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The Functions of an Escrow

Buying or selling a home (or other piece of real property) usually involves the transfer of large sums of money. It is imperative that the transfer of these funds and related documents from one party to another be handled in a neutral, secure and knowledgeable manner. For the protection of buyer, seller and lender, the escrow process was developed.

As a buyer or seller, you want to be certain all conditions of sale have been met before property and money change hands. The technical definition of an escrow is a transaction where one party engaged in the sale, transfer or lease of real or personal property with another person delivers a written instrument, money or other items of value to a neutral third person, called an escrow agent or escrow holder. This third person holds the money or items for disbursement upon the happening of a specified event or the performance of a specified condition.

Simply stated, the escrow holder impartially carries out the written instructions given by the principals. This includes receiving funds and documents necessary to comply with those instructions, completing or obtaining required forms and handling final delivery of all items to the proper parties upon the successful completion of the escrow.

The escrow must be provided with the necessary information to close the transaction. This may include loan documents, tax statements, fire and other insurance policies, title insurance policies, terms of sale and any seller-assisted financing, and requests for payment for various services to be paid out of escrow funds.

If the transaction is dependent on arranging new financing, it is the buyer’s or the buyer’s agent’s responsibility to make the necessary arrangements. Documentation of the new loan agreement must be in the hands of the escrow holder before the transfer of property can take place. A real estate agent can help identify appropriate lending institutions.

When all the instructions in the escrow have been carried out, the closing can take place. At this time, all outstanding funds are collected and fees- such as title insurance premiums, real estate commissions, termite inspection charges- are paid. Title to the property is then transferred under the terms of the escrow instructions and appropriate title insurance is issued.

Payment of funds at the close of escrow should be in the form acceptable to the escrow, since out-of-town and personal checks can cause days of delay in processing the transaction.

The following items represent a typical list of what an escrow holder does and does not do:

THE ESCROW HOLDER:

  • serves as the neutral “stakeholder” and the communications link to all parties in the transaction;
  • prepares escrow instructions;
  • requests a preliminary title search to determine the present condition of title to the property;
  • requests a beneficiary’s statement if debt or obligation is to be taken over by the buyer;
  • complies with lender’s requirements, specified in the escrow agreement;
  • receives purchase funds from the buyer;
  • prepares or secures the deed or other documents related to escrow;
  • prorates taxes, interest, insurance and rents according to instructions;
  • secures releases of all contingencies or other conditions as imposed on any particular escrow;
  • records deeds and any other documents as instructed;
  • requests issuance of the title insurance policy;
  • closes escrow when all the instructions of buyer and seller have been carried out;
  • disburses funds as authorized by instructions, including charges for title insurance, recording fees, real estate commissions and loan payoffs;
  • prepares final statements for the parties accounting for the disposition of all funds deposited in escrow (these are useful in the preparation of tax returns).

THE ESCROW HOLDER DOES NOT:

  • offer legal advice;
  • negotiate the transaction;
  • offer investment advice.

Your local title company should be happy to provide additional information.

Article by CLTA

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Hello Janet, I just want to send a short note to thank you for your assistance in my purchasing the Lacey Street home. As you are aware, Gary and I had significant problems in finding a "qualified" real estate agent. When we found you, you made everything so easy..........you were very prepared.........you went way out of your way to assist us, even after the property was purchased. Things could not have gone smoother. Thank you for everything you have done. Mark Madding
Janet, My husband and I would like to extend our heart felt thanks to you for selling our home in Glen Lakes. We had previously listed the property without success. You provided us the necessary information to appropriately price our home and the home sold in a record 17-day period. We were thrilled with your results and would highly recommend your services to our friends. Thanks again so very much for your attention to detail and immediate success in selling our home. Kindest regards, Kevin and Natale Goff
Virginia, You went above & beyond to help make our dreams come true, making our first reality a paradise! to the first potential "yes" homes to home you were with us every step of the way. You truly do make miracles happen. Thank You for all of the prayers. Thank you from the bottom of our hearts. Brenda and Billy Lummus
Thank you for the efficient and speedy way you handled the sale of my house in Glen Lakes. Although I never met you, I feel as though I've made a new friend. I could tell in our phone conversations that you had my best interests at heart and worked quickly to find a buyer who was just right for my home. Your friendliness and the way you kept me informed about the way things were going impressed me. I really appreciate the promptness of the finalizing and your willingness to help make details clear to me. May God bless you with good health, success and prosperity in the future. It was a joy to work with you, my friend! Sincerely, Mona FayeLewis
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Thank you for visiting today. If this is your first visit, take your time and look around. We have plenty of information and resources available to you. If you are a return visitor, thank you. We would love to hear from you. We can serve all your real estate needs.