Buying or selling a house can be a complicated process for which most people are generally unprepared. One of those mysterious elements is the escrow process—also called the closing. This process, which occurs between the time a seller accepts the offer and the buyer gets the keys can be overwhelming to many home buyers.


What is Escrow?

Escrow is an arrangement in which transacting parties retain an escrow agent as a third party. The escrow agent’s job is to safeguard funds and assets according to conditions that have been agreed upon in advance. Such an arrangement protects the transacting parties in the deal, providing that neither has an unfair advantage and that both are earnest about the deal.

In the event that the terms of the agreement are not adhered to, it is generally easier to reverse the escrow and make the parties whole than it would be if the parties were merely contracting directly with one another. Take the simple example of a buyer placing money into an escrow account as a gesture of good faith regarding a transaction. If the conditions set forth in the escrow agreement not be met by the seller, it is easy to refund the deposit back to the buyer. Similarly, should the buyer default under the terms of the agreement, the seller would have access to the deposited funds.


Type of Escrow Accounts

There are two types of escrow accounts that are part of the homebuying process: The real estate, or pre-closing escrow account, and the mortgage escrow impound account.

    • Mortgage Escrow Account: Sometimes called an impound account depending on where you live, these types of accounts are set up by your mortgage lender to pay certain property-related expenses on your behalf. If your loan includes an escrow account, you will pay monthly installments for taxes and insurance along with your monthly mortgage payment. Your mortgage servicer will deposit these monthly installments into the escrow account. Then, your servicer uses the funds to pay your bills when they come due, typically once or twice per year.
    • Real Estate Escrow Account: Also called pre-closing escrow accounts, these types of accounts are held by third party entities separate from both the buyer and the seller, and are designed to protect the interests of both. These accounts hold all funds, instructions and paperwork necessary for the impending real estate sale, including funds for the down payment and the deed to the home. The rest of this post concerns this type of escrow account only.


Escrow Protections

Escrow provides assurances for all major parties in a real estate transaction—the buyer, the seller, and the lender—that their interests, and their funds, are protected. Your escrow agent will track and verify the transfer of key variables such as the transfer of the property title from the seller to the buyer and the transfer of funds from the buyer to the seller. It also helps assure the lender that the loan money is going to the right place.

As a buyer, it can be intimidating to transfer thousands of dollars to a seller you have never met, or have met once, without knowing for sure that you would receive the title in return. And as a seller, it can feel risky handing over a title without a complete guarantee that the buyer is good for the purchase price. Escrow protections help give all parties peace of mind, and help ensure that a real estate transaction goes through as easily as possible.


How Buyers are Protected:

Buyers find protection in the fact that any repairs or problems found during the home inspection will need to be fixed before the seller receives the money for the purchase. The escrow process ensures that all conditions are met and that the deposit is safely stored without fear of a break in the agreed upon contract.


How Sellers are Protected:

Buyers find protection in the fact when buyers back out with no legitimate reason, they forfeit that money to the seller—a decent consolation for the sale’s failure and the expense of making mortgage payments and other expenses while the home was off the market.


Escrow and Earnest Money

Earnest money is an amount paid in to escrow early on in the home purchase process to essentially put a “hold” on the property for the buyer. It is a way of showing serious intent that the buyer is going to stay true to their offer, and protects sellers from having to deal with buyers putting out multiple offers or going into negotiations on multiple properties. At closing, the earnest money payment is generally taken out of escrow and put toward the buyer’s down payment.


Safe Money Strategy

Escrow is one of the safest ways to engage in major business transactions. It offers protection for both buyer and seller and enhances the level of security and reliability in paying for large purchases. Use of an escrow can greatly facilitate many types of business arrangements. An escrow can benefit both parties to it and give each peace of mind that their interests are protected. Escrows can involve holding money or other assets, and the terms of the escrow can be made to best fit the parameters of the particular transaction.


What Happens at Citrus Heritage Escrow?

During the escrow period, our title department begins researching and examining all historical records pertaining to the subject property. Barring any unusual circumstances, a commitment for title insurance is issued, indicating a clear title or listing any items which must be cleared prior to closing. The commitment is sent to you for review.

Your escrow officer follows instructions on your contract, coordinates deadlines, and gathers all necessary paperwork. For example, written requests for payoff information (called “demands”) are sent to the Seller’s mortgage company and any other lien holders.

When choosing an escrow company there can be many important factors to evaluate. Fees, location, staff and even recommendations from friends and colleagues are all things to consider. With Citrus Heritage Escrow by your side, you can rest assured that when you receive your settlement check, you’ve gained the maximum benefit from your home sale or purchase.

Call us today with any questions or concerns. Our professional Escrow Agents will help you through this exciting yet confusing process. (951) 335-7200