The escrow process is an important part of buying, selling, and refinancing real estate in California. Although many people are experienced in the buying and selling of homes, the ins and outs of escrow can often be unfamiliar territory. Specific rules and regulations of California escrow must be adhered to by a team of experienced professionals to make real estate closings successful. These rules help to protect the public and minimize risk for individuals.

Providers – An escrow provider must be licensed by the California Corporations Commissioner. Providers must be a corporation and in the business of receiving escrow for deposit or delivery. Some exceptions exist, however. Certain entities do not necessarily need to be licensed to perform escrow services. These entities include attorneys with a client relationship to a principal of a real estate transaction, banks, trust companies, insurance companies or savings and loan companies. Also exempt from licensing are title companies or brokers performing escrow services for real estate clients.

Independent vs. Non-Independent – Real estate brokers or title insurance companies are examples of non-independent escrow companies. Non-Independent escrow providers who do not need licensing are regulated by the regulatory authority that they operate under, while independent providers operate directly under the authority of the Department of Business Oversight. The requirements for independent escrows are much more stringent than non-independent, and these companies not only need to obtain licensing, but must also attain membership in the Escrow Agent's Fidelity Corporation, an agency that indemnifies member escrow companies against loss of trust obligations caused by fraud or embezzlement on the part of employees or officers.

Neutral Third Party - An escrow officer must act as a neutral third party and not favor any one side of a real estate transaction. Because of this, the escrow agent should never be involved in client negotiations or advise either side about a resolution to a dispute. Escrow agents must adhere to the general instructions and proceed only when both parties have mutually agreed to any contract changes. Unless the person handling the escrow is an attorney, an escrow officer cannot give or offer legal advice under California law.

Confidentiality - Escrow transactions should be kept confidential by all agents of the provider. Information about the escrow details should never be given out to third parties without the approval of the principals to the escrow. However, escrow officers have a duty to disclose new or material information revealed during the transaction that might affect either side. Additionally, escrow officers must maintain a professional relationship and a high level of trust with parties to the escrow.

The escrow process may be daunting to some, but understanding the rules and regulations escrow companies operate under can help alleviate some of the mystery and provide peace of mind for consumers.

*Adapted from an article published by RISMedia         

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This material is not intended to be relied upon as a statement of the law, and is not to be construed as legal, tax or investment advice.  You are encouraged to consult your legal, tax or investment professional for specific advice.  The material is meant for general illustration and/or informational purposes only.  Although the information has been gathered from sources believed to be reliable, no representation is made as to its accuracy.