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A Simple Guide to the Escrow Process


Escrow enhances the safety of different types of transactions between multiple parties. In real estate transactions, escrow accounts play a vital role. Escrow is vital when selling or buying a home, which is why it’s important to understand how the process works. Keep reading to learn more.

What Is Escrow?

An escrow is a third-party account that holds money or a deed until the fulfillment of specific conditions. Often, escrow providers manage real estate transactions to facilitate a smooth process. Also, a mortgage holder may create an escrow account in the borrower’s interest, such as holding monthly installments for insurance and property taxes.

Importance of Escrow

An escrow account must be created to facilitate any real estate purchase and protect all parties to the transaction. For example, it protects the home buyer’s and seller’s interests by securely holding the money and deed until both parties have satisfied their end of the bargain. It ensures that none of the parties involved is shortchanged.

How Escrow Works

Here is how escrow functions in real estate deals:

  • Buyer/seller’s realtor sends a purchase agreement to an escrow account.
  • Escrow companies write legal instructions that may include requests for a payoff or payment of applicable invoices.
  • When an escrow account is created for hazard insurance and property taxes, the lender withdraws monthly funds from it to pay these obligations.
  • Any excess cash in escrow toward the end of the year is refunded.

Escrow and Mortgages

Escrow is also helpful in the mortgage process. It provides for reserve funds held by the lender to pay the borrower’s property taxes and mortgage holder’s insurance.

When Funds Are Held Back in Escrow

Hold back means that funds remain held in escrow after the complete transfer of property ownership to the buyer. An example is a leaseback escrow account that holds part of the property sales proceeds because there’s an agreement to let the seller rent the house for a while.  Under this deal, part of the held funds will be used to pay a daily or monthly rent until the seller leaves the house. Funds can also be held in escrow to pay for any repairs or expenses necessary to bring the property to the agreed-upon condition before closing.

Escrow Closing 

Escrow closing is the completion of the home purchase process. An official from the escrow company manages the entire process by:

  • Facilitating the transfer of funds
  • Overseeing the final paperwork
  • Handling the recording of deeds

The agent confirms that all parties have satisfied the terms of the contracts. Also, they’ll see to it that all paperwork has been signed and recorded. It’s the agent’s responsibility to guarantee that all due payments/payouts have been made before closing.

Real estate transactions are less distressing when both the buyer and seller understand their respective roles in key processes, including escrow. Are you looking to buy or sell property in the South Bay area? If so, contact the experienced team at Brighton Escrow for professional escrow services.

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