Escrow, Attorneys, Contracts and When You Actually Get the Keys
People moving to Arizona from other parts of the country are often surprised by how different a real estate closing looks here.
Where is the attorney? What exactly is escrow? How can a real estate agent prepare a purchase contract? Why did I sign everything yesterday but still cannot get the keys until this afternoon?
None of those are unusual questions. Arizona simply divides the responsibilities of a real estate transaction differently than many other states.
What Does Escrow Mean in Arizona?
The word escrow can cause confusion because it is used in two different ways. A homeowner with a mortgage may have an escrow account where the lender collects money each month for property taxes and insurance. That is not what we mean when we talk about opening escrow for an Arizona home purchase.
In an Arizona real estate transaction, escrow is a neutral third party that receives money, documents and instructions and holds or processes them until the conditions of the transaction have been satisfied. The purchase contract becomes part of the instructions escrow follows, so the escrow company handles the money and paperwork according to the agreement between the buyer and seller. Escrow does not represent the buyer or the seller; it provides the neutral process for getting the transaction completed according to the parties’ agreement.
What Does the Title Company Do?
In many Arizona residential transactions, the same company provides both title and escrow services. The two functions are related, but they are not the same.
The title side searches public records for matters affecting ownership, prepares the title commitment and coordinates or provides the title-insurance process. The escrow side handles the settlement process, including receiving funds and documents, coordinating closing requirements and disbursing funds when the transaction closes.
In simple terms, the title side is concerned with the property’s ownership and title insurance, while escrow handles the money, documents and other steps needed to complete the transaction.
Why Don’t I Get an Abstract of Title in Arizona?
If you are moving from a state where buyers receive an abstract of title, this is another place where Arizona can seem different. An abstract is essentially a written history of recorded documents affecting the property’s chain of title.
Arizona law distinguishes an abstract from a title commitment or preliminary report. A title commitment is part of the title-insurance process and identifies requirements that must be satisfied before the policy is issued, along with exceptions to the coverage.
If you are accustomed to receiving an abstract, the Arizona title commitment may look like something is missing. It isn’t. Arizona still has a title search; the difference is that the search is used to identify title requirements and exceptions and support the title-insurance process rather than providing an abstract as the standard title product.
Why Isn’t an Attorney Handling My Closing?
This is one of the biggest differences noticed by people relocating from states where attorneys routinely participate in residential closings. An attorney is generally not required to handle an ordinary Arizona residential resale transaction, but that does not mean the legal work disappears. The responsibilities are divided among the real estate brokers, escrow and title company, lender and other parties involved in the transaction.
An attorney may still be appropriate when the transaction involves an actual legal issue, such as probate, estate planning, trusts, ownership disputes, divorce, complicated entities or unusual contract provisions. For a straightforward home purchase, you generally do not need to hire an attorney simply to conduct the closing. If a legal question comes up that goes beyond the normal transaction, an attorney can advise or represent you.
How Can a Real Estate Agent Prepare a Purchase Contract?
For someone coming from an attorney-closing state, this can seem particularly unusual. Arizona specifically gives licensed real estate brokers and salespersons authority to prepare documents connected with a transaction in which they are acting. That authority appears in Article 26 of the Arizona Constitution and includes purchase agreements, earnest-money documents, deeds, mortgages, leases and other instruments connected with the transaction.
That authority does not turn a real estate licensee into an attorney. Your Arizona real estate agent can prepare the documents needed for the transaction within the authority Arizona provides, without charging separately for preparing them. If you need legal advice about what those documents mean or how they affect your rights, that is when you consult an attorney.
What About the Deed?
Another relocation question is: My attorney handled my deed where I used to live. Why isn’t an attorney doing it here?
In a normal Arizona resale transaction, the deed transferring the property is coordinated as part of the title and escrow process, and recording the deed with the county recorder is what completes the contractual close of escrow.
That is different from asking someone to change ownership outside a sale. Transferring a property into or out of a trust, dealing with an estate, changing ownership after a death or divorce, or changing how multiple owners hold title may involve legal or tax consequences. For a normal sale, the deed is normally part of the closing process. If you are changing ownership for another reason, however, get appropriate legal or tax advice before making the change.
I Signed Everything. Why Can’t I Get the Keys?
This is probably the most visible difference on closing day. In Arizona, signing the documents is not the same thing as close of escrow. A buyer may sign loan and closing documents the day before closing, the seller may have signed even earlier, and the money may already have been delivered to escrow.
Under the standard Arizona residential resale contract, close of escrow occurs when the deed transferring the property from the seller to the buyer is recorded with the county recorder.
Imagine that you sign everything Monday afternoon and the deed records Tuesday at 1:30 p.m. You may wake up Tuesday expecting the keys, but close of escrow has not occurred until the deed records. Under the standard contract, possession follows close of escrow, so you do not get possession simply because you signed your documents or because the calendar says it is closing day.
If you are planning movers, deliveries or contractors, plan around the expected recording of the deed rather than simply when you sign. The practical difference is important: your signing appointment tells you when you complete your paperwork; recording tells you when the transaction closes and, under the standard contract, when possession begins.
Different Process, Same Objective
Arizona’s system may look unfamiliar if you have bought or sold property elsewhere, but the functions involved in a real estate closing have not disappeared. The real estate licensee prepares and negotiates the transaction documents within the authority provided by Arizona law, the title company handles title and title insurance, escrow administers the closing, the lender handles the financing, and the county recorder records the deed. Attorneys are available when legal representation is needed.
Arizona simply assigns these responsibilities differently. Once you understand who handles the contract, title, escrow, financing and recording—and that recording the deed, not signing, is what completes close of escrow—the process becomes much easier to follow.
