Detailed Escrow Instructions

In pro­duc­ing com­plete, error-free instruc­tions, the escrow agent must be sure of the mechan­ics of the trans­ac­tion, includ­ing the time frame in which the escrow is to be car­ried out accord­ing to the agree­ment of the prin­ci­pals, the num­ber and types of doc­u­ments needed, an inclu­sive descrip­tion of con­sid­er­a­tion and other agree­ments relat­ing to cash, and allo­ca­tion of charges to the proper parties.

• Legal name, cur­rent address, and tele­phone num­ber of prin­ci­pals, bro­kers, and lenders must be listed and kept on hand for use dur­ing the term of the escrow.
• Finan­cial infor­ma­tion about the trans­ac­tion must be col­lected, such as the sales price, trust deeds to remain and those to be paid off, any new loans to be obtained, or the price of any per­sonal prop­erty included.
• An accu­rate legal descrip­tion is needed to assure that the buyer is get­ting the right par­cel. A street address is also included if there is one.
• The type of prop­erty (single-family res­i­dence, income prop­erty, etc.) must be noted in case there are local require­ments to be met when there is a sale, such as retro­fit or zon­ing limitations.
• The seller must pro­vide exist­ing loan infor­ma­tion, and the buyer or the buyer’s agent must pro­vide the name of any new lender.
• The clos­ing agent must have the proper names of the par­ties to the trans­ac­tion (buyer/seller, borrower/lender, vendor/vendee, lessor/lessee).

• Exact terms of the escrow must be indi­cated, includ­ing any time lim­i­ta­tions and date of closing.
• Pro­ra­tions include such items as inter­est on exist­ing loans, taxes, assess­ments, bonds, insur­ance, homeowner’s asso­ci­a­tion dues, main­te­nance fees, and rental deposits. The expec­ta­tions of the par­ties regard­ing pro­ra­tions must be defined clearly, espe­cially if the prin­ci­pals have agreed mutu­ally on non-traditional pro­ra­tion time frames, such as using an actual “day month” instead of the 30-day month, or have decided not to pro­rate some nor­mal items.
• Iden­ti­fi­ca­tion of the title com­pany indi­cated by the buyer and the seller must be noted.
• Con­di­tions of fire, lia­bil­ity, and lender’s insur­ance must be defined.
• Require­ments are noted for pest con­trol inspec­tion, time frame for work to be done, and an account of who will pay for the inspec­tion and/or any work required.
• Dis­tri­b­u­tion of charges is made based on the agree­ment of the par­ties to the trans­ac­tion, as long as the charges are not in con­flict with laws or rules reg­u­lat­ing legal matters.
• Infor­ma­tion must be col­lected, usu­ally from the list­ing bro­ker, as to how com­mis­sions are to be paid and how they are to be split between brokers.
• Any par­tic­u­lar agree­ments made by the prin­ci­pals must be noted, such as lease­back instruc­tions, an all-inclusive trust deed (AITD) agree­ment to be drawn, or instruc­tion for attor­ney involve­ment (to be sent copies of all doc­u­ments, etc.).

There are three doc­u­ments that serve as the heart of a sale or loan escrow: the grant deed, promis­sory note, and deed of trust. Other doc­u­ments, such as a quit­claim deed, secu­rity agree­ment, financ­ing state­ment, bill of sale, and addi­tional dis­clo­sure forms, also may be required by the escrow.

A Valid Grant Deed Must

• Be in writ­ing, accord­ing to the Statute of Frauds
• Have the par­ties to the trans­fer (grantor and grantee) suf­fi­ciently described
• Have a grantor who is com­pe­tent to con­vey the prop­erty (not a minor or incompetent)
• Have a grantee who is capa­ble of hold­ing title (a real liv­ing per­son, not fictitious)
• Be ade­quately described
• Have the “grant­ing clause” — the act of grant­ing (grant, con­vey) must be included
• Be signed by the grantor
• Be deliv­ered to and accepted by the grantee

The grant deed is nor­mally exchanged for a promis­sory note.

A Promis­sory Note is:

There are cer­tain items regard­ing the note of which a clos­ing agent must be aware and must include in prepar­ing the escrow instruc­tions.
Lender

*
Name of lender?
*
Insti­tu­tion or indi­vid­ual?
*
Is it a loan reg­u­lated by the Busi­ness and Pro­fes­sions Code involv­ing real estate licensees?
*
Is it a loan reg­u­lated by the state usury law or is it a pur­chase money loan to a seller or other private-party loan?

Terms

*
What is the amount being bor­rowed?
*
How many notes are required for the prin­ci­pal amount?
*
What is the inter­est rate?
*
Is the inter­est rate fixed or vari­able? If vari­able, what is the index, time period for rate changes, how is inter­est to be treated (deferred or added to prin­ci­pal pay­ment)? Are there any unusual inter­est terms?

• How are pay­ments to be made? Are they fixed or vari­able or a com­bi­na­tion of both (grad­u­ated pay­ment loans)? If pay­ment does not cover monthly inter­est, how is deferred inter­est to be accrued, and how are future pay­ments to be applied?
• Is there a bal­loon pay­ment? Note should be made if the loan is arranged under the Busi­ness and Pro­fes­sions Code sec­tions apply­ing to licensee-arranged loans. The reg­u­la­tions spec­ify that no bal­loon pay­ment be allowed until the 73rd month on a single-family, owner-occupied res­i­dence. Hold­ers of notes con­tain­ing a bal­loon pay­ment must remind bor­row­ers no sooner than 150 days nor later than 90 days from matu­rity of when the loan is due.
• Where will pay­ment be made or sent? If the loca­tion is out­side Cal­i­for­nia, usury laws of that state may apply.
• Will there be late charges?
• Is there a pre-payment penalty?
• If there is a due-on-sale clause, it must be con­tained in both the note and trust deed. The make-up of the accel­er­a­tion clause usu­ally will be sup­plied by the lender.
• What type of note is it? Pay­ment should reflect whether the note is a straight note (inter­est only), install­ment note (prin­ci­pal amor­tized), or some other type of note.
• What is the col­lat­eral for the note? If more than one prop­erty is being used to secure the loan (blan­ket mort­gage), it should be noted that two trust deeds are being uti­lized for the note.

Other Infor­ma­tion

Cer­tain basic infor­ma­tion must be avail­able to answer ques­tions that may be asked about:

• the escrow instructions.
• title and trans­fer documents.
• new financ­ing being obtained to com­plete the transfer.
• any liens being paid off through the transaction.

After all nec­es­sary infor­ma­tion has been gath­ered and noted in the take sheet, the clos­ing agent is ready to uti­lize the data in prepar­ing instructions.