If your deal is about to fall apart, an escrow closing process could save the day.

Imagine this: you’re about to take possession of your new home. Your things are packed and on the truck, your utilities have been switched over, and the dog is in the car ready to go. And suddenly… there’s a delay. Something has gone wrong, and the deal can’t complete on time.

You don’t want to cancel. The seller doesn’t want to cancel. But now something has come up that has gotten in the way of completion. Now what? How do we get this deal over the hump?

Here’s where we work with a variety of techniques that fall under the phrase escrow closing.

What’s an Escrow Closing?

When you buy or sell a property, you enter into a contract of purchase and sale with the other party. That contract sets out the terms of your deal, and the standard closing procedures your notary or conveyancing lawyer will use.

But when something goes wrong, we need to work out Plan B. How will we close the deal now, given the issue that’s now getting in the way? That new deal – the new closing agreements – are often called an escrow closing.

The phrase escrow closing is confusing in BC because it gets misused a lot.

A proper escrow closing is a serious process with full-on formal agreements and protocols in place. Some escrow agreements even require all of the money and paperwork to be held in trust by a neutral third party until the problem is resolved.

But people will often use the phrase “escrow closing” in BC to refer to other alternate closing arrangements, such as using more simple, informal handshake agreements, making amendments to the contract, signing irrevocable directions to complete, or making early possession agreements.

It’s important to remember that the phrase “escrow closing”, as it is used in other provinces and in the US, is different. The version of escrow closings used in other places can often involve a trustee, a closing agent or a title insurer.  These are not processes used in BC.

At the end of the day, the important thing is that we work out a plan to keep the deal alive.

In this article, we are thinking about a variety of ways we keep the deal going, not just the formal escrow process.

So when does an escrow closing happen?

Here are some of the most common reasons we’ve had to scramble and sort out some version of an escrow closing:

  • the property is a new development, and the strata plan or subdivision plan wasn’t registered in time for your closing
  • situations where one of the parties has died unexpectedly
  • messy title issues, such as judgments, liens, or family maintenance enforcement charges that can’t be cleared on time
  • situations where the parties are in a “chain” and the chain fails somewhere along the way
  • when a mortgage doesn’t fund as or when expected

But Wait — Can’t We Just Change the Dates?

Sure, sometimes you can. A simple addendum to adjust the completion and possession dates works if everyone’s okay with it and it solves the problem.

A classic example for this would be where the buyer is relying on money from the sale of their old home, and that sale has “gone long” (meaning the money is coming late). Everyone simply agrees to complete the next day. This might be a verbal agreement, or it might be documented by an email exchange between the parties’ notaries and lawyers.

If it takes more than a day, the REALTORS will usually have the parties sign an addendum confirming the deal is still a go, and noting the new dates.

However, if the problem takes longer than a few days to resolve we will likely want a more structured workaround. That’s when we start thinking about more formal escrow options.

What Actually Happens in an Escrow Closing?

Actual, proper escrow closings are rare and quite expensive. It’s more common for us to negotiate using parts of a formal escrow process, not the whole thing.

For example, in a more informal escrow closing:

  1. negotiations happen about the details of the amendments – when can the Buyers move in? Who will pay the ongoing bills? Will the seller keep their insurance in place? What happens to the renos the buyer wanted to make? How will everyone ensure the deal completes when the issue has been resolved?
  2. the buyer gives all their “cash to close” funds (except mortgage proceeds) to their notary/lawyer to hold in trust
  3. all documents get signed: transfer, mortgage, adjustments, declarations etc., and as many supporting elements (such as property or title insurance) are made ready, but not registered yet
  4. we put the necessary extra paperwork in place to document the changes to the previous agreements
  5. the buyer takes possession of the home (typically on the original possession date)
  6. once the issue has been sorted out — say, probate is granted or the plan is registered — we go ahead and register the deal
  7. the funds are then paid out, and completion is finalized.

In a more formal escrow closing, the documents and monies are held by a neutral third party rather than the conveyancing notaries or lawyers. This level of formality is rare in BC and only used in situations where one party doesn’t trust the other or the lender has requested it.

Costs of an Escrow Closing

It’s always costly when you change the terms of a deal, especially right at closing date. The costs will vary, depending on the level of formality and the amount of negotiations required.

For example, if the deal just simply needs to be held over for a day because money delivery got delayed, then very little cost will be involved.

If the deal will take 2–3 days longer than originally expected, the REALTORS might draft an extension. Legal review might (or might not) be required for these.  Lawyers and notaries charge these reviews out at their hourly rate because this work is over and above what is involved in a standard conveyance.

If the deal needs to be delayed for more than a few days, then this is where the notary and lawyers get involved with negotiations and drafting new agreements. This can increase the cost significantly, depending on the situation. It also means that additional costs (from things like storing your belongings, staying in a hotel or new rental place, or eating out for the duration of the delay) can increase as well.

