Understanding the Escrow Closing Process

In the state of California, “CLOSING” an escrow has a different meaning than in most other states.  This particular word seems to cause a lot of confusion, which is understandable, considering how varied the definition can be from one entity to the next.  In California, when an Escrow is officially “closed”, it means that is the day that the Grant Deed is recorded at the County Recorder’s office, and is officially of public record.  Specifically, “Closing” is the moment the Grant Deed is date-stamped by the County Clerk.  This is also the same moment that ownership of the property changes hands from the Seller, to the Buyer(s), who are now officially the new owner(s).

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If you are involved in an Escrow transaction in California, it is important to realize that “Closing” is not the day the Buyer signs their Loan Documents.  Because some Lenders that we deal with are nationwide, they will sometimes use the word “Closing” when they are talking about the Buyer(s) signing Loan Documents, as that is the terminology used in most other states outside of California.  Additionally, “Closing” also does not mean the day the Lender funds the Buyer’s new mortgage loan.  That day is simply known as the “Funding” date.  Funding happens the day prior to the Closing date, unless of course the file is being set up for a “Special” or “Same-Day” recording, but that is a whole other discussion. Confused yet?  That is certainly understandable.  Escrow terminology is its own language, and attempting to read and absorb it is fairly similar to trying to understand assembly instructions for furniture from Ikea.  Hang in there, and always remember your Escrow Officer is there to help you.  We completely understand that we might have to explain the same things to you over and over again, until they make sense.  That is part of our job and our responsibility to our clients, and it is never a nuisance.

Understanding how much time to allow for the final Funding and Closing process will help reduce some of the stress and frustration that can accompany any Escrow transaction.  Here is a brief timeline and explanation of events that are a part of almost every Escrow.  After the appraisal of the property has been completed, and after all of the Buyer’s financial documents have been reviewed, the Loan Processor or Loan Officer will advise all parties that Final Approval, or “Clear to Close” (CTC) has been issued, and that the Lender is ready to “draw docs”. These docs are the Buyer’s Loan Documents, and will contain the Note, Deed of Trust, and all of the accompanying disclosures and addendums that the Buyer(s) must sign before the Lender funds the loan (see Funding Date above).  It can take up to 48 hours from the time the final approval is given before the Loan Documents are received by the Escrow Officer.  Typically it happens faster than that, but we advise our clients to hope for the best, and prepare for the worst.  Embracing that thought process will help ease your anxiety and cut down on your frustration.  There are always bumps in the road and unexpected, last minute hurdles that cause delays.  Don’t panic!  Delays happen on almost every single transaction, but rest assured, 9 times out of 10, they are not issues that will jeopardize the deal, and are simply minor irritations.  But, I digress!  Back to our timeline.  So, once the Escrow Officer receives the Buyer’s Loan Documents, he/she will contact the Buyer(s) to schedule an appointment to have them signed with a Notary Public.  Buyers are typically anxiously awaiting this phone call from Escrow, and schedule their signing appointment as quickly as possible.  I’m assuming that might have something to do with the fact that as soon as those Loan Documents go out, pretty much every single party associated with the file is calling, emailing, texting, and sending smoke signals to Escrow, the Buyer and the Buyer’s Agent to make sure the signing appointment has been scheduled.  After the Buyer(s) sign their Loan Documents, the Escrow Officer will “package” them.  “Packaging” Loan Documents is when the Escrow Officer goes through the signed and notarized loan documents to make sure they are signed accurately and that the Notary Public notarized them correctly. The Escrow Officer will also include copies of all of the other documents in the Escrow file that the Lender will need to see and review along with the packaged Loan Documents.  This is why it is imperative that any and all Escrow paperwork sent to the Buyer(s) and Seller(s) are fully completed and returned to the Escrow Officer promptly.  Escrow Officers are pretty hyper about getting their documents back in a timely fashion.  There is information that we need from the Buyer(s) and Seller(s) in order to continue to process the file and keep it moving forward.

Remember, we are corresponding with and getting requests from EVERY SINGLE party involved in the transaction.  We are dealing with the Buyer(s), the Seller(s), the Listing Agent, the Selling Agent, the Listing Agent’s Transaction Coordinator, the Selling Agent’s Transaction Coordinator, the Title Company, The Lender, the Loan Agent, the Loan Agent’s Assistant, the Loan Agent’s Processor, the HOA and Management Company (if applicable), the Payoff Lender, the Termite Company, etc.  It’s a little like herding cats.

