Escrow
Escrow is a neutral third-party arrangement where documents and funds are held until all conditions of a transaction are satisfied.
š¬ Video Explanation
Exam Tip
Escrow = neutral third party holding funds/documents. Opens when offer accepted, closes when deed recorded.
What is Escrow?
Escrow is a financial arrangement where a neutral third party holds money, documents, or other assets until all conditions of a transaction are met. It protects both parties by ensuring neither receives anything until both have performed.
Escrow in Real Estate
| Phase | Role of Escrow |
|---|---|
| Opening Escrow | Earnest money deposited, escrow instructions created |
| During Escrow | Holds documents, coordinates with lender, title company |
| Closing Escrow | Disburses funds, records deed, completes transaction |
Items Held in Escrow
| Item | Purpose |
|---|---|
| Earnest Money | Buyer's good faith deposit |
| Loan Documents | From lender |
| Deed | From seller |
| Funds | Purchase price, closing costs |
Escrow Accounts (Impounds)
Many lenders require ongoing escrow accounts for:
- Property taxes
- Homeowners insurance
- Mortgage insurance
- HOA dues (sometimes)
How Monthly Escrow Works
- Lender collects monthly escrow payment with mortgage
- Funds accumulate in escrow account
- Lender pays taxes and insurance when due
- Annual escrow analysis adjusts payment if needed
Study This Term In
Related Terms
Closing (Real Estate)
Closing is the final step in a real estate transaction where ownership transfers from seller to buyer, documents are signed, funds are exchanged, and the deed is recorded.
Earnest Money
Earnest money is a deposit made by a buyer to show good faith when making an offer on a property, which is typically applied to the purchase price at closing.
Title
Title is the legal right to own, use, and dispose of real property, representing the bundle of rights that come with property ownership.
Deed
A deed is a legal document that transfers ownership (title) of real property from one party to another.
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