Escrow in the Home Buying Process
By Sadiya Anjum
An Escrow service forms a major portion of the home buying process and provides assurance that the transaction will occur smoothly according to the sales contract. It is a third neutral party that safeguards the interests of the parties involved in a transaction until it is completed to satisfaction. In home buying, Escrow comes into play at different points before and after closing.
The seller and buyer have to mutually agree to an escrow agent. The buyer can suggest an escrow agent as a part of his offer. The seller can either accept or counter the suggestion; ultimately both parties have to agree on the agent chosen. An escrow agent can be anyone- an attorney, an escrow/ settlement company, or any other neutral party. The agent will hold on to the escrow (deposit, documents etc.) until the obligations of the contract have been satisfactorily fulfilled.
Escrow first comes into the picture when the buyer presents the Earnest Money Deposit. The deposit along with signed documents by both the seller and the buyer are given to the agent to hold until the closing day. The agent after procedures such as inspections, loan formalities, title search etc. have been carried out will disperse the funds according to the details of the sales contract. If there is a hitch in the transaction, the escrow agent will disperse funds according to the clauses in the sales contract. If there are no clear instructions, the agent will hold the escrow until a written agreement by both parties (buyer and seller) or a court order provides details for further action.
Even after closing, escrow comes to the aid when the buyer has to pay property insurance and taxes. Property taxes and insurance have to be paid annually but the lender requires the borrower to contribute monthly payments for the same. He will set up an escrow account for the borrower where a certain amount of the monthly payment is deposited for insurance and taxes. As long as the borrower makes payments on time, he is not to be held liable if the insurance or tax payments are not made on time. It is the lenderís responsibility to make these payments. If the borrower receives a notice on late payment then he should contact the lender immediately to clear it out.
Escrow services can be extremely helpful and are essential to make sure that the interests of all parties are safeguarded. In some states, escrow is part of the settlement process but in some states they are not. Depending on the guidelines of each state, some form of escrow should be involved to avoid confusion and trouble later.
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