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Let's talk about "escrow". An escrow company is brought on to assure your place closes on time and the transaction goes smoothly. A home is said to be in escrow when in the closing transaction, funds is held by a third party on behalf of two parties when the exchange of money takes place. For example, in a Web purchase, PayPal is the neutral third party that obtains the buyer's money, and then hands over the money to the seller.

The escrow holder insures that all terms and conditions of the seller's and buyer's negotiated agreement are met prior to the sale being finalized. This includes securing payments and documents, filling out required forms, and seeking out the release documents for any loans or liens that have been paid with the transaction, assuring you have a clean title to your house before the negotiated price is fully paid.

These are the legal documents that escrow companies usually look to collect:

  • Tax statements
  • Fire and other insurance policies
  • 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

You're ready to close when all steps are done in escrow process. All expenses like title insurance, inspections and real estate commissions are paid. You'll then receive the title to the house and the title insurance gets issued as stated in the escrow instructions.

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

The Escrow Holder Will:

  • Prepare escrow guidelines
  • Request title inquiry
  • Meet lender's requirements as noted in the escrow agreement
  • Accept payments from the buyer
  • Prorate insurance, tax, interest and other payments according to guidelines
  • Record deeds and other legal documents as instructed
  • Obtain title insurance policy
  • Close escrow when all instructions of seller and buyer are complete
  • Disburse payments and finalize instructions

The Escrow Holder Won't:

  • Give advice - the escrow holder has to remain an impartial, third-party status
  • Give insight about the outcome of your taxes
The Escrow Holder Will:
The Escrow Holder Won't:
  • Assemble escrow guidelines
  • Perform a title research
  • Comply with the bank's requirements as outlined in the escrow agreement
  • Accept payments from the buyer
  • Prorate tax, interest, insurance and other fees according to guidelines
  • Record deeds and other legal documents as instructed
  • Obtain title insurance policy
  • Close escrow when all terms of agreement of seller and buyer are complete
  • Disburse monies and finish instructions
  • Advise you - the escrow holder must stay at a fair, third-party status
  • Dispense opinions about future tax estimations

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 easy to understand guide about the escrow process. Your individual process could vary based on your lender and your escrow company.

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