The Escrow Process

**What Exactly Is An Escrow?**
An escrow occurs when a neutral third party holds the documents and monies involved in a real estate transaction and ensures that all conditions of the transaction are met. Escrow also refers to a special account that a lender establishes to hold monthly installments from the borrower to cover property taxes and insurance.

**What Does An Escrow Holder Do?**
An escrow holder is a neutral third party who takes instructions based on the terms of the real estate transaction and, when necessary, the lender's requirements.

**What Are The Duties Of The Escrow Holder?**
  • Receiving and holding all monies, instructions, and documents pertaining to the real estate transaction.
  • Serving as the communication link and liaison between all parties.
  • Requesting a preliminary title search to determine the condition of title to the property.
  • Requesting a beneficiary statement or payoff demand from existing lenders.
  • Holding inspection reports, deeds, and insurance documents.
  • Complying with the lender's requirements in its instructions to escrow.
  • Preparing or obtaining the grant deed.
  • Prorating taxes, interest, insurance, rents, and other costs related to the property.
  • Recording the deed and other documents.
  • Requesting the title insurance policy.
  • Closing the escrow according to the instructions of the buyer, seller, and lender.
  • Disbursing funds as authorized by the instructions, including charges for real estate commissions, loan payoffs, title insurance, taxes, recording fees, and other costs.
  • Preparing final statements of disposition of all funds.
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Key terms and phrases commonly associated with escrow include:

**Escrow payment:**
Funds that a mortgage servicer withdraws from a borrower's escrow account to pay property taxes and insurance.

**Escrow analysis:**
A lender's periodic examination of an escrow account to determine if the lender is withholding enough funds from a borrower's monthly mortgage payment to pay for expenses such as property taxes and insurance.

**Back-to-back escrow:**
Arrangements that an owner makes to oversee the sale of one property and the purchase of another at the same time, also known as a concurrent closing.

**Escrow closing:**
An escrow closing occurs when all conditions of a real estate transaction are met and title of the property is transferred to the buyer.

**Escrow Company:**
A firm that acts as a neutral third party to ensure that all conditions that the buyer, seller, and lender establish in a real estate transaction are met