere in Los Angeles County, it’s the Los Angeles County Registrar-Recorder/County Clerk. Recording puts the sale on the public record. Escrow then pays the old lenders and the seller, and every party gets a final closing statement.

The county also collects a documentary transfer tax when the deed records. In Orange County and Los Angeles County, the county rate works out to $1.10 on each $1,000 of the sale price (Revenue and Taxation Code §11911; Orange County fee schedule). A few cities, including Los Angeles and Pomona, add a tax of their own (Los Angeles County). Who pays it is set in your contract.

The deposit stays put. Escrow lets it go only on release instructions signed by both sides, or on a court order.

If the closing date in the contract passes without a closing, both sides have a legal duty to see that the money goes to whoever is entitled to it. For a home with four or fewer units, where the buyer plans to live, refusing to sign a release for 30 days after a written demand can be costly. Without a good-faith dispute, the side that refused can owe the amount held and $100 to $1,000 in damages, plus attorney’s fees (Civil Code §1057.3).

In a genuine dispute, the money stays in escrow. Once a lawsuit is filed, escrow can deposit it with the court.