In California, an escrow is “closed” on the day that the Grant Deed is recorded in the official records at the County Recorder’s office. The moment the Grant Deed is date-stamped by the County Clerk is considered the moment that ownership of the property changes hands.
In California, it is important to realize that “closing” does not mean the day the buyer signs loan documents, and it does not mean the day the lender funds the mortgage loan.
Both of those events are essential parts of the process, and both of those events absolutely must occur before the Grant Deed is released to the county recorder for recording.
Understanding how much time to allow for the final closing process will help reduce some of the stress and frustration that can accompany closing an escrow.
After the appraisal of the property has been made; after all the buyer’s financial documents have been reviewed, the Loan Processor or Loan Officer will advise all parties that final approval has been obtained, and that the lender is ready to “draw docs”. The “docs” being the note and deed of trust, and all the accompanying disclosures and addendums that the buyer must sign before the lender delivers the funds.
It can take up to 48 hours from the time the final approval is given until the documents are received by the Escrow Officer.
The Escrow Officer will contact the buyer for an appointment to sign the documents. Buyers are well advised to sign loan documents as soon as possible!
After the buyer signs the documents, the Escrow Officer will “package” them with other documents from the escrow file, such as an estimated closing statement, and return all the documents to the lender. The lender will most likely receive the documents back on the day after the buyer has signed them.
After the lender receives the signed documents back, it can take up to 72 hours for the lender to check the documents in and review them. After the lender reviews the documents to be sure they have been fully and correctly signed, the lender will issue the funds.
The funds are wired by the lender to the Escrow Company. Recording of the Grant Deed is scheduled for the next business page after the funds are received.
Additionally, as stated above, in the state of California, an escrow is considered “closed” on the date that the Grant Deed, transferring title from seller to buyer, is recorded at the County Hall of Records.
There is no closing table, and no settlement room. The Grant Deed is delivered to the County Hall of Records by a Title Insurance Representative, who waits in line at the recording window.
When the Representative reaches the window, the Grant Deed is handed to the county clerk, who stamps it with a date and document number.
The Title Insurance Representative will then notify the Title Insurance Officer that the recording is completed; the Title Officer will in turn notify the Escrow Officer; and the Escrow Officer will notify buyer, seller and agents that “We have confirmation.”
When the Title Insurance Company receives confirmation of recording from their representative at the hall of records, the Title Company will wire transfer all funds they are holding from the buyers lender to the Escrow Company.
At that point, the Escrow Officer will begin the process of balancing the file and disbursing funds to payoff the seller’s existing mortgages, liens, and any other payments – such as a pest control company – that the Officer has been instructed to pay through escrow.
The buyer becomes the legal owner of the property the day the Grant Deed is recorded. However, it is not unusual for a purchase contract to allow a seller an extra one or two days after the close of escrow to vacate the property. This be can a benefit for the buyer, since the seller will often use the extra day to make sure the home is thoroughly clean.
Step by Step
Part 1: Disclosures, inspections and credits
These are the initial tasks once a buyer is in contract, and are most often done in parallel to Part 2: The mortgage process:
An offer is accepted by the seller and a contract is signed. The Escrow process begins.
A deposit, called earnest money, is deposited with the seller’s real estate brokerage, an escrow company or an attorney depending on the contract (never to the seller directly). Escrow companies are often part of a title company, but work as separate divisions.
The buyer reviews and signs off on any disclosures These disclosures vary based on property type, but often include things like known flaws with the property, prior improvements or repairs, and potential environmental hazards. Often, a disclosure package is provided by the seller well in advance. In some cases, these disclosures and known defects are disclosed prior to the offer being accepted. Sellers may see this as beneficial to themselves, and believe that buyers will build these pre-disclosed facts into the contract price (and thus sellers may be reluctant to provide any credits for these defects).
The buyer elects to perform inspection on the property as agreed upon in the contract. These inspections must be completed by a certain date, which is called the inspection contingency stage .The types of inspections vary by property type and situation (and locale), but common inspections include a general contractor inspection pest inspection, roof inspection chimney inspection and ,sewer inspection
Based on the outcome of inspections, buyers may elect to ask the seller for repair work, closing cost credits, or a reduction in the sale price due to flaws that were uncovered. Sellers have three options: agree to all of the buyers’s requests, offer a modified solution back to the buyer, or decline to make any amends. In response, the buyer can continue to negotiate, accept the seller’s position, or in some cases, end the transaction and recoup their earnest money.
The buyer removes or waives the inspection contingency by agreeing to a signed inspection response with the seller, or by failing to make an inspection response request to the seller before the inspection contingency date has passed.
