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Escrow Overview

Buying a home or a business may be the single biggest investment the purchaser makes in a lifetime. Ensuring that the transaction is handled properly is the job of the escrow professional. Through escrow the transaction can be conducted with safety and in confidence.

WHAT IS AN ESCROW?

Escrow is a service that provides the public with a means of protection in the handling of funds and/or documents. Escrow enables the buyer and the seller to transact business with each other through a neutral party, thereby minimizing their risk.

An escrow is the arrangement in which the neutral third party (the escrow holder) holds legal documents and funds on behalf of a buyer and seller and distributes them according to the buyer and seller instructions.

People buying and selling real estate often open an escrow for their protection and convenience. The buyer can instruct the escrow holder to disburse the purchase price only upon the satisfaction of certain prerequisites and conditions. The seller can instruct the escrow holder to retain possession of the deed to the buyer until the seller's requirements, including receipt of the purchase price, are met. Both rely on the escrow holder to carry out faithfully their mutually consistent instructions relating to the transaction and to advise them if any of their instructions are not mutually consistent or cannot be carried out.

An escrow is convenient for the buyer and seller because both can move forward separately and simultaneously in providing inspections, reports, loan commitments and funds, deeds, and many other items, using the escrow holder as the central depositing point. If the instructions from all parties to an escrow are clearly drafted, fully detailed and mutually consistent, the escrow holder can take many actions on their behalf without further consultation. This saves much time and facilitates the close of a transaction.

WHAT TYPE OF TRANSACTIONS GO THROUGH ESCROW?

Most contracts that involve the transfer, lease or financing of real or personal property can be placed in escrow. An escrow is not only involved with the purchase or sale of a home, but also in the purchase of a mobile home, the sale of a business or stock transfer. Prizefighters have even been known to have their purses guaranteed through an escrow depository. Buyer and seller should demand the protection of escrow for any transaction that involves a substantial investment.

WHO MAY HOLD ESCROW?

The escrow holder may be any neutral third party (although some states require that certain escrow holders be licensed).

There are two important reasons for selecting an established, independent escrow firm, an attorney, or an escrow officer with a bank, S & L or title company. One is that real estate transactions require a tremendous amount of technical experience and knowledge to handle smoothly. The other is that the escrow holder will generally be responsible for safeguarding and properly distributing the purchase price.

Escrow officers with established firms, like ours, are experienced and trained in real estate procedures, title insurance, taxes, deeds and insurance.