“An escrow is a deposit of funds, a deed or other instrument by one party for the delivery to another party upon completion of a particular condition or event" - The California Escrow Law - Section 17003 of the Financial Code
The buyer, seller, lender, and borrower, all want the assurance that no funds or property will change hands until ALL of the instructions in the transaction have been followed. The escrow holder has the obligation to protect the funds and/or documents while they are in the possession of the escrow holder, and to disburse funds and/or convey title only when all provisions of the escrow have been complied with.
The principals to the escrow - buyer, seller, lender, borrower - cause escrow instructions, most usually in writing to be created, signed, and delivered to the escrow officer. If a broker is involved, he/she will normally provide the escrow officer with the information necessary for the preparation of your escrow instructions and documents. The escrow officer processes the escrow, in accordance with the escrow instructions, and when all conditions required can be met or achieved, the escrow will be “closed”. Each escrow is unique.
“The duties of an escrow holder include: following the instructions given by the principals and parties to the transaction in a timely manner; handling the funds and/or documents in accordance with the instruction; paying all bills as authorized; responding to authorized requests from the principals; closing escrow only when all terms fund in accordance with instructions and provide an accounting for the same.“ - Closing Statement / HUD1
The selection of the escrow holder is normally done by agreement between the principals. In a refinance, the loan broker may recommend an escrow. If a real estate broker is involved in a sale/purchase transaction, the listing broker typically (in Southern California) recommends an escrow holder. However, it is the right of the principals to agree on the escrow holder and use an escrow company who is competent and experienced in handling the type of escrow at hand. To insure the best possible service without hidden costs or fees - the law prohibits the payment of referral fees to anyone.