Escrow 101: How Escrow Works in California

Buying a home is an exciting milestone—but the process can look different depending on where you live. In California, most real estate transactions go through escrow, a system designed to protect both buyers and sellers.

What is Escrow?

Escrow is a process where a neutral third party—called the escrow holder or escrow officer—manages the funds and documents involved in a transaction. Their job is to ensure that no money or property changes hands until all conditions of the sale are met.

Escrow is most common in real estate, but the process can also be used for other types of large transactions. In California, escrow is typically handled by an independent escrow company or a title company, providing peace of mind to everyone involved.

How Does Escrow Work?

Escrow begins when the buyer and seller sign an agreement and deposit funds and/or documents with the escrow officer. From that point forward, the escrow officer’s authority is limited to the written instructions agreed upon by both parties.

Some of the common tasks handled in escrow include:

• Collecting and depositing earnest money from the buyer.

• Ordering payoff information for any existing mortgages or liens.

• Calculating and prorating property taxes, insurance, rents, and interest.

• Arranging title insurance for both the buyer and lender.

• Preparing and receiving necessary transaction documents.

• Requesting and managing loan funds from the buyer’s new lender.

• Recording the deed and other legal documents with the county to transfer ownership.

• Disbursing funds to the appropriate parties once all conditions are met.

• Preparing a detailed final closing statement showing how every dollar was handled.

Why Escrow Matters

Escrow ensures that:

• Buyers don’t release funds until they know the seller can deliver clear title.

• Sellers don’t sign over ownership until they know they’ll be paid.

• Lenders know their loan funds are only used once their conditions are satisfied.

In short, escrow provides accountability, transparency, and protection throughout the entire process.

Legal Definition of Escrow

Black’s Law Dictionary defines escrow as:

A writing, deed, money, stock, or other property delivered by one party into the hands of a third person, to be held until the performance of a condition, and then delivered to the other party.

Fun Fact

The term “escrow” comes from the Middle English word escroue, meaning “scroll.” In medieval England, property transfers were recorded on scrolls, and trusted third parties held these records until the deal was finalized.

Disclaimer:
The information provided in this blog is for general informational purposes only and should not be construed as legal, financial, or tax advice. Real estate transactions can have significant financial and legal implications, and each situation is unique. Readers are strongly encouraged to consult with qualified professionals—including a licensed lender, accountant, attorney, and/or financial advisor—before making any decisions related to mortgages, loans, taxes, contracts, or real estate transactions. The Paul Kaplan Group and its agents make no guarantees as to the accuracy, completeness, or applicability of the information provided, and assume no liability for actions taken in reliance upon it.