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What is Escrow?

Escrow: To close the sale of a property, a neutral, third party (the escrow holder) is engaged to assure the transaction will close appropriately and on time. A property is said to be in escrow when in the closing transaction, money is held by a third party on behalf of a buyer and a seller when the exchange of money takes place. PayPal is a good example of an escrow company.


The escrow holder insures that all terms and conditions of the seller's and buyer's negotiated agreement are reached prior to the sale being finalized. This includes getting payments and paperwork, finishing required forms, and getting the release documents for any loans or liens that are to be paid with the transaction, assuring you have a free title to your house before the purchase price is fully paid.

These are the legal forms that escrow agents usually look to collect:

  • Requests for payment for various services to be paid out of escrow funds
  • Loan documents
  • Tax statements
  • Fire and other insurance policies
  • Title insurance policies
  • Terms of sale and any seller-assisted financing

Upon completion of all portions of the escrow, closing can take place. At this time, all payments and fees for inspections, title insurance and real estate commissions are collected. The home's title gets transferred to you and title insurance is issued per the policies of your individual escrow agreement.

When closing is in it's last step, you'll pay the fees to the escrow holder. I'll keep you up-to-date on the procedure.

The Escrow Holder Will:

The Escrow Holder Won't:
  • Write escrow instructions
  • Perform a title search
  • Comply with lender's standards as written in the escrow agreement
  • Receive payments from the buyer
  • Prorate tax, interest, insurance and other fees according to instructions
  • Record deeds and other paperwork as instructed
  • Obtain title insurance policy
  • Close escrow when all instructions of seller and buyer are met
  • Disburse monies and finish instructions

  • Give advice - the escrow holder has to remain an impartial, third-party status
  • Give insight about tax implications

Mortgage Escrow Account

Often, to pay recurring costs while there's a loan on the house, a Mortgage Escrow Account is created. Though most home buyers make payments via their monthly mortgage payment, Escrow Accounts are deposited into at closing as well.

This is a easy to understand guide about the escrow process. Your individual process may vary based on your lender and your escrow company.

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