Escrow Instructions Are Essential to Real Estate Transactions

As real estate attorneys, we often find that escrow instructions are important when attempting to resolve disputes related to real estate sales. While the purchase agreement terms govern the specifics of the transaction, escrow instructions are the rules by which those terms are mechanically accomplished. In the standard residential purchase agreement used in most transactions, the California Residential Purchase Agreement and Joint Escrow Instructions (CAR Form RPA), the basic escrow instructions have been incorporated into the purchase agreement. The escrow company acts as the neutral third party that coordinates all the necessary acts and documents for closing the purchase and passes the various funds. (This system is different than the “table closing” buyers and sellers are used to in many other parts of the country, where the principals and their lawyers sit around a table and close the transaction in one sitting.)

Both buyers and sellers should carefully analyze the instructions incorporated into the RPA before signing so that there are no unpleasant surprises later. The “escrow instructions” portion of the RPA instructs the escrow agents how to perform or coordinate certain specific items, such as:

• the date the buyer is entitled to possess of the property
• how to vest the buyer’s title to the property
• instruments and documents that must be signed and delivered to escrow
• which parties pay various fees related to the transaction
• the closing date for the sale

The escrow company, in addition to the instructions which are part of the RPA, will also provide its own specific instructions related to various aspects of the transaction, and will also have its “general instructions” which generally govern all aspects of what they do during the escrow. Please read these instructions carefully; they limit liability and may direct how the escrow company is to resolve certain disputes.

When something goes awry in the real estate transaction process, both buyers and sellers should review the RPA and its included escrow instructions, and any other special or general instructions issued by the escrow holder. This will help each party to determine whether all involved agents and parties have followed through with their stated obligations. Often the problem lies in someone’s misunderstanding of his or her role in the process, but occasionally we find that one or more parties has deliberately acted in disregard of the RPA or the escrow instructions.

As airtight as this process may appear, real estate attorneys are often asked to negotiate conflicts arising from one or more parties failing to follow escrow instructions. Buyers or sellers who have experienced problems with the transaction or escrow processes should consult with a real estate attorney who is familiar with escrow instructions in both commercial and residential real estate transactions.

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