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Escrow 101

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Let's talk about "escrow". An escrow company is hired to assure your house closes on time and the closing process goes smoothly. When funds are held by a third party in a transaction between a buyer and a seller, it's in escrow. For example, in a Web auction, PayPal is the reliable third party that obtains the buyer's cash, and then sends the money to the seller.


The escrow holder insures that all terms and conditions of the seller's and buyer's contract are performed prior to the sale being finalized. This includes getting monies and documents, completing required forms, and getting the release documents for any loans or liens that were cleared with the transaction, assuring you have a clean title to your property before the negotiated price is fully paid.

Escrow holders want to obtain the following forms:

  • 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

Upon completion of all portions of the escrow, closing can take place. All payments owed and fees are collected and paid at this time (covering expenses such as title insurance, inspections, real estate commissions). You'll then secure the title to the house and the title insurance gets issued as stated in the escrow instructions.

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:
The Escrow Holder Won't:
  • Assemble escrow instructions
  • Petition title research
  • Comply with lender's guidelines as outlined in the escrow agreement
  • Receive funds from the buyer
  • Prorate insurance, tax, interest and other payments 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 funds and finalize instructions
  • Tell you what's best - the escrow agent has to remain an impartial, third-party status
  • Dispense opinions about tax implications

Mortgage Escrow Account

Creating a Mortgage Escrow Account helps keep track of on-going expenses while there's a loan on your house. 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 quick run-down of the escrow process. Your particular process could be different depending on your bank and your escrow company.

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