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How Escrow Works

Whether it's your first purchase or you're a seasoned Buyer, you most likely will be utilizing a title company or attorney to act as the closing agent. You've just gotten your contract accepted by the Seller and now it's time to make your earnest money deposit...also known as an escrow deposit. Is it going to be safe?  

First, a little about how escrow works. To process and complete the sale of a home, a neutral third party (the escrow agent) is engaged to assure the transaction will close correctly, prepare the closing documents, coordinate with the lender, and schedule the property closing & signing between the parties. Escrow agents also hold funds for "safe keeping" in a secure trust account between a buyer and seller. The escrow agent also makes sure that the terms and conditions of the agreement between the seller and buyer are performed in preparation of the sale being finalized.

These are the records that escrow holders usually compile:

  • 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 finishing of all instructions of the escrow, closing can take place. At this time, all payments and dues for inspections, title insurance, taxes, fees, lien searches, and real estate commissions are paid out. The property's title is given to you and title insurance begins per the steps of your individual escrow agreement.

At the close of escrow, payment of funds shall be made in an acceptable form to the escrow officer, usually in the form of a bank wire transfer or a cashier's check. 

The Escrow Holder Will: 

  • Write escrow guidelines 
  • Perform a title search 
  • Comply with the bank's standards as outlined in the escrow agreement 
  • Intake funds 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 are complete 
  • Disburse funds and finish instructions 

The Escrow Holder Won't: 

  • Offer advice - the escrow agent must maintain a neutral, third-party status 
  • Dispense opinions about the outcome of your taxes

Mortgage Escrow Account:

A Mortgage Escrow Account is started to pay on-going fees and expenses while there is a mortgage on your house, usually property taxes and homeowner's insurance. Escrow Accounts are contributed to monthly by the home buyer (who is now the homeowner), but there is also a lump sum that goes into the account at the time of closing.

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