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What is Escrow?

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Escrow: To close the sale of a house, a neutral, third party (the escrow holder) is brought into the picture to assure the transaction will close properly and on time. When funds are held by a third party in a transaction between a buyer and a seller, it's in escrow. An everyday way to understand the concept of what an escrow company does is to think of how you might use PayPal for online purchases.

The escrow company insures that all terms and conditions of the seller's and buyer's negotiated agreement are performed prior to the sale being finalized. This includes getting payments and paperwork, signing required forms, and getting the release documents for any loans or liens that were paid with the transaction, assuring you have a free title to your property before the agreed upon price is fully paid.

The certificates the escrow holder may collect include:

  • 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 completion of all portions of the escrow, closing can take place. All expenses like title insurance, inspections and real estate commissions are paid. The home's title goes to you and title insurance begins per the policies of your particular escrow process.

At the close of escrow, payments are submitted in an acceptable form to the escrow. You'll know when it's time to submit the form of payment.

The Escrow Holder Will:

  • Assemble escrow guidelines
  • Request title research
  • Meet lender's requirements as outlined in the escrow agreement
  • Accept funds from the buyer
  • Prorate interest, insurance, tax and other payments according to guidelines
  • Record deeds and other paperwork as instructed
  • Request title insurance policy
  • Close escrow when all instructions of seller and buyer have been met
  • Disburse payments and finalize instructions

The Escrow Holder Will Not:

  • Give advice - the escrow holder stays a neutral, third-party status
  • Dispense opinions about tax implications
The Escrow Holder Will:
The Escrow Holder Won't:
  • Prepare escrow guidelines
  • Request title search
  • Comply with the bank's requirements as outlined in the escrow agreement
  • Intake payments from the buyer
  • Prorate insurance, tax, interest and other payments according to guidelines
  • Record deeds and other legal documents as instructed
  • Obtain title insurance policy
  • Close escrow when all terms of agreement of seller and buyer have been met
  • Disburse funds and finalize instructions
  • Tell you what's best - the escrow holder stays at an impartial, third-party status
  • Give insight 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. Though most home buyers make payments via their monthly mortgage payment, Escrow Accounts are deposited into at closing as well.

This is a simple outline of the escrow process. Your particular plan might be different depending on your lender and your escrow holder.