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What is Escrow?

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Let's talk about "escrow". A neutral, third party (known as the escrow holder or the escrow agent) is hired to assure your place closes on time and the transaction goes smoothly. A house is said to be in escrow when in the closing process, money is held by a third party on behalf of two parties (in this case, a buyer and a seller) when the transaction is taking place. A simple way to understand what an escrow company does is to compare it to PayPal for Internet purchases.

Clearing the final hurdles like obtaining funds, finishing forms, getting the documents for loans and liens, and making sure you get a clean title to the house in preparation of your purchase gets finalized are all part of the job of the escrow holder.

The records the escrow company 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 completion 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. You'll then obtain the title to the property and the title insurance gets issued as stated in the escrow instructions.

The escrow company receives a payment at the completion of closing. As your REALTOR, I'll let you know what is an acceptable form of payment.

The Escrow Holder Will:

  • Write escrow instructions
  • Perform a title search
  • Meet lender's requirements as outlined in the escrow agreement
  • Accept funds from the buyer
  • Prorate tax, interest, insurance and other fees according to instructions
  • Record deeds and other documents as instructed
  • Request title insurance policy
  • Close escrow when all instructions of seller and buyer have been met
  • Disburse payments and finish instructions

The Escrow Holder Won't:

  • Give advice - the escrow company must maintain a neutral, third-party status
  • Dispense opinions about the outcome of your taxes
The Escrow Holder Will:
The Escrow Holder Won't:
  • Assemble escrow guidelines
  • Petition title inquiry
  • Comply with the bank's standards as noted in the escrow agreement
  • Intake payments from the buyer
  • Prorate interest, insurance, tax and other payments according to guidelines
  • Record deeds and other paperwork as instructed
  • Obtain title insurance policy
  • Close escrow when all terms of agreement of seller and buyer are complete
  • Disburse monies and finalize instructions
  • Advise you - the escrow company stays a neutral, third-party status
  • Dispense opinions about future tax estimations

Mortgage Escrow Account

A Mortgage Escrow Account is established to make payments for recurring expenses while there is a loan on the 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 individual methods will vary depending on your lender and your escrow agent.

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