Closing, Escrow, and Settlement Procedures
The escrow relationship
In an escrow closing, a neutral third party holds funds and documents and disburses only when the escrow instructions are satisfied. The escrow holder is an agent of both principals, must follow instructions exactly, may not give legal advice, and may amend instructions only with mutual written consent. Closing is not complete until the deed is delivered and recorded; in most states funds are disbursed after recording, and in some "good funds" states only collected funds may be disbursed. Understand good funds rules, the difference between the closing date and the recording date, and who bears the risk during any gap.
Settlement mechanics
Know the settlement statement and its disclosures, prorations of taxes, rents, and HOA dues (typically on a 365-day or actual-days basis, with the seller usually credited or charged to the closing date), transfer taxes and recording fees, real estate commission, loan payoffs, and any FIRPTA withholding for foreign sellers. Understand the closing protection letter (a lender's protection against agent misconduct, not a title policy), the ordering and issuance of the owner's and lender's policies, and the lender's requirement that its mortgage be a first lien.
Regulatory overlay
Federal and state rules prohibit paying or receiving anything of value in exchange for referring settlement service business (RESPA Section 8) except under a properly disclosed affiliated business arrangement, and require disclosure of affiliated relationships and settlement costs.
Traps and rule of thumb
Questions test who may change escrow instructions, whether an escrow agent may disburse before recording, whether prorations favor buyer or seller on the closing day, and whether a closing protection letter substitutes for title insurance (it does not).
Rule of thumb: no disbursement until the deed and mortgage are recorded and confirmed, and no instruction changes without both signatures in writing.