What is Escrow? What is escrow's repsonsibility in my purchase or refinance?

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What is Escrow?

Buying or selling a home usually involves the transfer of large sums of money. The escrow process was developed for the protection of the buyer, the seller and the lender to provide a way for moneys and legal documents to be safely transferred from one party to another.

As the buyer or seller you need to be sure that all conditions have been met before money and property ownership are transferred from one party to another. The escrow company's job is to carry out everyone's written instructions regarding recording of deeds, transfer of legal paperwork and disbursement of moneys.

To carry out this responsibility, the escrow holder will ask for the necessary information and paperwork from the involved parties. For example, the escrow holder will ask the lender to provide copies of all the loan papers. They will ask the buyer to provide property insurance information. The real estate brokers will usually be the ones to give the verbal instructions to the escrow company. The escrow company will then type up the instructions for the buyers and sellers to review and sign.

The escrow holder:

- serves as the neutral third party and provides a communications link to all parties.

- requests a title search of the property to ensure that the seller can legally sell the property.

- prepares the written escrow instructions.

- receives and follows instructions from the lender on loan paperwork and fees to be paid.

- receives purchase funds from the buyer

- prepares the deed or other documents related to the escrow calculates taxes, interest, insurance and rent payments

- according to instructions from buyer and seller.

- records deed and any other documents as instructed.

- requests issuance of the title insurance policy.

- closes escrow when all of the instructions of the buyer and seller have been carried out.

- distributes funds as authorized by the instructions.

- prepares final statements for the parties accounting for the disposition of all funds deposited in escrow.

(Hold on to these as verification for future tax deductions.)

The escrow holder does not:

- offer legal advice

- negotiate between the buyer, seller and lender

- offer investment advice.

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