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To finalize the sale of the home a neutral, third party (escrow agent) is engaged to assure the transaction will close properly and on time. The escrow holder insures that all terms and conditions of the seller’s and buyer’s agreement are met prior to the sale being finalized, including receiving funds and documents, completing required forms, and obtaining the release documents for any loans or liens that have been paid off with the transaction, assuring you clear title to your property before the purchase price is fully paid.
An escrow is:
- an arrangement made under contractual provisions between transacting parties, whereby an independent trusted third party receives and disburses money and/or documents for the transacting parties, with the timing of such disbursement by the third party dependent on the fulfillment of contractually-agreed conditions by the transacting parties, or
- an account established by a broker, under the provisions of license law, for the purpose of holding funds on behalf of the broker’s principal or some other person until the consummation or termination of a transaction; or,
- a trust account held in the borrower’s name to pay obligations such as property taxes and insurance premiums.
The word derives from the Old French word escroue, meaning a scrap of paper or a roll of parchment; this indicated the deed that a third party held until a transaction was completed.
The documentation the escrow holder may be collecting includes:
• Loan documents
• 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
Upon completion of all instructions of the escrow, closing can take place. All outstanding payments and fees are collected and paid at this time (covering expenses such as title insurance, inspections, real estate commissions). Title to the property is then transferred to the buyer and appropriate title insurance is issued as outlined in the escrow instructions. At the close of escrow, payment of funds shall be made in an acceptable form to the escrow. As your real estate agent, I’ll inform you of the acceptable form.
The Escrow holder will:
• Prepare escrow instructions
• Request title search
• Comply with lender’s requirements as specified in the escrow agreement
• Receive funds from the buyer
• Prorate interest, tax, insurance, and other payments according to the instructions
• Record deeds and other documents as instructed
• Request title insurance policy
• Close escrow when all instructions of seller and buyer have been met
• Disburse funds and finalize instructions
You can feel more secure with an independent escrow company. Unlike banks, title companies and brokerages, an independent firm must comply with stricter operational and CPA auditing, bonding requirements, financial liquidity requirements and trust fund insurance guidelines.
For more information contact our partner:
EscrowOne, Inc. A Department of Corporations Escrow Company