How Does Escrow Work?
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Why Mortgage Escrow Accounts?
Closing the Sale: Escrow
To finalize the home sale, a neutral third party (the escrow holder, a.k.a. escrow agent) is engaged to assure the transaction will close properly and on time. The escrow holder insures that all terms and conditions of the seller's and buyer's agreement are met prior to the sale being finalized, including receiving funds and documents, completing required forms, and obtaining the release documents for any loans or liens that have been paid off with the transaction, assuring you clear title to your property before the purchase price is fully paid.
Mortgage escrow accounts ensure that homeowners' property taxes, fire and hazard insurance premiums, mortgage insurance premiums and other escrow items are paid in a timely fashion. They are a guarantee that there is always enough money to pay these bills when they are due so that the homeowner avoids the risk of lapsed insurance coverage or delinquent taxes.
The documentation the escrow holder may be collecting includes:
- Loan documents
- Tax statements
- Fire and other insurance policies
- Title insurance policies
- Terms of sale and any seller-assisted financing
- Requests for payment for various services to be paid out of escrow funds
Upon Escrow Completion
Upon completion of all instructions of the escrow, closing can take place. All outstanding payments and fees are collected and paid at this time (covering expenses such as title insurance, inspections, real estate commissions). Title to the property is then transferred to the seller and appropriate title insurance is issued as outlined in the escrow instructions.
Upon Escrow Closing
At the close of escrow, payment of funds shall be made in an acceptable for to the escrow. As your real estate agent, I'll inform you of the acceptable form.
The Escrow Holder Will:
- Prepare escrow instructions
- Request title search
- Comply with lender's requirements as specified in the escrow agreement
- Receive funds from the buyer
- Prorate insurance, tax, interest and other payments according to instructions
- Record deeds and other documents as instructed
- Request title insurance policy
- Close escrow when all instructions of seller and buyer have been met
The Escrow Holder Won't:
- Disburse funds and finalize instructions
- Give advice - the escrow holder must maintain neutral, third-party status
- Offer opinions about tax implications
Mortgage Escrow Account
Protecting Both Lender and Homeowner Interests..
These escrow accounts can protect both the borrower and the lender. Borrowers who have questions or concerns about their escrow accounts should talk to their lenders immediately. Consumers who know the purpose of escrows and are aware of the benefits they provide are the best insurance against misunderstandings between borrowers and lenders or misleading information from any source.
Home is located in a flood zone, are you required to purchase flood insurance?
The National Flood Insurance Reform Act of 1994 provides for lenders to purchase flood insurance on behalf of borrowers/owners of properties in a special flood hazard area. It is administered by the Federal Emergency Management Agency (FEMA). If you disagree with the lender about whether the property is located in a special flood hazard area, you may make a request to the FEMA Mapping Assistance Center to determine whether the property is located in such an area. The toll free number for requesting FEMA re-determination is 1-877-336-2627.
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