What is an ‘Escrow Closing’?

In Ontario, the land registration system shuts down at 5:00 p.m. and lawyers involved in real estate transactions are responsible for making sure that this deadline is met, or otherwise, the deal must be closed “in escrow”.

Closing in escrow means that the lawyers involved in the transaction have made an agreement (typically before 6:00 p.m.) that although the transfer has not yet been registered, the buyers have permission to enter into the home. The lawyer acting on behalf of the seller will then hold the funds in their trust account until the registry office opens again and the registration can be completed.

When an escrow closing occurs you may be wondering what will happen with your title insurance policy. Stewart Title Guaranty Company offers a benefit called “Gap Coverage” for those situations in which you close in escrow and the transfer and/or mortgage is unable to be registered. Gap Coverage provides the lender and homeowner with coverage during the gap that exists between closing and the registration of documents, provided the underwriting requirements are met and where due to unforeseen circumstances registration cannot take place until the next day the registry system is available for closing.

When a transaction is required to be closed in escrow, the lawyers acting on behalf of the buyers/sellers will sign what is referred to as an ‘Escrow Closing Agreement’. This agreement contains important information related to the terms of the escrow closing such as:

• the extended closing date (the day that registration will take place);
• permission for the buyers to take immediate possession of the property; and
• an agreement that the sellers lawyer will hold all moneys received from the buyer in escrow until registration is complete.

This Escrow Closing Agreement means that all terms and conditions of the agreement of purchase and sale will remain the same as intended, in full force and effect. The only difference is that the registration will be taking place on a day later than the original closing date.

The content of this article is intended to provide a general guide to the subject matter. The information does not constitute legal advice and a solicitor and client relationship is not created.