What Is Escrow?

Escrow is a financial arrangement in which a neutral third party holds funds, property titles and legal documents on behalf of both the buyer and seller. The escrow agent ensures that both parties fulfill their contractual obligations before finalizing the transaction.

The Escrow Process

• Opening Escrow: Once the buyer and seller agree on contract terms and sign a purchase agreement, the escrow account is opened. Both parties deposit necessary funds or documents.
• Due Diligence and Contingencies: The buyer conducts inspections, appraisals and reviews disclosures during this period. The escrow agent holds the earnest money deposit while the buyer evaluates the property.
• Securing Financing: If the buyer is using a mortgage, the lender provides financing details and funds are placed in escrow.
• Title and Document Review: The escrow agent verifies that the property title is clear of liens or claims and prepares the necessary closing documents.
• Final Walkthrough and Closing: Once all contingencies are met, the buyer performs a final walkthrough of the property to verify its condition. The escrow agent disburses funds to the seller, transfers the property title then closes the transaction.

Escrow Accounts After Closing

In some cases, escrow accounts continue after closing. Lenders often require buyers to maintain an escrow account for property taxes and homeowners’ insurance so they can make sure these payments are made on time.

Questions on understanding escrow? Click HERE to contact Clear Title today!