3.4 Arizona Escrow and Closing Procedures

Escrow, Title Insurance, and the Deed of Trust

Arizona is an escrow state: closings are handled by a neutral escrow agent at a title company, not by attorneys as in many eastern states. The escrow agent follows the parties' written escrow instructions, holds funds and documents, orders the title search, prepares the settlement statement, records the deed, and disburses funds — but cannot give legal advice or favor either side.

Opening and running escrow

Escrow opens when the contract is executed, earnest money is deposited, and escrow instructions are signed. The escrow officer then orders the title commitment, clears liens and payoffs, coordinates lender documents, and schedules signing. At Close of Escrow (COE) the parties sign, funds are collected and verified, documents record at the county recorder, and proceeds disburse.

Title insurance

Title insurance is a one-time premium protecting against past title defects — unknown liens, recording errors, forgery, and undisclosed heirs.

The deed of trust (Arizona's key security instrument)

Arizona is a lien-theory state, but residential loans almost always use a deed of trust rather than a mortgage because it allows fast foreclosure. The deed of trust has three parties:

Note: do not confuse the deed-of-trust trustee (a foreclosure agent) with a broker's trust account. They are unrelated despite sharing the word "trust."

Why does Arizona favor the deed of trust over a traditional mortgage? Because the deed of trust contains a power of sale that lets the lender foreclose without going to court, the process is far faster and cheaper than judicial foreclosure. The borrower keeps equitable and possessory title while the trustee holds legal title in trust as security; when the loan is paid off, the beneficiary directs the trustee to record a deed of release (release of trust) to clear the lien.

Foreclosure, Prorations, and the Arizona Tax Calendar

Trustee's sale (non-judicial foreclosure)

The big advantage of the deed of trust is the power of sale, allowing a non-judicial trustee's sale that avoids court. The trustee records a Notice of Trustee's Sale, and the sale may occur no sooner than 90 days later. A defaulting borrower may reinstate by curing the default up until the day before the sale. Critically, after a trustee's sale Arizona provides no statutory right of redemption — once sold, the borrower cannot buy the property back.

(A lender that instead pursues a judicial foreclosure preserves the right to a deficiency judgment but is slower and rare for homes; Arizona's anti-deficiency statutes A.R.S. §§ 33-814 and 33-729 limit deficiencies on qualifying owner-occupied homes on 2.5 acres or less.)

Closing prorations

Prorations split shared costs as of COE so each party pays only for the time they own the property.

Arizona property-tax calendar (memorize)

Arizona taxes are paid in arrears (after the period they cover), and the year may be billed in two halves:

Delinquent taxes accrue 16% annual interest, prorated monthly. If the full-year bill is $100 or less, it is due in one payment October 1 and delinquent after December 31. Worked example: at a March 15 closing, the seller owes their share of taxes from the start of the tax year through March 15 even though the bill is not yet due — escrow credits the buyer that amount so the buyer, who pays the eventual bill, is made whole. Because taxes are in arrears, the seller almost always owes a proration credit to the buyer at closing.

Reading the settlement statement

At COE the escrow officer produces a settlement statement (the federal Closing Disclosure on most consumer mortgages) showing every debit and credit. A debit is a charge a party owes; a credit is money coming to that party. The purchase price is a debit to the buyer and a credit to the seller. Earnest money already on deposit is a credit to the buyer. The seller's tax proration appears as a debit to the seller and a credit to the buyer. Understanding which column an item lands in is enough to answer most Arizona closing-math questions without memorizing a formula.

The deed itself is delivered and accepted at closing, and recording it at the county recorder gives constructive notice to the world of the new ownership.

Keep the roles straight one last time: the escrow agent is neutral and cannot advise either party; the title company insures the title; the lender funds the loan secured by the deed of trust; and the county recorder makes the transfer public. No attorney is required, which is exactly why escrow procedure is so heavily tested on Arizona's state exam.