Understanding escrow services can make your real estate deal hassle-free by ensuring a transparent process and reducing the chance of unexpected complications.
Real estate transactions can be complex. The endless paperwork and unfamiliar terms often leave first-time buyers feeling apprehensive. Escrow is one part of the purchase process that seems particularly confusing, but it really isn’t complicated. Essentially, it provides a secure holding area for required funds and legal documents until the deal is closed and the property officially changes hands.
Please read on for seven common questions and answers that offer a clearer understanding of escrow services.
1. What does it mean to be “in escrow”?
The word “escrow” means to put something in the care of another. In this case, it refers to placing the details related to a property closing transaction in the hands of a professional who specializes in that process.
2. Why is escrow needed?
The escrow officer is a neutral third party responsible for ensuring a smooth and transparent real estate closing, including the transfers of money and documents. Escrow protects relevant parties by ensuring that no funds and property change hands until all conditions in the agreement have been met.
3. How does it protect buyers and sellers?
The buyer is protected because if the seller fails to properly address an issue raised during the home inspection, the earnest money remains in escrow until the seller satisfies the agreement. Escrow also provides protection from buyers walking away from the deal at the last minute. If that occurs, the seller can claim the earnest money the buyer placed in escrow.
4. What conditions are held in escrow? Typical conditions associated with an escrow account include:
- Clear title: When selling a property, the title must be unencumbered. This means no liens may be attached to the property that would transfer to the new buyer.
- Passing inspection: Depending on the state you live in, this may include pest inspections, electric and plumbing system inspections, or basic home inspections. Escrow may also include conditions regarding the real estate appraisal.
- Pending loan approval: This clause specifies that if the loan is not approved, the buyer’s full earnest money deposit will be returned to him or her.
5. Who does what in the escrow process?
a. The seller:
- Delivers a fully executed purchase and sale agreement to the escrow agent.
- Executes the paperwork necessary to close the transaction.
- Deposits any amendments to the purchase and sale agreement.
b. The buyer:
- Deposits funds required to close, in addition to the purchase price, with the escrow agent.
- Approves the inspection reports, commitment for title insurance, or other items as called for by the purchase and sale agreement.
- Fulfills other conditions specified in the purchase and sale agreement.
c. The lender (if applicable):
- Deposits proceeds of the loan.
- Directs the escrow agent of the conditions under which the loan funds may be used.
d. The escrow agent:
- Obtains the order for title insurance.
- Gets approvals from the buyer(s), the commitment for title insurance, and any other inspections that are called for in the purchase and sale agreement.
- Obtains any required payoffs/release documents to clear title.
- Receives funds from the buyer and/or lender.
- Prorates insurance, taxes, rents, etc.
- Prepares a final statement for each party, indicating amounts paid in conjunction with the closing of the transaction.
- Oversees the signing of loan documents.
- Records the deed and loan documents, delivers the deed to the buyer, loan documents to the lender, and funds to the seller, closing the transaction.
6. How does escrow offer convenience?
Escrow simplifies the entire transaction process. By ensuring all funds and necessary documents are securely held until the conditions of the agreement are met, it enables both parties to focus on other aspects of the deal rather than worrying about payments or legal requirements. This streamlined process reduces the need for constant communication between parties, minimizes risks, and helps avoid delays, so the transaction is more efficient for everyone involved.
7. What is a mortgage escrow account?
This is a different type of escrow. After you buy your home, this escrow account is managed by the mortgage lender or servicer, with the funds being used to pay your property taxes, homeowners’ insurance and (if you’re required to have it) mortgage insurance. Your lender divides these yearly costs by 12 months and adds them to your monthly mortgage payment. When your property taxes, homeowners’ insurance or mortgage insurance bills are due, the mortgage servicer or lender will pay the bills on your behalf automatically from your escrow account. Maintaining an escrow account can offer peace of mind—it ensures these bills are paid on time, and you won’t have to keep track of them.
Understanding escrow services can greatly improve your experience throughout the real estate process by providing clarity, security, and peace of mind.
Through all types of residential and commercial real estate transactions, Certified Title is here with sound advice and helpful resources. If you have questions about the escrow process or need more information, please contact us anytime.
About Certified Title Corporation: Since 1994, attorney-owned Certified Title Corporation has been furnishing residential and commercial real estate stakeholders across the nation with robust title insurance, settlement, and escrow services. Renowned for its industry-leading reliability and exemplary level of service and quality, the Maryland-based company helps clients from all walks of life achieve their asset goals. To learn more, call (888)486-5511 or visit https://www.certifiedtitlecorp.com/.
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