Escrow 101

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Escrow
When you're closing on your new property, a neutral, third party (known as the escrow holder or the escrow agent) is used to make certain the transaction will close properly and in a certain amount of time. When funds are held by a third party in a transaction between a buyer and a seller, it's in escrow. For example, in an Internet purchase, PayPal is the reliable third party that obtains the buyer's cash, and then hands over the funds to the seller.

The escrow agent makes sure that all terms and conditions of the seller's and buyer's contract are reached prior to the sale being finished. This includes getting payments and paperwork, filling out required forms, and getting the release documents for any loans or liens that were paid off with the transaction, assuring you have a clear title to your home before the final price is fully paid.

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Escrow holders want to acquire the following records:

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

Upon finishing of all portions of the escrow, closing can take place. At this time, all payments and fees for inspections, title insurance and real estate commissions are collected. The home's title gets handed over to you and title insurance is issued per the steps of your individual escrow agreement.

The escrow holder receives a payment when the closing is complete. You'll know when it's time to submit the form of payment.

The Escrow Holder Will:
The Escrow Holder Won't:
  • Assemble escrow guidelines
  • Perform a title search
  • Comply with the bank's guidelines as noted in the escrow agreement
  • Intake funds from the buyer
  • Prorate interest, insurance, tax and other payments according to guidelines
  • Record deeds and other documents as instructed
  • Request title insurance policy
  • Close escrow when all instructions of seller and buyer have been met
  • Disburse funds and finalize instructions
  • Tell you what's best - the escrow agent has to remain an impartial, third-party status
  • Dispense opinions about future tax estimations

Mortgage Escrow Account

Creating a Mortgage Escrow Account helps keep track of on-going expenses while there's a loan on your house. 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 simple outline of the escrow process. Your specific process might be unique based on your bank and your escrow agent.