Understanding Title Escrow
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Understanding Title Escrow
When it comes to large purchases, such as residential or commercial real estate, real estate, buyers, sellers, and lenders all want reassurance that security standards and privacy measures exist to protect the funds involved in the closing transaction. That is why the first step to any purchase is to open an escrow account. An escrow account is a temporary pass-through account held by the escrow holder whereby a neutral third party (such as a bank, title company, or escrow agent) will retain the money involved with the sale until the closing. Once all the procedural formalities are complete, the money and documents will be transferred from the escrow account to the seller and buyer, guaranteeing a secure transaction.
How Does Escrow Work?
After a written sale agreement is reached, the escrow process starts. A party to the real estate transaction (seller, seller's agent, buyer, or buyer's agent) will open the escrow account and the escrow holder will provide all parties with the terms of the sale. Here are some of the tasks escrow holder may complete ensuring a smooth closing:
• Communicating with all parties in the transaction
• Preparing written escrow instructions
• Asking for a preliminary report or commitment
• Requesting a statement of identity from the buyer or seller
• Ordering demands or beneficiary statements
• Receiving and keeping track of invoices from home warranty companies, as well as pest, roof, home, and other inspection companies
• Preparing/securing the deed and any other recordable documentation
• Ensuring compliance with the lender's requirements
• Prorating all taxes, interest, insurance, and rents
• Making sure all purchase funds are received prior to closing
• Coordinating recording the deed to the property
• Closing the escrow account when all parties are satisfied and the instructions of the lender, buyer and seller are met
• Disbursing all authorized funds (charges for title insurance, recording fees, real estate commissions, and loan payoffs)
• Preparing a final statement for the parties, which reflect the disposition of all funds deposited in escrow
When the escrow instructions have been carried out to each party's satisfaction, the transaction will proceed to close. At the closing, the property's title will be transferred to the buyer, the seller will be paid the sales proceeds, necessary documents will be recorded, and title insurance is issued.