When purchasing your first home, the escrow process can be a little confusing. Buyers and sellers may find themselves asking, “What is escrow and why is it needed?”
With that in mind we’ve formulated a brief synopsis of the escrow process in plain english.
An Unbiased Third Party
When buying or selling real estate, escrow is often opened for protection and ease. The escrow agent is setup as a disinterested third party and performs mulitple tasks, as directed, by the parties involved in the transaction. Some of these items include, holding of legal documents, disbursement of funds on the buyer or sellers behalf and distribution of funds in accordance with the instructions set forth by the buyer and seller. Both the buyer and the seller rely on the escrow holder to fulfill the intention of their instructions with consistency and in good faith.
The convenience provided by the escrow holder is realized by buyer and seller due to the fact that both parties can move forward independently, but in parallel to close the transaction. The idea is such that either party can submit inspections, loan commitments, funds, deeds and other items pertinent to the transaction’s closing. When all insructions are in order and consistent, escrow facilitates a seamless closing.
Summary: The Purpose of Escrow
The process of escrow was established to facilitate the purchase and sale of real estate. Here’s a brief outline of the escrow holder’s duties in a transaction:
• Act as the impartial “stakeholder,” or depository of documents and funds
• Process and coordinate the flow of documents and funds
• Keep all parties informed of progress regarding the transaction
• Respond to lender requirements
• Secure title insurance policy
• Obtain approval of reports and documents from the parties as required
• Proration and adjustment of insurance, taxes, rents, etc.
• Record the deed and loan documents
• Maintain security and accountability of monies owed and owing