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What is Escrow?

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First, a little about "escrow". To complete the sale of a home, a neutral, third party (the escrow company) is engaged to assure the process will close properly and on time. Escrow companies hold money for "safe-keeping" in a deal between a buyer and seller. An everyday way to think of what an escrow company does is to think of the use of PayPal for online purchases.

The escrow agent makes sure that the terms and conditions of the agreement between the sellers and the buyers are completed prior to the sale being completed.

Escrow holders compile the following documents:

  • Tax statements
  • Fire and other insurance policies
  • Title insurance policies
  • Terms of sale and any seller-assisted financing
  • Requests for payment for various services to be paid out of escrow funds
  • Loan documents

Upon finishing of all instructions of the escrow, closing can take place. All payments owed and fees are collected and paid off at this time (covering expenses such as title insurance, inspections, real estate commissions). Title to the house is then given to you as new owner and related title insurance is issued as outlined in the escrow instructions.

The escrow agent receives a payment when the closing is complete. I'll keep you informed on what comes next.

The Escrow Holder Will:

  • Write escrow instructions
  • Perform a title inquiry
  • Comply with lender's requirements as written in the escrow agreement
  • Intake payments from the buyer
  • Prorate tax, interest, insurance and other fees according to guidelines
  • Record deeds and other documents as instructed
  • Obtain title insurance policy
  • Close escrow when all terms of agreement of seller and buyer have been met
  • Disburse monies and finish instructions

The Escrow Holder Will Not:

  • Advise you - the escrow holder stays a neutral, third-party status
  • Give insight about future tax estimations
The Escrow Holder Will:
The Escrow Holder Won't:
  • Prepare escrow guidelines
  • Petition title inquiry
  • Meet lender's guidelines as outlined in the escrow agreement
  • Accept funds from the buyer
  • Prorate tax, interest, insurance and other fees according to guidelines
  • Record deeds and other documents as instructed
  • Obtain title insurance policy
  • Close escrow when all terms of agreement of seller and buyer are complete
  • Disburse payments and finalize instructions
  • Tell you what's best - the escrow agent has to remain an impartial, third-party status
  • Dispense opinions about tax implications

Mortgage Escrow Account

Often, to pay recurring costs while there's a loan on the house, a Mortgage Escrow Account is created. Generally, the Escrow Account is partially funded at closing and the home buyer makes on-going contributions through their monthly mortgage payment.

This is a quick run-down of the escrow process. Your particular plan will vary based on your bank and your escrow holder.