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Escrow Delays Surge Due To LA Wildfires

The 2025 LA Wildfires season has been one of the most toughest in recent years, bringing extreme financial challenges on homeowners and real estate professionals. With billions in property losses, fire-prone areas are increasingly difficult to complete real estate transactions. Escrow has become a major point of disruption due to insurance challenges, property devaluation, and stricter lending requirements. Escrow companies now play a crucial role in navigating these uncertain deals, ensuring buyers and sellers can close transactions despite increasing wildfire risks.

Escrow Disruptions Due to Wildfires

LA Wildfires have caused significant disruptions in escrow transactions. According to the California Association of Realtors (2025), 27% of pending escrows in high-risk wildfire areas were canceled following the 2025 wildfires. This steep drop is caused by several factors. Insurance companies are pulling coverage at the last minute, leaving buyers unable to meet lender requirements. On top of that, appraisals in fire-prone areas face stricter reviews. Many lenders now require two appraisals, which slows down escrow and, in some cases, causes deals to collapse.

The economic toll of these cancellations extends beyond individual buyers and sellers. Real estate agents, mortgage lenders, and escrow officers are experiencing slower business activity in wildfire-prone regions. National Association of Escrow Professionals (2025) reports that the average escrow closing time has increased by 18% in affected areas due to additional verification requirements and underwriting delays.

The Insurance-Escrow Connection

With that, home insurance has become a prerequisite for closing escrow in wildfire-prone areas. Lenders are unwilling to approve mortgages without proof of adequate insurance, making it difficult for buyers to proceed with their purchases. 

In Pacific Palisades, a residential property was reduced to rubble by the fire. Despite its devastated condition, the property attracted over 60 offers and entered escrow for well above its $999,000 listing price, eventually selling for over $1 million (New York Post, 2025). The seller, a nearly 70-year-old widow, opted to sell rather than undergo a lengthy reconstruction process. Investors saw potential in rebuilding the site, aiming to profit from high-end renovations. 

This highlights the challenges buyers and sellers face in securing financing and insurance for properties in high-risk wildfire zones. The competitive market dynamics, coupled with the complexities of obtaining adequate insurance coverage, significantly impact the escrow process in such regions. Because of this, insurance premiums in wildfire-prone areas have skyrocketed. According to the California Department of Insurance (2025), homeowners in high-risk zones have seen an average premium increase of 28% over the past year, making homeownership even more expensive and uncertain.

Legal and Financial Risks in Wildfire Transactions

With increased environmental risks, buyers approach real estate deals more cautiously. Many now demand stronger contingencies in their escrow agreements, leading to prolonged negotiations. Escrow agents must guide clients through force majeure clauses, which can protect buyers and sellers from unexpected disasters.

California Assembly Bill 38 (2025) also introduced stricter wildfire disclosure requirements for home sellers. Sellers must provide detailed information on past fire damage, fire mitigation measures, and insurance history. While necessary for transparency, these new regulations add another layer of complexity to real estate transactions.

Future-Proofing Escrow Transactions

To mitigate wildfire-related escrow challenges, real estate professionals are adopting new strategies. Escrow companies are now partnering with insurance brokers to help buyers secure policies early, reducing the risk of last-minute cancellations. Additionally, some firms leverage AI risk assessments to evaluate fire-prone properties more accurately, allowing buyers to make informed decisions before entering escrow.

Furthermore, real estate professionals are advocating for government-backed insurance solutions. California Real Estate Board (2025) has proposed a statewide wildfire insurance pool that would provide more affordable coverage options for buyers in high-risk zones, ensuring smoother escrow transactions.

LA Wildfires have significantly disrupted escrow transactions, causing delays, cancellations, and financial uncertainty. However, with the right strategies—such as securing insurance early, understanding force majeure clauses, and utilizing advanced risk assessments—buyers and sellers can still successfully complete transactions. New Era Escrow is at the forefront of helping clients have smoother closings despite the challenges posed by LA Wildfires.

If you’re buying or selling in a wildfire-prone area, let New Era Escrow guide you through the complexities. Contact us today for expert escrow services that prioritize your transaction’s success.

Key Takeaways

  • Escrow delays and cancellations have surged due to increased insurance challenges and lender hesitations in fire-prone areas.
  • Many buyers struggle to secure affordable home insurance, often stalling escrow deals or forcing renegotiations. The California FAIR Plan offers a backup option but comes with limitations.
  • New wildfire disclosure laws and force majeure clauses are reshaping real estate transactions, requiring buyers, sellers, and escrow agents to navigate complex legal landscapes.

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