What is an Escrow and Why is it Needed?
An escrow is an arrangement in which a disinterested third party, called an
escrow holder, holds legal documents and funds on behalf of a buyer and seller,
and distributes them according to the buyer's and seller's instructions.
People buying and selling real estate often open an escrow for their protection and convenience. The buyer can instruct the escrow holder to disburse the purchase price only upon the satisfaction of certain prerequisites and conditions. The seller can instruct the escrow holder to retain possession of the deed to the buyer until the seller's requirements, including receipt of the purchase price, are met. Both rely on the escrow holder to carry out faithfully their mutually consistent instructions relating to the transaction and to advise them if any of their instructions are not mutually consistent or cannot be carried out.
An escrow is convenient for the buyer and seller because both can move forward separately but simultaneously in providing inspections, reports, loan commitments and funds, deeds, and many other items, using the escrow holder as the central depositing point. If the instructions from all parties to an escrow are clearly drafted, fully detailed and mutually consistent, the escrow holder can take many actions on their behalf without further consultation. This saves much time and facilitates the closing of the transaction.
Basic Responsibilities of Your Escrow Holder
- Acts as the impartial "stakeholder," or depository of documents and funds.
- Processes and coordinates the flow of documents and funds.
- Keeps all parties informed of progress on the escrow.
- Responds to the lender's requirements.
- Secures a title insurance policy.
- Obtains approvals of reports and documents from the parties as required.
- Prorates and adjusts insurance, taxes, rents, etc.
- Records the deed and loan documents.
- Maintains security and accountability of monies owed and owing.
