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What's Escrow and Who Chooses The Escrow Company?

Escrow is an account that's set up to hold all the title documents before closing as well as moneys from the buyer, generally two months worth of mortgage payments and homeowners insurance. Escrow protects all the parties involved in the sale, the buyer, the seller and the lender, and the account is held by a neutral third party, the escrow agent.

California permits several types of escrow agents. Each type is controlled by a different regulatory agency.

Independent escrow companies process the majority of the transactions initiated in Southern California and are regulated by California's Department of Corporations. They are required by law to maintain a specific level of liquid assets and have at least one experienced escrow officer on duty at all times.

Title insurance companies, a popular option for escrows in Northern California, are regulated by California's Department of Insurance.

Banks and savings and loans frequently provide escrow services and are typically regulated by the same agency (the state banking commissioner or FDIC) that regulates the bank. Similarly, broker-owned escrow providers are regulated by California's real estate commissioner.

If you are not certain as to what type of escrow agency is handling your escrow, check your escrow instructions. Under California law, all instructions must contain the name of the escrow company, its regulatory agency and its license number.

Who Chooses?

The buyer or the buyer's real estate agent usually chooses the escrow company. The seller can agree to the buyer's selection or counter with another choice.

Although the seller generally acquiesces to the buyer's suggestion, the selection of the escrow company is negotiable. If the buyer and seller can't agree on the escrow company, the negotiations to purchase the property can fail.



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