Escrow in California Real Estate

In California, the majority of real estate transactions are handled by independent escrow companies. Despite its critical role, escrow is often one of the least understood aspects of the real estate process.

The Role of Independent Escrow Companies

It’s common for buyers and sellers to rely on recommendations from their lender or real estate broker when selecting an escrow company. Many buyers may not realize that independent escrow companies are chosen to securely manage their funds with the highest level of trust. The primary responsibility of an escrow holder is to ensure that all terms of the real estate agreement are followed precisely, safeguarding the interests of both parties.

An escrow holder must remain neutral throughout the entire process, representing all parties fairly. Therefore, it’s essential that buyers, sellers, and brokers make informed decisions when choosing an independent escrow company.

Licensed vs. Controlled Escrow Companies

In California, escrow companies fall into two categories: Licensed or Controlled. Licensed independent escrow companies are regulated by the Department of Financial Protection and Innovation (DFPI), ensuring that their operations adhere to strict standards designed to protect consumers.

Controlled escrow companies, on the other hand, are affiliated with other businesses, such as banks, mortgage brokers, or real estate firms. These companies are governed by a variety of regulatory bodies and may not be subject to the same rigorous standards as licensed independent escrow companies.

A Neutral Third Party

For a real estate transaction to be handled impartially, a licensed independent escrow company is the ideal choice. Whether you are selecting an escrow company for your own transaction or recommending one to a client, choosing a licensed escrow company offers the highest level of service and protection.

Regulation and Oversight

Independent escrow companies are governed by the Escrow Law, outlined in Division 6 of the California Financial Code, and regulated under Title 10 of the California Code of Regulations. If you have any questions regarding escrow licensing, you can contact the Department of Financial Protection and Innovation at 320 Fourth Street, Suite 750, Los Angeles, California 90013.

Bonding and Financial Requirements

Licensed escrow companies are required to maintain an Escrow Agents License Bond and be members of the Escrow Agents’ Fidelity Corporation, a California non-profit organization. Financial regulations, including maintaining a minimum net worth and liquidity, are outlined in Section 17210 of the California Financial Code, ensuring the financial stability and accountability of licensed escrow companies.