What is escrow?

debrak2008November 11, 2013

Often times on this forum and on tv shows, I am confused when people use the term "escrow". It seems that it means different things in different locations.

I live in NY state. Here escrow is money the buyer puts in a bank account for the taxes and insurance to be paid out of automatically. A mortgage lender here would require this. It has nothing to do with seller. If you pay cash and have no mortgage there is no escrow.

Does anyone want to explain what escrow means in your location?

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kelpmermaid

In a real estate transaction in CA, prior to closing, buyer, seller, title insurer, and lender forward documents and funds to an independent party, the escrow agent. When all of the documents and funds are received, the escrow agent has the parties sign the documents, records the appropriate documents, and distributes the funds.

It is also possible to have an escrow for taxes and/or insurance with a lender who uses the deposits to pay these costs when due. It is also called an impound account.

    Bookmark   November 11, 2013 at 6:22PM
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sushipup1

And the escrow company is usually the title company. In CA, lawyers are not involved in standard RE transactions unless there are major complications or an intricate business sale.

    Bookmark   November 11, 2013 at 7:19PM
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chispa

It is also a general term for the time period that starts when you accept an offer and ends when the deal closes.

    Bookmark   November 11, 2013 at 10:37PM
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lazy_gardens

Wikipedia is our friend:

An escrow is:

1 - an arrangement made under contractual provisions between transacting parties, whereby an independent trusted third party receives and disburses money or documents for the transacting parties, with the timing of such disbursement by the third party dependent on the fulfillment of contractually agreed conditions by the transacting parties

2 - an account established by a broker, under the provisions of license law, for the purpose of holding funds on behalf of the broker's principal or some other person until the consummation or termination of a transaction

3 - a trust account held in the borrower's name to pay obligations such as property taxes and insurance premiums.

The word derives from the Old French word escroue, meaning a scrap of paper or a roll of parchment; this indicated the deed that a third party held until a transaction was completed.

    Bookmark   November 12, 2013 at 8:57AM
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