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An escrow is created when money and/or
documents are deposited by two or more persons with a third party, and which
are to be delivered upon the happening of certain conditions. The third party
is known as the escrow agent or escrow holder.
The authority given to an escrow holder is
strictly limited by instructions provided by the parties involved.
Consequently, an escrow holder acts on mutual instructions deposited into
escrow and DOES NOT represent any party. The escrow officer is
authorized by instructions to allocate funds for items during the escrow
period, such as real estate commissions, title insurance, liens, recording fees
and other costs. Instructions also specify the method of collecting funds,
proration issues, time limitations and all the terms of the transaction. The
escrow process protects all parties involved by retaining money and documents
until the mutual instructions are met.
The statutory definition of escrow is found in
Section 17003 of the California Financial Code and reads as follows:
'Escrow' means any transaction wherein one
person for the purpose of effecting the sale, transfer, encumbering, or leasing
of real or personal property to another person, delivers any written
instrument, money, evidence of title to real or personal property, or other
thing of value to a third person to be held by such third person until the
happening of a specified event or the performance or a prescribed condition,
when it is then to be delivered by such third person to a grantee, grantor,
promisee, promisor, obligee, obligor, bailee, bailor, or any agent or
employee of any of the later.
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