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Let's talk about "escrow". To finalize the sale of a house, a neutral, third party (the escrow company) is employed to assure the transaction will close correctly and on time. A home is said to be in escrow when in the closing transaction, payment is secured by a third party on behalf of two parties (in this case, a buyer and a seller) when the exchange of money takes place. An easy way to think of what an escrow company does is to compare it to PayPal for Internet purchases.

The escrow holder is careful to assure that all terms and conditions of the seller's and buyer's contract are completed prior to the sale being finished. This includes getting payments and records, signing required forms, and obtaining the release documents for any loans or liens that have been paid off with the transaction, assuring you have a clear title to your house before the asking price is fully paid.

These are the legal forms that escrow holders usually look to collect:

  • 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
  • Title insurance policies

Closing on the house takes place when the steps of the escrow are complete. All expenses like title insurance, inspections and real estate commissions are paid. The house's title goes to you and title insurance is issued per the policies of your particular escrow process.

At the close of escrow, payments of funds are made in an acceptable form to the escrow. You'll know when it's time to submit the form of payment.

The Escrow Holder Will:

  • Assemble escrow guidelines
  • Request title inquiry
  • Meet lender's requirements as written in the escrow agreement
  • Receive payments 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 terms of agreement of seller and buyer have been finished
  • Disburse payments and finalize instructions

The Escrow Holder Won't:

  • Give advice - the escrow holder must stay at a fair, third-party status
  • Give insight about the outcome of your taxes
The Escrow Holder Will:
The Escrow Holder Won't:
  • Prepare escrow guidelines
  • Petition title inquiry
  • Comply with the bank's standards as outlined in the escrow agreement
  • Intake funds from the buyer
  • Prorate interest, insurance, tax and other payments according to guidelines
  • Record deeds and other paperwork as instructed
  • Request title insurance policy
  • Close escrow when all instructions of seller and buyer have been finished
  • Disburse payments and finalize instructions
  • Give advice - the escrow agent has to remain an impartial, third-party status
  • Dispense opinions about tax implications

Mortgage Escrow Account

A Mortgage Escrow Account is established to make payments for recurring fees 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.

Now you know more about being in escrow. And, you can be a more informed home buyer and future homeowner.

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