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What is Escrow?

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First, a little about "escrow". To finish the sale of a home, a neutral, third party (the escrow holder) is engaged to assure the transaction will close correctly and on time. Escrow companies hold money for "safe-keeping" in a deal between a buyer and seller. PayPal is a good way to picture an escrow company.

The escrow company is careful to assure that all terms and conditions of the seller's and buyer's negotiated agreement are met prior to the sale being finalized. This includes getting funds and paperwork, completing required forms, and obtaining the release documents for any loans or liens that are to be cleared with the transaction, assuring you have a free title to your property before the purchase price is fully paid.

Escrow agents want to obtain the following documents:

  • 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

Closing on the property happens when the steps of the escrow are finished. All outstanding payments and fees are collected and paid off at this time (covering expenses such as title insurance, inspections, real estate commissions). The home's title goes to you and title insurance is issued per the steps of your individual escrow agreement.

At the close of escrow, payments are submitted in an acceptable form to the escrow. As your REALTORS, we'll inform you of the acceptable form of payment.

The Escrow Holder Will:
The Escrow Holder Won't:
  • Write escrow instructions
  • Petition title research
  • Comply with lender's requirements as written in the escrow agreement
  • Receive payments from the buyer
  • Prorate tax, interest, insurance and other fees according to guidelines
  • Record deeds and other legal documents as instructed
  • Request title insurance policy
  • Close escrow when all instructions of seller and buyer have been finished
  • Disburse funds and finalize instructions
  • Offer advice - the escrow agent stays a neutral, 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. Escrow Accounts are contributed to monthly by the home buyer (who is now the homeowner), but there is also a lump sum that goes into the account at closing.

This is a quick run-down of the escrow process. Your particular process could be slightly different depending on your bank and your escrow holder.

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