Part 2: The mortgage process
For those borrowing to purchase their home, the mortgage process is usually the the most stressful and opaque part of the transaction. It’s best to start as early as possible and be ready to produce lots of documentation. The following is the general process in California:
A buyer submits a loan application to their lender, either directly or through a mortgage broker
Within 3 days, the lender sends a “Good Faith Estimate or( GFE), to the buyer that is a breakdown of estimated closing costs. The final costs are likely to deviate from this estimate.
At the request of their lender, the buyer sends a series of personal financial disclosure. These vary by situation, but the most commonly requested documents are:
Several months of statements for each bank account a borrower holds (including any investment accounts)
Several months of statements for any outstanding loans, lines of credit, or other liabilities. This can also include documentation of rent payments.
Up to two years of tax returns, released to the lender via an authorization submitted by the buyer using IRS Form 4506-T
Recent pay stubs and contact information for each borrower’s employer. The number of pay stubs varies by situation.
Any other disclosures that are material to a borrower’s financial situation. This includes but is not limited to marraige licenses, divorce settlements, child support, liens, bankruptcies, or judgments. If there’s something that affects how much money you have on hand that isn’t shown by simply looking at your salary, be prepared to document it.
Explanation of any credit inquiries
Substantiation of any large deposits or cash gifts that aren’t regular income. In some cases, a large cash gift may look similar to a personal loan by a friend or family member, and lenders will require giftletters from those that gave you the cash gift, stating that the gift was not a loan. They may also ask for itemized deposit slips. The exact amount that triggers this requirement varies by situation (for instance, a $1,000 cash gift may be material to a single borrower that makes $35,000/yr but may not be material to a borrower that makes $350,000/yr), so it’s good practice to ask your lender if you suspect you might have a material cash gift or large deposit – so you aren’t surprised by this at the last minute.
Repeated and updated documentation of any of the above. Keep in mind: to a lender, anything can happen to a borrower’s personal financial situation and credit during the escrow process. Thus, you may be asked more than once for the same type of document so that your lender has the most recent pay stubs, rent receipts, bank statements, or other disclosures that may change over time. Any material changes in these documents -or any element of your personal financial situation- may require the lender to reassess your eligability for the loan for which you’ve applied.
The lender renders an approval decision, and if approved, issue a loan commitment letter stating its willingness to fund the mortgage provided certain conditions are met. These conditions usually include appraisal(so the lender can confirm that the property you’re buying isn’t worth far less than you’re paying) but will also generally include any material change in your situation -or the property- as initially disclosed to your lender.
The financing contingency or loan contingency is removed by the buyer by the loan contingency date as defined in the contract. Buyers often ask the seller for an extension to their loan contingency date if they have not yet received their loan commitment letter. In California, a buyer must submit their request for extension in writing, and the seller has a set number of days (usually indicated in the contract) to respond negatively if they do not wish to grant the extension.
An appraisal is ordered by the lender or mortgage broker via a central directory of appraisers (often called an Appraisal Management Company or AMC). Choosing a specific appraiser is not possible, but an agent or mortgage broker can reject an appraiser and ask for a new one. If the appraisal comes in lower than the purchase price, a lender can decline to approve the borrower unless a change is made to the purchase price or the size of the downpayment. In California, there is often an appraisal contingency before which any issues due to an appraisal coming in lower than purchase price must be remedied.Homeowners Insurance is purchased (or substantiated, if the property being purchased includes homeowners’ insurance as part of association fees or similar arrangements), and proof of home insurance is submitted to the lender.
Tip: As this process can be long, arduous, seemingly arbitrary, and is often critical to your homebuying transaction, try to prepare these documents (or at least figure out how to prepare them) in advance. Also, do not make any changes to your employment or credit until your transaction is complete (not just until you get a loan commitment letter). This means not switching employers even if it results in a higher income, as counterintuitive as that may sound. It also means not leasing or financing a car, opening a new credit card account, or anything else that can affect your credit report.
Part 3: The closing itself
The closing process itself usually spans a couple days, and in contrast to attorney review states, the transaction is not consummated with all parties sitting at the same table. In California, an escrow state, closing consists of the following steps:
Often, a title search is run just prior to closing to determine if there are any liens or assessments on the title. Provided the title is deemed ‘clear,’ closing proceeds as planned and title insurance is prepared. Note: buyers can ask for this title search in advance of closing (sometimes for an additional fee), and it may reveal material information regarding the property that may be good to know well before closing.
A buyer’s lender sends final loan documents to the escrow agent
The buyer signs all closing documents, including the HUD-1 loan documents documents.
The buyer pays the remaining funds for their downpayment and closing costs to either the escrow agent, closing agent, or representative of the title company (via wire transfer cashier’s check). This may also be done a few days in advance to speed along the closing process.
The deed gets recorded with the appropriate municipality and the escrow agent disburses funds to the appropriate parties.
The deal is now closed- the buyer receives the keys and, unless indicated differently in the contract, officially takes possession of the property.
