The Escrow Process in Arizona

WHAT IS AN ESCROW?

An escrow is a process wherein the Buyer and Seller deposit written instructions, documents, and funds with a neutral third party until certain conditions are fulfilled. In a real estate transaction, the Buyer does not pay the Seller directly for the property.

The Buyer gives the funds to an escrow company who, acting as an intermediary, verifies that title to the property is clear and all written instructions in the contract have been met. Then the company transfers the ownership of the property to the Buyer through recordation and pays the Seller. This process protects all parties involved.

See the chart on the right representing the Escrow Process from start to finish (click to enlarge).

In Arizona, escrow services are generally provided by a title insurance company instead of an attorney.

HOW IS AN ESCROW OPENED?

Once you have completed the contract (or purchase agreement) and the Seller has accepted the offer, your Realtor will open the escrow. The earnest money deposit and the contract are placed in escrow.

See the chart on the right representing the life cycle of an escrow from start to finish.

HOW TO HOLD TITLE?

You should inform your escrow officer and lender as soon as possible as to how you wish to hold title to your home, as well as letting them know exactly how you want your name(s) to appear on all documents. This allows your lender and title company to prepare all documents correctly (Changes later, such as adding or deleting an initial in your name, can delay your closing). Click here for the different ways to hold title in Arizona. You may wish to consult an attorney, accountant, or other qualified professional before deciding how to hold title.

WHAT HAPPENS DURING THE ESCROW PERIOD?

Your escrow officer follows instructions on your purchase contract, coordinates deadlines, and gathers all necessary paperwork.

A copy of the existing deed is ordered by the escrow officer to obtain the legal description of the property and the names of the owners on record.

The escrow officer or an assistant then orders a commitment for title insurance from the company's title department in order to determine what will be required to close the

transaction. The title department begins researching and examining all historical records pertaining to the subject property. Barring any unusual circumstances, a commitment for title insurance will be issued, indicating a clear title, or listing any items which must be cleared prior to closing. The buyer or buyer's lender will be informed of any items that will remain of record against the property after closing.

Written requests for payoff information (called "demands") are sent to the seller's mortgage company and any other lien holders to determine the amount needed for the seller to payoff the loan on the property being sold. Statements from the homeowners association (HOA) are also ordered to determine the amount needed for any payoff, and/or transfer at the close of escrow.

Copies of the Title Commitment, covenants, conditions, and restrictions (CC&R's) and termite inspection reports are forwarded to buyer, seller, and lender for their approval as received.

Upon receipt of the buyer's loan documents from the buyer's lender, the escrow officer prepares the settlement statement (or HUD-1) based on the information provided by the buyer's lender, statements from the homeowners association, payoff information from the seller's lender (if any), and the purchase contract. The buyer and seller are each contacted and have separate signing appointments scheduled for each other. The buyer will deposit closing funds at their scheduled signing time unless other arrangements have been previously made.
After signing, the loan documents are returned to the buyer's lender for approval and funding. Upon receipt of the loan proceeds from the lender, the escrow officer will release the documents in the transaction for recording with the County Recorder on the agreed upon recording date. After recording, the funds are disbursed and copies of all documents are provided to the Realtor®, buyers, and sellers, and the title insurance policies are issued to the buyer and the buyer's new lender.

In Arizona, real estate agents are authorized to write purchase contracts and escrow/title companies are authorized to complete standard documents to close a real estate transaction. As a result, attorneys are not commonly engaged in real estate closings of residential property. The real estate professionals generally involved include the real estate agents, the escrow officer, and the buyer's loan officer.