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What is Escrow?

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Let's talk about "escrow". An escrow company is used to assure your house closes on time and the closing process goes smoothly. 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 online purchase, PayPal is the reliable third party that holds the buyer's payment, and then disburses the payment to the seller.

Clearing the final hurdles like taking in funds, completing forms, getting the documents for loans and liens, and making sure you get a spotless title to the property before your purchase gets finalized are all parts of closing in which an escrow holder is useful.

The pieces of paperwork the escrow company may secure include:

  • 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
  • Tax statements

You're ready to close when each step of the done in escrow process. All expenses like title insurance, inspections and real estate commissions are paid. You'll then get the title to the house and the title insurance gets dispersed as noted in the escrow instructions.

At the close of escrow, fees are paid in an acceptable form to the escrow. I'll keep you updated on the next steps.

The Escrow Holder Will:

  • Prepare escrow guidelines
  • Request title search
  • Comply with the bank's guidelines as written in the escrow agreement
  • Intake payments from the buyer
  • Prorate insurance, tax, interest and other payments according to instructions
  • Record deeds and other documents as instructed
  • Request title insurance policy
  • Close escrow when all terms of agreement of seller and buyer are met
  • Disburse payments and finalize instructions

The Escrow Holder Won't:

  • Give advice - the escrow agent stays a neutral, third-party status
  • Dispense opinions about the outcome of your taxes
The Escrow Holder Will:
The Escrow Holder Won't:
  • Write escrow instructions
  • Perform a title inquiry
  • Meet the bank's standards as outlined in the escrow agreement
  • Receive payments from the buyer
  • Prorate tax, interest, insurance and other fees according to guidelines
  • Record deeds and other paperwork as instructed
  • Request title insurance policy
  • Close escrow when all terms of agreement of seller and buyer are complete
  • Disburse payments and finish instructions
  • Give advice - the escrow company stays at an impartial, third-party status
  • Offer opinions about future tax estimations

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 quick run-down of the escrow process. Your specific plan could be different depending on your bank and your escrow agent.

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