Understanding how Escrow works – Hanley Agency, Inc., Pittsburgh, PA

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Escrow: To finalize the sale of a property, a neutral, third party (the escrow company) is brought into the picture to assure the transaction will close properly and on time. Escrow agents hold money for "safe-keeping" in transactions between a buyer and seller. For example, in a Web transaction, PayPal is the reliable third party that holds the buyer's money, and then hands over the money to the seller.

Tying up any loose ends like receiving funds, signing forms, getting the documents for loans and liens, and assuring you get a spotless title to the house in preparation of your purchase gets finalized are all parts of closing in which an escrow holder is useful.

The documents the escrow company may secure include:

Tax statements
Fire and other insurance policies
Title insurance policies
Terms of sale and any seller-assisted financing
Requests for payment for various services to be paid out of escrow funds
Loan documents

You're ready to close when all parts are done in escrow process. At this time, all payments and fees for inspections, title insurance and real estate commissions are paid out. Title to the house is then transferred to you as new owner and appropriate title insurance is issued as outlined in the escrow policy.

At the close of escrow, payment of funds shall be made in an acceptable form to the escrow. As your real estate agent, I'll inform you of the acceptable way of paying.

The Escrow Holder Will:

Assemble escrow instructions
Request title inquiry
Meet lender's standards as written in the escrow agreement
Accept payments from the buyer
Prorate interest, insurance, tax and other payments according to guidelines
Record deeds and other paperwork as instructed
Obtain title insurance policy
Close escrow when all instructions of seller and buyer have been finished
Disburse funds and finalize instructions

The Escrow Holder Won't:

Offer advice - the escrow company must maintain a neutral, third-party status
Dispense opinions about the outcome of your taxes

The Escrow Holder Will:		The Escrow Holder Won't:
Prepare escrow instructions Perform a title inquiry Comply with lender's standards as written in the escrow agreement Receive payments from the buyer Prorate interest, insurance, tax and other payments according to guidelines Record deeds and other paperwork as instructed Obtain title insurance policy Close escrow when all instructions of seller and buyer have been finished Disburse funds and finalize instructions		Advise you - the escrow holder stays a neutral, third-party status Give insight about the outcome of your taxes

Mortgage Escrow Account

Often, to pay recurring costs while there's a loan on the house, a Mortgage Escrow Account is created. Usually, the home buyer makes a payment at closing and also makes regular deposits through their monthly mortgage payment to fund the Escrow Account.

This is a simple outline of the escrow process. Your individual process may vary depending on your bank and your escrow company.

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