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Escrow: An escrow agent is brought on to assure your home closes on time and the money exchanging part of closing goes smoothly. A property is said to be in escrow when in the closing process, payment is held by a third party on behalf of two parties (in this case, a buyer and a seller) when the exchange of money takes place. For example, in an Internet transaction, PayPal is the secure third party that obtains the buyer's funds, and then hands over the funds to the seller.

The escrow company makes sure that all terms and conditions of the seller's and buyer's contract are performed prior to the sale being finished. This includes getting payments and records, finishing required forms, and obtaining the release documents for any loans or liens that are to be paid with the transaction, assuring you have a clean title to your home before the purchase price is fully paid.

The certificates the escrow holder may secure include:

  • 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
  • Terms of sale and any seller-assisted financing

Upon completion of all instructions of the escrow, closing can take place. At this time, all payments and dues for inspections, title insurance and real estate commissions are collected. You'll then receive the title to the house and the title insurance gets dispersed as outlined in the escrow instructions.

When closing is completed, you'll submit a payment to the escrow company. You'll know when it's time to submit the form of payment.

The Escrow Holder Will:
The Escrow Holder Won't:
  • Write escrow guidelines
  • Request title search
  • Meet the bank's guidelines as specified in the escrow agreement
  • Intake payments from the buyer
  • Prorate insurance, tax, interest and other payments according to guidelines
  • Record deeds and other documents as instructed
  • Obtain title insurance policy
  • Close escrow when all terms of agreement of seller and buyer have been finished
  • Disburse funds and finalize instructions
  • Give advice - the escrow holder stays a neutral, third-party status
  • Give insight about the outcome of your taxes

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 simple outline of the escrow process. Your particular methods will vary depending on your lender and your escrow holder.