Escrow

Escrow is a neutral third party company that handles the documents related to a real estate transactoin. They are also responsible for the transfer of funds for the transaction.

Escrow also means to have a neutral third party, usually a title agent or an attorney, holding funds for disbursement upon the completion of a task. For instance, an attorney may escrow a portion of the builder's proceeds from a real estate transaction, only to disburse the funds upon the completion of the kitchen counter.

Escrow can also mean an escrow account. Some lenders collect from the homeowner, in addition to the monthly mortgage payment, the property tax and homeowner insurance premiums. The portion of the monthly payment that is allocated for property tax and homeowner insurance is kept in an escrow account. When real estate taxes and insurance premiums are due, the mortgage bank withdraws funds from the escrow account and makes payments on behalf of the homeowner.

Escrow is the collection, holding and delivery of documents and monies by a neutral third party in accordance with the dated, written instructions from principals to a transaction.

Having a neutral third party allows all of the principals to a transaction to handle the transaction in more convenient time frame. Many real estate sales and refinances handled in other areas of the country do not have escrow. It is then necessary for all the parties to be in one room at one time in order to protect their interest. With an escrow, however, the parties may execute their respective documents and instruct the Escrow when the documents may be used.

The Escrow becomes a central depository. Escrow agents are neutral. With the exception of certain statutes which require them to take specific actions, the Escrow Officers simply follow the directions of the principals to the transaction – the buyer, borrower and seller. Escrow Officers do not give legal advice. They do not determine if transactions is “wise”. They do not resolve disputes between the various parties. They simply follow the instructions of the principals: which instructions MUST be consistent (all parties must agree to the same instructions).

Escrow can also be used for an Earnest Money deposit, which when placed in escrow will remain until the transaction is closed and then it will be given to the home seller. The most common use of escrow, is the collection of funds for the payment of real estate taxes, hazard insurance and mortgage insurance. The lender will perform an "escrow analysis" at least once a year, to insure they are collecting enough money to cover expected monthly payments.

Escrowing your taxes and insurance is usually an option and not always required. However some loan programs like conforming 100% programs require that you escrow your taxes and insurance.

You will be require to pay a escrow fee in any mortgage transaction. That is the fee charged by the escrow service provider for their services. The borrower or purchaser usually has the right to select the escrow company but in reality it is usually chosen by the lender or Realtor.

» DISCLAIMER: The information contained in this article on 'Escrow' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.