How Escrow Works

Escrow 101

Escrow: To finalize the sale of a home, a neutral, third party (the escrow agent) is engaged to assure the transaction will close appropriately and on time. Escrow holders hold money for “safe-keeping” in transactions between a buyer and seller. PayPal is a good way to picture an escrow company.Tying up any loose ends like receiving funds, finishing forms, obtaining 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 parts of closing in which an escrow company is useful.

These are the documents that escrow holders usually look for:

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 house takes place when all of the procedures of the escrow are complete. At this time, all payments and dues for inspections, title insurance and real estate commissions are taken. You’ll then receive the title to the home and the title insurance gets issued as noted in the escrow instructions.

The escrow holder 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:

Write escrow instructions
Petition title inquiry
Comply with lender’s guidelines as specified in the escrow agreement
Receive funds from the buyer
Prorate tax, interest, insurance and other fees according to instructions
Record deeds and other legal documents as instructed
Obtain title insurance policy
Close escrow when all instructions of seller and buyer have been met
Disburse payments and finalize instructions

The Escrow Holder Won’t:

Offer advice – the escrow company stays a neutral, third-party status
Dispense opinions about the outcome of your taxes

The Escrow Holder Will:		The Escrow Holder Won’t:
Prepare escrow instructions Perform a title inquiry Meet the bank’s requirements as specified in the escrow agreement Accept payments from the buyer Prorate tax, interest, insurance and other fees according to guidelines Record deeds and other paperwork as instructed Obtain title insurance policy Close escrow when all instructions of seller and buyer have been finished Disburse funds and finish instructions		Give advice – the escrow holder 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 expenses while there is a loan on the house. Usually, the home buyer makes a payment at closing and also makes regular deposits through their monthly mortgage payment to fund the Escrow Account.

This is a quick run-down of the escrow process. Your individual process could vary depending on your bank and your escrow agent.