Ok, back to your originally scheduled program.  Once the Buyer(s) have signed and notarized their Loan Documents, they’ve been returned to the Escrow Office, and the Escrow Officer has packaged them and sent them back to the Lender for prior to funding (PTF) review, we all wait anxiously and patiently (ha!) for the Lender to advise if anything further is needed prior to funding the Buyer’s Loan. Please keep in mind that several Lenders are out of state, so sometimes we have to overnight the signed Loan Documents, which may cause a day or more delay in closing.  I know the word “delay” makes everyone clench up, but please, remember to breathe.  We are so close to being done!  Once the Lender has completed their review of the signed Loan Documents, and accompanying items provided by the Escrow Officer during the “packaging docs” process, they will issue what is known as the “Funding Condition List”.  Now, this is where that whole, “remember to breathe” part mentioned above is really going to be important.

Some Lenders have adopted a process in which they request documents from the Loan Agent and the Escrow Officer before they will even issue the Loan Documents.  These are known as “Prior to Doc” (PTD) conditions.  This process is entails the Escrow Officer and Loan Officer obtaining and providing to the Lender almost every, single thing imaginable, prior to the Loan Documents even being drawn.  This practice, although labor intensive for the Loan Agent and Escrow Officer, helps expedite the Funding of the Buyer’s loan.  Since they have collected everything short of blood samples prior to sending the Loan Documents out, once they come back signed and notarized, they can typically fund the loan very quickly, and don’t usually need very many “Prior to Funding” (PTF) conditions.   I realize that “PTD” and “PTF” are eerily similar acronyms to PTSD, and I don’t believe that is a coincidence.

We are now at our Funding Date!  Are you still remembering to breathe?  Have you taken to drinking wine at your desk everyday to combat the anxiety?  Do you find yourself refreshing your email every 2 minutes to see if there are any updates from anyone?  Have you been Googling “Escrow Support Groups” online? If so, congratulations, you are well on your way to obtaining Escrow Veteran status!  When the Lender funds the loan, that means they have wired the Buyer’s loan funds to the Title Company.  Once the Escrow Company gets confirmation that the loan has funded, we call the Title Company to authorize the Recording/Closing for the following day.  This brings us to what?  Our CLOSING DATE!!!  If you guessed something else, go back to paragraph 1 for a refresher.  So, what does the Title Company do on the day of Recording/Closing, now that they have a bunch of money from the Buyer’s Lender?  Well, they pay off the Seller’s existing mortgage(s), they pay any property taxes that are due, they pay themselves for their Title Fees, etc.  Once the County Recorder’s Office has confirmed with the Title Company that the Grant Deed and any other recordable documents are officially of record, they will send the rest of the loan funds to the Escrow Company so that we can balance our file, and disburse the remainder of the funds to all parties.  This is known as CONFIRMATION of recording, or being “confirmed”.  As soon as we receive confirmation, we will immediately notify all parties of the good news!  FYI, Escrow Companies cannot disburse any funds until confirmation of recording is received.  Escrow can receive confirmation either early in the morning, or late in the afternoon.  There is no way to predict when we will receive it, and it varies from day to day.  If the Escrow Company gets confirmation late in the afternoon on the day of recording/closing, it is likely that we will not be able to start disbursing funds to everyone until the following day.  I know, I know, MORE waiting.

Well, guess what?  We are officially done!  Now comes the part where your Escrow Officer has to remember to breathe.  Why you may ask?  Well, can you guess how many people start calling, emailing, texting and showing up at our office asking for their money, once they know we are confirmed? If you guessed ALL of them, you would be correct!  The Escrow Company has to quickly, and of course, perfectly balance their file, and start sending everyone their funds due.  All invoices submitted for payment through escrow must be checked, and double checked. Wires must be sent out.  Final Closing Statements must be prepared and issued.  Closing packages for all parties must be prepared and sent out, etc.

I realize that you may be wondering why in the world someone would CHOOSE Escrow as a profession, and that is a valid quandary.  However, I have only provided you with the black and white version of closing an Escrow.  The part that we love the most, and that keeps us coming back for more is you.  Yes, you!  Whether you are a Buyer or a Seller, we love helping you navigate your Escrow transaction.  We love to hear your story about how hard you worked to save for your first home, or how you need to move to a bigger home because you are expecting your 2nd child.  We even love to hear about how you have been struggling, or going through a tough time, and that we were able to make things easier for you by walking you through your Escrow process.  Hearing your voice filled with excitement when we tell you that we have officially closed escrow carries us through our day, and reminds us why we wouldn’t want to do anything else!

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