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An Escrow is an agreement in which an objective third party holds legal documents and funds on behalf of a buyer and seller, and distributes them according to the buyer’s and seller’s instruction. People buying, selling and refinancing often open an escrow for their protection and convenience. Another benefit would be that the buyer and seller can move forward separately but simultaneously in providing inspections, reports, loan commitments and funds, deeds and other items by using the escrow company as the central depositing point, saving time and facilitates the close of the transaction.
Responsibilities of Each Party in an Escrow
The Buyer
• Deposits funds to pay for the purchase price, and funds for property and closing costs.
• Provides deed of trust or mortgages needed to secure loan.
• Arranges for borrowed funds to be deposited into escrow.
• Provides, if required, documents such as inspection reports, insurance policies, and lien information to verify compliance to the instructions.
The Seller
• Deposits the deed to the buyer with the escrow holder.
• Provides evidence to meet the buyer’s conditions of sale, such as proof of repair work and inspections.
• Submits other documents, such as tax receipts, mortgage information, insurance policies, and warranties.
The Lender
• Deposits loan funds, lender instructions, and other loan documents wit the escrow holder.
The Escrow Holder
• Serves as a central depository for funds and documents.
• Obtains a title insurance policy.
• Fulfils the lender’s requirements if applicable.
• Secures approval from the buyer on requested documents.
• Prorates insurance, taxes, and rents, as instructed.
• Fulfils buyer and seller instructions.
• Allocates funds for closing costs, and verifies that required funds from each party are deposited into escrow.
• Once all conditions are met; the escrow holder causes the necessary documents to be recorded.
• Executed loan documents are forwarded to the lender.
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