How Does Escrow Work?

Escrow is an essential element of the home-buying process. With it, more people would be eligible for loans, and there would be a practical method of accepting a good-faith deposit. As it is, escrow accounts grease the gears of the real estate industry and make the market more accessible to more people.

Fremont, CA: Escrow refers to a system where a neutral third party holds funds or assets on behalf of two parties involved in a financial transaction. While it is commonly associated with holding money, the third party may also hold other assets such as stocks or real estate. It is important to note that the third party does not have legal ownership of the escrow account, but rather acts as a custodian.

The individual responsible for overseeing the escrow account, known as the "escrow agent," can vary depending on the state and the specific transaction. This role may be fulfilled by a representative from a title search company, a real estate firm, or an independent attorney. Their primary responsibility is to ensure the smooth transfer of money and documents between the parties involved, while also safeguarding the escrow funds until they are appropriately disbursed.

Escrow accounts are meant to protect all parties involved in a real estate transaction: the purchaser, the seller, and the lender. Because the funds are held in escrow, the lender is sure you have enough money for the down payment and other expenditures. Meanwhile, the buyer understands that the funds will not be disbursed until examinations and other essential procedures are completed. The seller understands that they are using their time effectively and that the method is being carried out ethically.

Money will be held in escrow until a few processes are completed. A house inspection and final mortgage approval are required. Based on the inspection results, some repairs may be necessary. Each action requires the buyer or seller to sign a contingency release form, which is then sent to the escrow agency.

You will be ready to close when all of the required processes have been performed. At that time, the escrow agent will verify that all contingency release forms have been signed and disburse the monies. Simultaneously, the lender will release their funds to the seller, and an escrow agent will register the new title.