What Is Escrow And Why Is It Important?

Real estate transactions are complex, involving numerous steps and legal issues for both sellers and buyers

. There are property ownership verifications, local and state fees, lender requirements, tax assessments, title insurance, and much more. Before property ownership is transferred from seller to buyer, all of these steps have to be taken by various parties, and paid for, to ensure a legal, binding transaction.

When buying a home or entering into any real estate transaction, the term "escrow" will be heard. What does that term mean and why is it important to understand? In short, title escrow is a funded account, paid by the buyer, that is managed, or held, by a neutral third party who has no vested interest in the sale on either side, seller or buyer. This escrow account ensures that all costs of the transaction will be paid upon closing without delay or dispute. Typically, this service is provided by a title escrow service company.

Before escrow monies can be released by the title escrow service company to the parties concerned, all of the conditions for the sale must be satisfactorily met. The company holding the escrow gathers all of the information required, such as the title search, legal paperwork, and bank or lender requirements. All tax and payment information must be collected and verified along with specific instructions from both the seller and buyer to make sure all agreements are in order and satisfactorily met. Only when all of this has been successfully accomplished will the escrow funds be released and the account closed.

Escrow accounts are typically required by lenders to ensure that the money is there and all costs will be covered for the transaction at closing. Because the funds cannot be released until all requirements are met and verified, this protects the interests of all parties involved. There are occasions when a bank or lender will agree to waive escrow, trusting the buyer to pay the costs that are normally covered by the escrow account at closing. There is, however, an added fee involved in order to waive escrow, so it is often in the buyer's interest to avoid doing so. It also avoids last minute surprises at all of the costs involved, catching a buyer unprepared.

A real estate agent or lender will often refer a title escrow service that they have worked with previously, though a buyer always has the choice to select any company desired. Since a title escrow service provider must remain neutral, they cannot advise buyers or sellers at any point in the transaction. This protects both buyers and sellers to ensure a clean, legal transaction.

by: Art Gib

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