Effects of a Trust on an Escrow Differ for Buyers and Sellers

An escrow, whether for a real estate transfer or any other purpose, is a form of short-lived trust from a legal perspective. Escrow permits buyers and sellers of anything to interact with a neutral party. The neutral party then holds money and documents in trust for the respective participants.

Since trusts affect buyers and sellers differently in real estate transactions, it’s important to know the primary issues and features of a trust on either party. In both cases, the escrow holder has a legal and fiduciary duty to protect the funds for the benefit of each party, whether the giver or recipient

Buyers

Unless home buyers are paying cash, most cannot close escrow in a living trust. When buyers use a mortgage, they’ve probably been told the loan must be made to the human owners, not to a trust. Buyers wanting to put their new home in a living trust must wait until after the closing to deed the property to a trust.

Sellers

Those who have already put their current home in a living trust are also affected. The escrow company can only disburse funds to the trust of record, not to the human owners/sellers. Sellers must withdraw cash or profits from the trust to use these funds.

To learn more about trusts and escrow, contact Brighton Escrow in Hermosa Beach, California. Serving area residents since 1971, Brighton Escrow can answer all your questions about the effects trusts can have on escrows.

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