What is Escrow?
An escrow is created when money and/or documents are
deposited by two or more persons with a third party which are to be
delivered upon the happening of certain conditions. The third party is
known as the escrow agent or escrow holder.
The authority given to an escrow holder is strictly limited by
instructions provided by the parties involved. Consequently, an escrow
holder acts on mutual instructions deposited into escrow and DOES
NOT represent any party. The escrow officer is authorized by
instructions to allocate funds for items during the escrow period, such
as real estate commissions, title insurance, liens, recording fees and
other costs. Instructions also specify the method of collecting funds,
proration issues, time limitations and all the terms of the transaction.
The escrow process protects all parties involved by retaining money
and documents until the mutual instructions are met.
The statutory definition of escrow is found in Section 17003 of the
California Financial Code and reads as follows:
‘Escrow’ means any transaction wherein one person for the
purpose of effecting the sale, transfer, encumbering, or
leasing of real or personal property to another person,
delivers any written instrument, money, evidence of title to
real or personal property, or other thing of value to a third
person to be held by such third person until the happening
of a specified event or the performance or a prescribed
condition, when it is then to be delivered by such third
person to a grantee, grantor, promisee, promisor, obligee,
obligor, bailee, bailor, or any agent or employee of any of
the later.
