The escrow company is a neutral third party that carries out the terms agreed upon within the contract. They’ll use the contract as escrow instructions and if there is a dispute, both parties must agree in writing before the dispute can be resolved.
Usually the buyer will choose which company to open the escrow with, however more frequently the seller is choosing – especially when it comes to foreclosure properties. When purchasing a foreclosure property, the seller will require the buyer to use their escrow company or the buyer may pay all of the buyer and seller closing costs. This can be quite frustrating for a buyer since the seller’s escrow company may not be local, requiring the buyer to either sign their documents via a mobile notary, mail the documents, or travel to the escrow company to sign. Sometimes they may also have higher fees and require extra charges from the buyer, making the experience even more frustrating. Keep in mind that sometimes getting a great deal on a foreclosure property can also come with it’s share of headaches.
Once the buyer and seller come to an agreement, escrow is opened at the agreed upon escrow company. The escrow company then delivers a commitment for title insurance to both the buyer and seller, detailing the exceptions to the buyer’s policy of title insurance. The exceptions can be the covenants, conditions, and restrictions or CC&R’s, deed restrictions and easements. Once the commitment for title insurance is received, it is the buyer’s responsibility to review the title commitment and provide notice within 5 days of any items disapproved.
The seller is also responsible in Arizona to provide the buyer with a standard owner’s title insurance policy. The title insurance policy insures that their are no outstanding liens or surprises lurking on the title – ensuring that the buyer is being delivered free and clear title to the property.
The escrow company will also prorate real property taxes, assessments and fees. I always tell people to think of it as a hotel – you pay for the night you check in. In other words the buyer is responsible for the day of closing. Any other assessments and fees that are not liens are to be prorated as well. Other assessments and fees can include, but are not limited to, HOA fees, rents, irrigation fees, and other service contracts or development assessments. Any assessments that are liens can either be paid in full by seller before the close of escrow or prorated and assumed by the buyer. If there is an assessment that becomes a lien after the close of escrow, it becomes the buyer’s responsibility.
In most cases, the escrow company also holds onto the buyer’s earnest deposit. It is deposited into an escrow account and held until the property either closes or cancels escrow. If there is a dispute between the seller and buyer regarding earnest money, the escrow company will use the terms of the contract to decide who has the right to claim the earnest money deposit.