Escrow officers, also known as loan officers, are responsible for processing and finalizing real estate deals. Their job is to ensure all aspects of the property agreement have been met and to complete the legal paperwork and transfer of funds once the transaction has been finalized.
If you are planning on dealing with a real estate transaction – selling or buying property, it is worth learning how escrow works, what is the role of an escrow officer in real estate transactions and how they can help make the entire process run seamlessly.
What Is Escrow?
Escrow refers to a third-party service that is part of every home purchase. When a buyer and seller initially arrive at a purchase agreement, they select a neutral third party to act as the escrow agent. An escrow account holds money that will be used to pay your annual property taxes and homeowner’s insurance premiums. The lender collects this money from you in installments as part of your monthly mortgage payment and retains the funds in an escrow account. From there, the agent makes the property tax and insurance payments for you, as they are due.
When you purchase a home with a mortgage, you and your lender will need to decide if you will start an escrow account. In mortgage lending, escrow is a way of including mortgage insurance, property taxes, and any required insurances in a borrower’s monthly payment. Depending on your qualifications for your mortgage, you may be required to have an escrow account to ensure that certain expenses of owning your property are covered. This presents less of a risk for the lender. If an escrow account is not required, your lender can help you decide if it is a beneficial option for you.
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
A mortgage escrow account is actually designed to make your life easier by giving you a way to pay your homeowner’s association fees, property taxes, mortgage insurance and homeowner’s insurance monthly, instead of all at once. There are very strict rules on how much money must be in the account at all time, both minimum and maximums, to protect borrowers and lenders alike.
- Real Estate Escrow Account
Real estate sales escrow accounts are most commonly just referred to as “escrows” by Realtors. This type of escrow account is where your earnest money (and sometimes your down payment) will be held until you close on your new home. An escrow account gives the real estate company the confidence that you will follow through with your agreements and not be tempted to use that down payment money to pay for unexpected expenses prior to closing. This money can be refunded if there is something seriously wrong with your home or the seller does not hold up their end of the deal, the terms of your escrow are spelled out in your real estate contract.
What Is an Escrow Agent?
An escrow agent typically gets involved in a real estate transaction once a seller accepts an offer for a property from a buyer. Their job continues until that entire transaction is completed. An escrow agent is a third-party officer whose overall job is to hold onto the money and assets involved in a transaction until the buyer and the seller complete their obligations as written in a contract. The escrow agent themselves is also under the contract that protects both parties and has the best interest for both parties involved.
What Does an Escrow Agent Do?
Essentially, once the buyer and the seller sign a purchase agreement, an escrow agent is needed and escrow begins. Then, money is transferred into the escrow account and the agent works to ensure everything is completed between both parties prior to closing. Escrow agents do more than just to keep track of money and assets though; they also help make sure additional factors of the transaction are being met such as contingencies or any necessary documentation. Some types of documentation escrow agents handle are the transfer of ownership of the property, and any documentation between the seller and the buyer that involves selling the home.
Escrow agents typically work for title companies, mortgage lenders or credit unions. During a home’s closing process, the escrow agent is responsible for processing any necessary paperwork, witnessing the document signings and explaining the companies’ services to prospective home buyers. The primary function of the escrow agent, however, is to establish escrow accounts for home buyers and to maintain the funds and records of such accounts.
The duties of an escrow officer are usually defined by the particular transactional agreement they are overseeing, as terms can vary. However, some of the typical responsibilities and tasks of an escrow officer include:
- Meeting with clients to explain the escrow process, answer questions, and offer escrow instructions
- Depositing and handling escrow funds
- Overseeing the escrow account
- Handling title and property-related documents
- Notifying all parties if there are any potential problems
- Making sure all sales and legal documents are in compliance
- Ensuring loan and contract paperwork is signed timely and correctly
- Prorating taxes, interest, insurance, and rests
- Providing all parties with an escrow balance statement
- Paying bills as authorized
- Keeping all parties involved informed about closing timelines
- Overseeing the work of an escrow assistant (if involved)
- Serving as a central point of communication between all parties involved
- Approving the disbursement of escrow funds during closing and submitting documents for recording after all terms have been met.
What Is The Role of An Escrow Officer In Real Estate Transactions?
An escrow officer is an extremely important role in real estate. Simply put, the role of an escrow officer in real estate transactions is to safeguard the assets of buyers and sellers before they get transferred from one party to the other. They help make sure that the real estate transaction goes smoothly and act as an impartial third party to securely hold on to funds from purchasers.
As soon as both the buyer and seller sign the purchase agreement, escrow comes into play. Earnest money will be put into the escrow account and the escrow agent will get to work ensuring that everything is in line for closing.
The escrow agent will typically be involved in more than just holding onto the earnest money deposit. They may also work to ensure that the documentation related to the buying and selling of the home (and the transfer of ownership of the property) is in line and that contingencies are met. They may also oversee your closing.
An escrow agent is there to ensure a real estate transaction is correctly carried out by a homebuyer, home seller, and any real estate agents involved in the purchase or refinance of a home. The escrow officer acts as a “middleman”, ensuring that both the buyer and seller will do what they agreed to do before closing the deal. Escrow officers oversee the terms of a contract throughout the transaction and make sure that they are honored by all parties.
Their duties are usually defined by the particular agreement they are overseeing, but here are a few of the typical duties of an escrow agent.
- Overseeing the escrow account: In a real estate transaction, the escrow agent is responsible for making sure the assets deposited by the buyer are accurate and up to date.
- Holding the two parties to their obligations: The escrow agent is responsible for making sure that the parties’ obligations are clear and met within the contractually specified amount of time.
- Disbursement of escrow funds: In a real estate closing, when all obligations of the contract are met, the agent disburses funds to the seller and delivers the deed to the buyer. This is called the “close of escrow” and means that the transaction is complete.