What Is Escrow

Escrow is a method of closing a real estate transaction. The escrow agent is given the responsibility to oversee and coordinate the closing activities, acting as a neutral third party between the buyers and sellers. The escrow agent may be an attorney, a title company, a trust company, an escrow company, or the escrow department of a lending institution. Many states have laws that regulate escrow agents and limit who may serve in this capacity. Your escrow officer must follow the instructions of both parties (buyers and sellers) involved in the transaction, and will remain unbiased and rather formal when dealing with all of the parties associated with the escrow.

The Escrow Procedure …

Real Estate transactions involve a tremendous amount of technical experience and knowledge. Your escrow officer will generally be responsible for properly safeguarding and distributing all monies involved in the transaction. The buyers and sellers come to an agreement that is acceptable to all parties (known as a purchase and sale agreement, or more commonly, an earnest money agreement). Once this agreement is signed by all the parties, your broker or real estate agent will turn over the earnest money agreement to the escrow company. This agreement gives the escrow officer specific steps to be completed in order for the sales transaction to close.

What the Escrow Officer Does in the Escrow Process

1. The escrow officer opens the order for title insurance and examines the title evidence. The escrow officer prepares to clear title by ordering payoffs for loans, contracts, liens, judgments, and taxes due or delinquent.
2. Approval will be obtained from the buyer on the title insurance and pest inspection, etc.
3. The lender or buyer provides the funds needed to close the transaction to the escrow officer.
4. Funds are disbursed for real estate commissions, recording fees, title insurance, pest inspections, etc.
5. The escrow officer prorates taxes (and rents, if necessary).
6. A final HUD-1 statement is prepared for the buyer(s) and seller(s) by the escrow officer that discloses all the funds being disbursed and to whom.
7. Documents are usually prepared by the escrow officer and recorded in accordance with lender loan instructions and loan documents.
8. The escrow officer then delivers the warranty deed to the buyer and the funds to the seller upon the closing of the escrow.

Escrow Fees

Escrow fees charged by the escrow agent are typically split equally between the buyer and seller. A purchaser under new VA financing is not allowed to pay any escrow fees, in which case escrow fees are the sole responsibility of the seller. However, FHA regulations stipulate that the buyer may pay up to one half of the fees charged by the escrow agent.