What Is Close of Escrow and How Does the Process Work?
Discover Close of Escrow: the essential final stage where property ownership transfers and real estate transactions finalize.
Close of escrow marks the official completion of a real estate transaction. It represents the culmination of the escrow process, where all conditions of the sale contract are satisfied. This moment signifies the legal transfer of property ownership from the seller to the buyer, and all financial obligations related to the transaction are settled.
Understanding Close of Escrow
Close of escrow is a pivotal moment for both the buyer and the seller in a real estate transaction. For the buyer, it means receiving legal title to the property and the right to possession. The seller, in turn, receives the agreed-upon sale proceeds, minus any deductions for closing costs or outstanding obligations.
The escrow holder plays a neutral and central role, acting as a fiduciary to both the buyer and the seller. This third party holds all funds and documents, such as the buyer’s earnest money deposit, in a secure trust account until all conditions of the sale contract are met. The escrow agent follows instructions to ensure a fair and compliant transaction.
For escrow to close, several critical conditions must be satisfied. These include the removal of all contingencies, such as those related to inspections, appraisals, or financing approval. Loan funding must be confirmed, ensuring the buyer’s financial capacity to complete the purchase. All necessary legal documents must also be prepared for execution.
Key Actions at Close of Escrow
Prior to close of escrow, several procedural steps occur. One primary action is the funding of the loan by the buyer’s lender. After the buyer signs the final loan documents, the lender reviews them and disburses the loan funds directly to the escrow account. Federal regulations, specifically the Real Estate Settlement Procedures Act (RESPA), require that buyers receive their Closing Disclosure at least three business days before they can sign their loan documents.
Following loan funding, the final signing of all necessary legal documents takes place. Both the buyer and seller execute paperwork, including the deed, which formally transfers ownership of the property. Buyers also sign documents like the promissory note, their promise to repay the mortgage loan, and the mortgage or deed of trust, which secures the lender’s interest in the property. The Closing Disclosure is also reviewed and signed by the buyer.
The final step of close of escrow is the recording of documents. The deed and other relevant legal documents are filed with the local county recorder’s office. This act provides public notice of the ownership transfer and legally formalizes the transaction, establishing a clear chain of title.
Post-Closing Finalization
Once the close of escrow is officially completed and recorded, the immediate aftermath involves the finalization of financial and physical aspects. The escrow agent proceeds with the disbursement of funds, ensuring all parties involved receive their due amounts. This includes the seller receiving their net proceeds from the sale, real estate agents receiving their commissions, and other service providers or lienholders being paid. Sellers typically receive their funds within one to two business days after closing, with wire transfers often being the fastest method.
Concurrently with fund disbursement, the buyer officially receives the property keys and takes physical possession of the home. This often occurs on the same day the deed is recorded, provided all funds have been disbursed and the seller has vacated the property. However, factors such as late-day recordings or agreements allowing the seller a few extra days of occupancy can sometimes delay the key handover.
Finally, both the buyer and seller receive their complete set of closing statements and all related transaction documents for their records. These documents provide a comprehensive accounting of the entire transaction, including all financial details and legal agreements. This meticulous documentation ensures transparency and provides a permanent record of the property transfer.