How escrow works in California

California law describes escrow as a hand-off to a third party. One side gives money or papers to a neutral holder, who keeps them until the conditions both sides agreed to are met, and then delivers them (Financial Code §17003).

The escrow holder is neutral. It follows the written instructions the buyer and the seller both sign, and it doesn’t take sides if they disagree. It isn’t your lawyer or your agent, and it doesn’t give legal or tax advice.

Companies like ours are licensed by the DFPI, the state agency for escrow companies. Banks and title companies can also hold escrows without that license. So can attorneys, for their own clients, and real estate brokers, in deals where they’re an agent or a party (Financial Code §17006).

Check a licenseLook up any escrow company on the DFPI’s own site. Ours is license 963-1716.

1. 01

   Step 1: Escrow opens

   Buyer and seller sign the purchase contract, and the agents send it to escrow. In Southern California, both sides then sign joint escrow instructions: one written list of everything that has to happen before any money moves.

   HeldThe buyer’s deposit is in escrow.

   BuyerSend your deposit on the schedule in your contract. Call us to check the wiring details before you send anything.

   SellerTell us about your mortgage and any other loan on the home, like a home equity line, so we can get the exact amounts to pay them off.

2. 02

   Step 2: Title search

   A title company searches the public records and sends a preliminary report, a first look at who owns the home and what’s owed on it. It lists the loans, liens (debts tied to the home) and anything else on record.

   BuyerRead the preliminary report with your agent. Ask about anything that looks odd.

   SellerIf the report turns up an old debt tied to the home, like an unpaid bill or a court judgment, work with us to clear it.

3. 03

   Step 3: Inspections and disclosures

   The buyer inspects the property and the seller hands over the required disclosures. Your contract sets the deadline for each.

   BuyerBook inspections early and sign disclosures before your deadlines.

   SellerDeliver your disclosures on time and answer repair requests.

4. 04

   Step 4: The loan

   If the buyer is getting a loan, the lender orders an appraisal and works toward final loan approval.

   BuyerAnswer your lender fast, and hold off on new credit cards or car loans until you close.

   SellerKeep the home ready for the appraiser’s visit.

5. 05

   Step 5: Signing

   Escrow prepares the closing papers and an estimated closing statement that lists every fee. Everyone signs in front of a notary.

   HeldThe buyer’s funds join the deposit.

   BuyerBring a photo ID. Call us before you wire the rest of your money.

   SellerBring a photo ID. Sign the grant deed (the paper that hands the home to the buyer) and your closing papers.

6. 06

   Step 6: Funding

   The lender sends the loan money to escrow. Escrow checks that every condition in the instructions has been met.

   CheckedLoan money in. Nothing goes out yet.

   BuyerNothing to do here. Your lender sends the money straight to escrow.

   SellerNothing to do here. We’re getting the exact amount to pay off your loan and working out what you’ll walk away with.

7. 07

   Step 7: Closing

   The county records the deed, usually the business day after the buyer’s lender sends the money. Escrow pays off the old loans, pays the seller and sends everyone a final statement.

   ReleasedPaid out after the deed records.

   BuyerMove in. Keep your final closing statement somewhere safe.

   SellerYour money goes out by wire or check, the way your signed instructions say. Never send bank details in reply to an email or a text. Not sure how your money will reach you? Call us and ask.

In Southern California, the buyer and the seller usually sign one set of escrow instructions after the purchase contract is signed and escrow opens. It lists what has to happen before any money moves: the price, the loan, the dates, and who pays which costs.

Who pays which costs is up to the buyer and the seller. Customs differ from county to county, and the contract decides.

Read the instructions before you sign. If something doesn’t match your contract, ask your agent about it first. If anything needs to change later, the buyer and the seller both sign the change.

Early in escrow, a title company searches the public records and sends a preliminary report. It shows who owns the home and what’s recorded against it: loans, liens (debts tied to the home) and anything else on record.

It’s a first look, not the final title policy. Read it with your agent. If it shows an old debt that has to be cleared, the seller works with escrow to clear it before closing.

Once everyone has signed and the conditions are met, the buyer’s lender sends the loan money to escrow. That’s called funding. After a loan funds, the deed is usually recorded the next business day.

For an Orange County home, the deed is recorded with the Orange County Clerk-Recorder. That makes the sale part of the public record. Then escrow pays off the old loans, pays the seller and sends everyone a final closing statement.

Orange County charges a documentary transfer tax of $1.10 for every $1,000 of the sale’s value when the deed records. Your contract says who pays it. (See the county’s fee schedule.)

It stays in escrow. Escrow releases it when the buyer and the seller both sign release instructions, or when a court decides.

California law puts the duty on both of you to return the money to whoever is entitled to it when a home purchase doesn’t close by the contract’s date. For a home of one to four units that the buyer will live in, a side that won’t sign the release within 30 days of a written demand, with no good-faith dispute, can owe the deposit, damages of $100 to $1,000 and attorney’s fees (Civil Code §1057.3).

If there’s a real dispute, escrow keeps holding the money. If it goes to court, escrow can hand the money to the court.