Escrow is a contractual arrangement between transacting parties, where an independent trusted third party receives and disburses money and/or documents.
Escrow generally closes between 30 and 60 days.
Reason for Escrow Not to Close
There are many reasons for escrow not to close on time. Someone might be dragging their feet, making things slow down on purpose, or wasted time, or refused to cooperate, etc. Another instance would be mitigating factors, which would determine how much time is needed to close. There can also be delays that is no one’s fault, such as the normal operating issues, the appraiser was late, or needed an appraisal review that took an extra week, or the termite work wasn’t completed on time, or the home inspector found repairs that took longer to fix, etc.
One tool that keeps real estate buyers focused on completing their transactions is the buyer deposit process. When home buyers fail to close on time, whether their deposits are forfeited or not depends on the circumstances and on the purchase contracts.
In California, real estate purchase contracts also note that failing to close escrow on time may constitute a breach of contract.
Buyers and Sellers
If escrow doesn’t close on time, and If both buyer and seller still want to complete the transaction, then everyone continues upon their merry way, closing the escrow as quickly as you can.
If the delay is only going to be a few days, there should be nothing to sign and no additional paperwork needed. If the delay is going to be longer than about a week, then it is best to have the escrow company prepare an amendment extending the escrow to a future time agreeable to all parties.
If one party wants to cancel and the other wants to continue, the party who wants out must give the other party a reasonable time to make processions.
At what time the buyer’s deposits are forfeited to the sellers depends on the circumstances of each real estate sale. It can also be difficult for sellers to claim the buyers’ deposits. Real estate buyer’s deposits are typically held in escrow accounts maintained by neutral third-party escrow companies. Escrow companies generally hesitate to release buyers’ deposits to sellers unless both parties agree to such releases.
When real estate buyers miss the closing dates, there are alternatives to deposit forfeiture. Sellers can allow buyers, who have missed their initial closing dates, to reschedule, if sale closings are certain. Also, sellers might negotiate late penalties with their buyers. Lastly, remember that some states, California being one, also inflict deposit forfeiture, or liquidated damages limits on sellers and buyers. Liquidated Damages is a provision that allows for the payment of specified damages should the buyer breach the contract.