The notary or lawyer might need to prepare and review documents like:

  • Escrow letters from each party’s lawyer/notary confirming the new agreements
  • An Early Possession Agreement setting out the buyer’s rights and responsibilities while they’re living in the property before it’s registered in their name
  • An Irrevocable Direction to Complete, where the buyer promises they won’t back out even though registration hasn’t happened yet

Which documents are used depends on the scenario.

For example, if the seller has died and probate is required, it is not advisable for the buyer to sign an irrevocable direction to complete because we never know if the probate process will encounter any hiccups.

What happens if a long-lost child suddenly appears and makes a claim against the estate? We don’t want to bind the buyer to something they may not be able to honour.

These negotiations and documents are essential to protect both sides. They make sure everyone’s on the same page — and have something to enforce if things go sideways.

Let’s Talk Risks — Because There Are Some

These kinds of workarounds aren’t without risk. Here are some examples of things that can go wrong:

Buyer Risks:

  • Taking possession at your own risk: You’re living in a home that’s not technically yours yet. Proper insurance is a must.
  • No renos: you won’t be able to get started on those renovations you were expecting to do until you actually own the home properly – if you’ve ripped the place apart and the deal falls through, you’ll lose the money you put into the renos and you could get sued for damages
  • Your mortgage rate could expire: If you have a hard end-date for your mortgage commitment and the completion gets delayed too long, you might lose that great rate
  • What if the seller never fixes the issue? You might have to go to court to force them to complete.

Seller Risks:

Here are some things to consider from the seller’s end:

  • the buyer backs out: They’ve moved in, but what if they get cold feet before completion? How do you get rid of them?
  • more delays than expected: Maybe probate takes longer, the Land Title Office takes longer to review a strata plan — the seller doesn’t get paid and can’t move on
  • you can’t make it work: if you can’t clear that charge from the title, or get a grant of probate after all, the deal might completely collapse

Two Real Examples — and How They Turned Out

Here is an example of how a deal can start out the same and go in wildly different directions depending on the situation. Both of these are real scenarios.

Scenario #1: we acted for the buyer. Everything was going swimmingly – the parties had signed the documents; money was in hand and then we got the dreaded call from the seller’s legal representative. The seller had died before signing their documents and now probate was required.

So now what? This wasn’t going to be a quick fix, and the buyers were going to be homeless in a few days. A handshake deal wasn’t going to cut it, and so negotiations commenced.

All parties agreed to proceed with the deal, and we negotiated terms that let the buyers move in on their expected possession date. We completed the registrations five months later, once the court granted probate.

Scenario #2: same start – the buyer had everything signed and ready to go, and the same call came. The seller had died.

But this time, it was much worse. The seller had no Will. Now the family was fighting about who should manage the estate, and no one had the automatic authority to sign extensions or grant possession to the buyers. Probate was still needed, but it would take much longer to get the Grant of Probate given the fighting in the family.

The seller ended up in a breach of contract position, and the buyers were now consulting litigators for how to proceed. They lost the home, their mortgage, and ended up with a large amount of extra costs for storage, hotels, last minute rental and legal fees. No escrow process could fix this.

As an aside, it’s important to remember that litigators are specially trained lawyers who deal with court applications. While conveyancing lawyers and notaries are very good at their work and regularly manage and rescue collapsing deals, no responsible conveyancing lawyer or notary will ever take on a litigation matter.

It would be like asking your dentist to do periodontal work, or asking your family doctor to do open heart surgery. If you ever have a lawyer telling you they can also deal with your matter if it goes to litigation, run.

Escrows, Addendums, Irrevocables and Early Possession Agreements — oh my…

People often talk about these as if they’re the same thing, but they’re not interchangeable.

Thankfully, your notary or conveyancing lawyer will help work out the plan for your particular scenario.

Don’t worry about the technical jargon, or get caught up insisting on an “escrow” or “irrevocable” because you heard the word somewhere. Any good conveyancing lawyer or notary will walk you through your options.

Quick Questions

Can I move in before I own the property?

Sometimes — but it needs to be set up properly through a legal agreement. Never take the keys without advice.

Who decides if we use an escrow?

Usually the notaries or lawyers will suggest it after reviewing the problem and speaking with both sides.

Will my mortgage still go through?

It depends. Lender’s won’t fund your mortgage if we can’t register the property in your name. You might lose the mortgage if the lender’s commitment expires before you get to the extended completion date.

Final Thoughts

All these variants of escrow closings are useful tools when you’re caught between a rock and a closing date. But they come with complexity and risk — so they need to be handled carefully.

If you’re a client: don’t panic if you start hearing words like escrow, irrevocable or early possession agreements. These are just processes to get your deal done safely.  Your notary or conveyancing lawyer will help you review your options, given your circumstances.

If you’re a Realtor: be aware that there are multiple versions of alternate closing procedures and they are not interchangeable. A good notary or conveyancing lawyer will work with you to come up with a new set of closing procedures under the circumstances.

And if you’re unsure — ask. We’ve done plenty of these and can walk you through what makes sense for your situation.

Contact us to get your file started, or to ask questions about these alternative closing procedures.

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