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Escrow 101

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First, a little about "escrow". To finalize the sale of a house, a neutral, third party (the escrow agent) is brought into the picture to assure the transaction will close correctly and on time. When payment is held by a third party in a transaction between a buyer and a seller, it's in escrow. An everyday way to understand what an escrow company does is to compare it to PayPal for Internet purchases.

Settling the last details like taking in funds, signing forms, getting the documents for loans and liens, and assuring you get a clear title to the property in preparation of your purchase gets finalized are all part of the job of the escrow company.

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

Closing on the home takes place when the steps of the escrow are finished. All expenses like title insurance, inspections and real estate commissions are paid. The property's title goes to you and title insurance begins per the steps of your individual escrow agreement.

The escrow company gets a payment at the completion of closing. You'll know when it's time to submit the form of payment.

The Escrow Holder Will:

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

The Escrow Holder Won't:

  • Offer advice - the escrow agent stays a neutral, third-party status
  • Offer opinions about the outcome of your taxes
The Escrow Holder Will:
The Escrow Holder Won't:
  • Assemble escrow instructions
  • Perform a title research
  • Comply with the bank's standards 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 legal documents as instructed
  • Obtain title insurance policy
  • Close escrow when all terms of agreement of seller and buyer are complete
  • Disburse funds and finalize instructions
  • Tell you what's best - the escrow company has to remain an impartial, third-party status
  • Give insight 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. Though most home buyers make payments via their monthly mortgage payment, Escrow Accounts are deposited into at closing as well.

This is a quick run-down of the escrow process. Your particular plan could be unique depending on your bank and your escrow agent.

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