The escrow holder plays a key role in the successful completion of your project's sale-outs. As the liaison with the developer, or their escrow coordinator, the buyers and the buyers' lender, and all sales agents, you will come to appreciate their communication and organizational skills. If your project requires a Public Report from the Department of Real Estate (DRE), you will need to select your escrow company prior to submission of your application to the DRE. The DRE requires that the escrow holder be under the jurisdiction of the Department of Corporations (DOC), such as an independent escrow company, or under the Department of Insurance (DOI), such as a title company escrow. Escrow companies that are under the jurisdiction of the Department of Real Estate, such as a broker-owned escrow, are not acceptable for subdivision sale-out escrows.
The following are the documents provided by escrow for submission to the DRE:
- Certified sample escrow instructions. Most often these are a joint purchase agreement/escrow instructions form and are provided by the project attorney, escrow, or the California Association of Realtors (CAR).
- Sample Grant Deed, if not provided by the project attorney.
- If a Preliminary Public Report (PINK) is being obtained, the original will be held by escrow with an agreement (Form RE 643) submitted to the DRE.
The DRE will review and approve your purchase agreement and escrow instructions and you will certify that the form submitted to the DRE is the form you will use. Changes in your purchase agreement/escrow instructions should be discussed with escrow or the project attorney to determine if they are material and should be resubmitted to the DRE for approval.
If you will be obtaining a Preliminary Public Report (PINK) before the Final Public Report (White) is issued, the escrow holder will be names in the Report and will hold any buyer deposits. All deposits received under a PINK are refundable.
If you will be opening escrows under a Conditional Public Report (YELLOW0, the purchase agreement/escrow instructions will have additional wording outlining the requirements for closing. It is important to note that individual title reports cannot be issued under a YELLOW because the subdivision map and Condominium Plan, which make up the legal description, have not recorded. This means that buyer's loan approval will not be able to be completed until the WHITE is issued. Any deposits received under a YELLOW must be held in escrow.
The following is a summary of the clauses that the DRE looks for in approving escrow instructions:
- Completion of the units and common facilities prior to the close of escrow and recordation of a Notice of Completion, unless the completion is the subject of a bond which has been approved by the DRE. (This includes conversion projects with renovation.)
- Escrow must close within 12 months.
- Subordination of any existing loan to the CC&R's
- Escrow must hold the required maintenance bond until the appropriate release after 80% of the units have closed and escrow receives a letter from the Association that the developer is current in the payment of dues for which are owed.
- Escrow must hold any subsidy or completion bond, if required.
- Buyer's funds must be held until escrow closes, unless a bond for funds released to the developer is posted with the DRE. (This type of bond cannot be used under a Pink or Yellow.)
- Transfer is to be free of any existing blanket encumbrance (developer's loan).
In addition to the above, the escrow holder will request demands from lenders, order Natural Hazard Disclosure Reports and other reports required by the local jurisdiction, provide buyer's lender with requested documents, communicate with the buyer for vesting information, receive and prepare loan documents for buyer's signature, prepare estimated and final closing statements, prorate association dues and taxes, and notify the buyer and seller of the close.
As the developer, you will need to provide escrow with contact information of your construction lender, your project's preferred lender for buyer's loans and the Association's management company. In addition, you will need to purchase insurance for the common areas, which in the case of a condominium will often include the units. escrow holder will discuss with you how you want to handle the payment of future unsegregated property taxes which may be billed to you after you have closed units. Chicago Title will be there to assure a successful escrow closing for you and your buyers.