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Escrow 101

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First, a little about "escrow". To complete the sale of a place, a neutral, third party (the escrow agent) is engaged to assure the transaction will close correctly and on time. A property is said to be in escrow when in the closing process, funds is secured by a third party on behalf of two parties when the exchange of money takes place. An everyday way to understand what an escrow company does is to think of the use of PayPal for online purchases.

The escrow company makes sure that all terms and conditions of the seller's and buyer's negotiated agreement are met prior to the sale being completed. This includes securing monies and certificates, completing required forms, and getting the release documents for any loans or liens that were paid off with the transaction, assuring you have a free title to your property before the asking price is fully paid.

These are the legal forms that escrow holders usually compile:

  • 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 finishing of all portions of the escrow, closing can take place. All debts and fees are taken and paid at this time (covering expenses such as title insurance, inspections, real estate commissions). You'll then get the title to the property and the title insurance gets dispersed as noted 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:

  • Assemble escrow guidelines
  • Request title inquiry
  • Meet lender's standards as outlined in the escrow agreement
  • Accept payments from the buyer
  • Prorate tax, interest, insurance and other fees according to instructions
  • 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 payments and finish instructions

The Escrow Holder Will Not:

  • Give advice - the escrow company has to remain an impartial, third-party status
  • Offer opinions about the outcome of your taxes
The Escrow Holder Will:
The Escrow Holder Won't:
  • Assemble escrow instructions
  • Petition title inquiry
  • Comply with lender's guidelines as specified in the escrow agreement
  • Accept payments from the buyer
  • Prorate interest, insurance, tax and other payments according to guidelines
  • Record deeds and other paperwork as instructed
  • Obtain title insurance policy
  • Close escrow when all terms of agreement of seller and buyer have been met
  • Disburse monies and finalize instructions
  • Tell you what's best - the escrow agent must stay at a fair, third-party status
  • Give insight about the outcome of your taxes

Mortgage Escrow Account

Creating a Mortgage Escrow Account helps keep track of on-going expenses while there's a loan on your house. Usually, the home buyer makes a payment at closing and also makes regular deposits through their monthly mortgage payment to fund the Escrow Account.

This is a easy to understand guide about the escrow process. Your particular methods might be slightly different based on your bank and your escrow agent.

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Louis Wolfson & Co.

29 Cimino Road
Needham, MA 02494