Exactly Is An Escrow?
An escrow occurs when a neutral third party holds the documents
and monies involved in a real estate transaction and ensures
that all conditions of the transaction are met. Escrow also
refers to a special account that a lender establishes to hold
monthly installments from the borrower to cover property taxes
Why is it needed?
buying and selling real estate often open an escrow for their
protection and convenience. The buyer can instruct the escrow
holder to disburse the purchase price only upon the satisfaction
of certain prerequisites and conditions. The seller can instruct
the escrow holder to retain possession of the deed to the buyer
until the seller's requirements, including receipt of the purchase
price, are met. Both rely on the escrow holder to carry out
faithfully their mutually consistent instructions relating to
the transaction and to advise them if any of their instructions
are not mutually consistent or cannot be carried out. An escrow
is convenient for the buyer and seller because both can move
forward separately but simultaneously in providing inspections,
reports, loan commitments and funds, deeds, and many other items,
using the escrow holder as the central depositing point. If
the instructions from all parties to an escrow are clearly drafted,
fully detailed and mutually consistent, the escrow holder can
take many actions on their behalf without further consultation.
This saves much time and facilitates the closing of the transaction.
Who May Hold Escrows
holder may be any disinterested third party (although some states
require that certain escrow holders be licensed).
two important reasons for selecting an established, independent
escrow firm, an attorney, or an escrow officer with a bank,
S&L or title insurance company. One is that real estate
transactions require a tremendous amount of technical experience
and knowledge to proceed smoothly. The other is that the escrow
holder will generally be responsible for safeguarding and properly
distributing the purchase price.
with established firms generally are experienced and trained
in real estate procedures, title insurance, taxes, deeds and
What Does An Escrow Holder Do?
escrow holder is a neutral third party who takes instructions
based on the terms of the real estate transaction and, when
necessary, the lender’s requirements.
What Are The Duties Of The Escrow
- Receiving and holding all monies, instructions,
and documents pertaining to the real estate transaction.
- Serving as the communication link and
liaison between all parties.
- Requesting a preliminary title search
to determine the status of title to the property.
- Requesting a beneficiary statement
or payoff demand from existing lenders.
- Holding inspection reports, deeds,
and insurance documents.
- Complying with the lender’s requirements
in its instructions to escrow.
- Preparing or obtaining the grant deed.
- Prorating taxes, interest, insurance,
rents, and other costs related to the property.
- Recording the deed and other documents.
- Requesting the title insurance policy.
- Closing the escrow according to the
instructions of the buyer, seller, and lender.
- Disbursing funds as authorized by the
instructions, including charges for real estate commissions,
loan payoffs, title insurance, taxes, recording fees, and
- Preparing final statements of disposition
of all funds.
Key terms and phrases commonly associated
with escrow include:
Funds that a mortgage servicer withdraws from a borrower's escrow account
to pay property taxes and insurance.
lender's periodic examination of an escrow account to determine
if the lender is withholding enough funds from a borrower's
monthly mortgage payment to pay for expenses such as property
taxes and insurance.
Arrangements that an owner makes to oversee the sale of one property and
the purchase of another at the same time.
escrow closing occurs when all conditions of a real estate transaction
are met and the title of the property is transferred to the
firm that acts as a neutral third party to ensure that all conditions
that the buyer, seller, and lender establish in a real estate
transaction are met.
What are Escrow Instructions?
are written documents, signed by the parties giving them, which
direct the escrow officer in the specific steps to be completed
so the escrow can be closed.
instructions would include the following:
- The method
by which the escrow holder is to receive and hold the purchase
price to be paid by the buyer.
conditions under which a lapse of time or breach of purchase
contract provision will terminate the escrow without a closing.
instruction and authorization to the escrow holder to disburse
funds for recording fees, title insurance policy, real estate
commissions and any other closing costs incurred through escrow.
as to the proration of insurance and taxes.
to the escrow holder on the payment of prior liens and charges
against the property and distribution of the net sale proceeds.
the escrow holder can only follow the instructions as stated,
and may not exceed them, it is extremely important that the
instructions be stated clearly and be complete in all details.
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