How Escrow Works

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Let’s talk about “escrow”. To finish the sale of a home, a neutral, third party (the escrow company) is engaged to assure the transaction will close properly and on time. A place is said to be in escrow when in the closing process, payment is held by a third party on behalf of two parties (in this case, a buyer and a seller) when the exchange of money takes place. PayPal is a simple way to think of an escrow company.

The escrow agent insures that all terms and conditions of the seller’s and buyer’s contract are met prior to the sale being completed. This includes receiving funds and certificates, completing required forms, and getting the release documents for any loans or liens that have been cleared with the transaction, assuring you have a clean title to your house before the final price is fully paid.

The documents the escrow agent may obtain include:

  • 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
  • Tax statements
  • Fire and other insurance policies

Upon finishing of all portions of the escrow, closing can take place. At this time, all payments and dues for inspections, title insurance and real estate commissions are collected. Title to the property is then transferred to you as new owner and correct title insurance is issued as noted in the escrow instructions.

When closing is completely finished, you’ll pay the fees to the escrow company. You’ll know when it’s time to submit the form of payment.

The Escrow Holder Will:
The Escrow Holder Won’t:
  • Assemble escrow instructions
  • Petition title search
  • Meet the bank’s standards as outlined in the escrow agreement
  • Accept funds from the buyer
  • Prorate insurance, tax, interest and other payments according to instructions
  • Record deeds and other paperwork as instructed
  • Request title insurance policy
  • Close escrow when all instructions of seller and buyer are met
  • Disburse payments and finish instructions
  • Tell you what’s best – the escrow holder has to remain an impartial, third-party status
  • Give insight 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 easy to understand guide about the escrow process. Your individual plan may be unique depending on your lender and your escrow company.

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