Arizona State University

W.P. Carey School of Business

Real Estate Law – February 9, 2017

Escrows and Closings

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Escrow
• What Is an Escrow?
– An escrow is a deposit of funds, a deed or other
instruments into the custody of a neutral third party by one
party for the delivery to another party upon completion of a
particular condition or event

• Why Do I Need an Escrow?

– An escrow provides assurance to all parties (buyer, seller,
lender, borrower) that no funds or property will change
hands until ALL of the instructions in the transaction have
been followed

• Who Chooses the Escrow Officer?

– Usually done by agreement between the principals
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Escrow, cont.

• How is an Escrow Established?

– Signed agreement (usually a purchase agreement or

other escrow instructions) – names escrow officer,
sets forth requirements for opening of escrow, time
lines, closing requirements, default provisions,
cancellation provisions, etc.

– Funds usually required to “open” escrow

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Sample Contract Provision re Opening
Escrow
• Effectiveness of Agreement; Opening Date. This Agreement
shall be effective when both the Buyer and Seller have
executed this Agreement. Within two (2) business days
following the date of execution of this Agreement by both
Buyer and Seller, Buyer will deliver a fully executed copy of
this Agreement to Escrow Agent, together with the earnest
money deposit required by section 2.2(a). The “Opening
Date” shall be the date on which Escrow Agent receives the
fully executed copy and earnest money deposit. Promptly
upon receipt of those items, Escrow Agent shall notify Buyer
and Seller in writing of the Opening Date.
Duties of the Escrow Officer
• Impartial third party – acts on mutual instruction of the parties to
the transaction
• Interfaces with all parties
• Reads contract and provides key transaction dates to the parties
• Holds and disburses funds and/or documents in accordance with
the instructions
• Assists in obtaining payoffs (i.e. pertaining to existing deeds of
trust, tax liens, judgments)
• Information gathering – organizational docs, copies of leases, rent
rolls with security deposits, list of service contracts, list of personal
property included in sale

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Duties of the Escrow Officer, cont.
• Acts as liaison with the title department
– Delivers title commitment
– Interfaces with parties and title dept. to resolve title issues
– Makes requests for inspections, coordinates survey requirements
and issues, obtains owner’s affidavit
• Verifies closing docs are fully executed and have correct exhibits
• Calculates pro-rations and fees to be paid
• Prepares closing settlement statement
• Closes the escrow when all conditions are satisfied
[Review Escrow/Title Work Flow Chart]

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Types of Deeds
• General Warranty Deed
– Provides the most title protection
– Contains six specific covenants of title
• Covenant of seisin: ↓↓↓
• Covenant of right to convey
• Covenant against encumbrances: no liens and encumbrances other
than existed in public record
• Covenant of warranty: always defend the title conveyed
• Covenant of quiet enjoyment: won’t disturbed by other people who
claim they own the property
• Covenant of further assurances: grantor will execute any future doc.

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Types of Deeds, cont.
• Special Warranty Deed
– Contains the same six specific covenants of title, but applies them only
to defects caused by the acts of omissions of the grantor and none other
– Affords no protection against the acts or omissions of third parties: only
to grantor and his/her period of ownership
• Quitclaim Deed
– Contains no title (warranty) covenants
– Merely conveys whatever right, title or interest the grantor may have in
the property
– I’ll give you whatever I have yooooooo
– Can’t insured or go back to seller is something go wrong

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Closing Checklist – Why Have One?
• Provides a “road map” of the commercial real estate
transaction – it forces you to think through transaction
details and enables you to budget time effectively

• Minimizes the risk of forgetting something or delaying the

closing: like schedule

• Provides an effective way of delegating responsibility to

the parties, their respective counsel, the escrow officer,
the brokers, etc. (interface)

• Adds value to the deal as both a planning tool and

marketing tool
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Pre-Closing Matters
• Draft closing instruction letter and distribute for comments

• Order UCC, litigation, and tax lien searches, if applicable

• Order zoning verification letter, if applicable

• Order current entity docs and good standing certificate(s)

• Prepare entity resolution(s) authorizing transaction

• Order old loan payoff statements, if any

• Approve new loan documents, if any

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Pre-Closing Matters, cont.
• Draft opinion letter(s), if any, and distribute for comments

• Provide wiring instructions to buyer (and lender, if any)

• Approve form of deed and other closing documents

• Draft nominee instructions (if any), owner’s affidavit (if

any), affidavit of value (if any), and FIRPTA affidavit

• Order new property insurance certificate

• Resolve any Schedule B issues

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Pre-Closing Matters, cont.
• Resolve any survey issues

• Approve pro forma title policy, with endorsements

• Order and review draft settlement statement

• Obtain consents, if any (e.g., short sales, junior liens)

• Obtain certificates of occupancy, if any

• Update rent roll, if any

• Address any remaining title insurance requirements

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Closing Matters
• Escrow vs. Roundtable

• What happens on the day of closing?

– The attorney’s perspective: help their party

– The escrow officer’s perspective: trying to make everybody

happy (what’s right on the agreement)

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Post-Closing Matters
• Documents distributed

• Issuance of title policy(ies)

• Property tax re-prorations

• Post-closing letter

• Closing binder

• Surviving covenants, representations and warranties

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When Good Closings Go Bad - Some
Common Problems
• Lack of understanding of parties’ roles

• Lack of effective communication

• Not being sufficiently engaged, attentive and pro-active

• Failure to address contract, title and loan requirements early

• Failure to timely deliver survey, loan documents, closing

documents, etc.

• Broken priority
• 25150498

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