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Explaining Escrow – A Beginner’s Guide

What is escrow? Why is it necessary? When do you need it? Find the answers to your questions about escrow in this easy to understand post. For more detailed information visit this financial advice blog.

Escrow is a relatively simple concept. It is a deposit of funds, a deed or another item that is transferred from one party to another upon the completion of a condition or event.

Escrow is important whether you are a buyer, a seller, lender or borrower, because you want insurance against the loss of money or property. Escrow will ensure that no funds or property are exchanged before all the instructions of a transaction have been completed. The escrow holder has the obligation to safeguard the funds and documents while they are in their possession. It is also their job to disburse funds and convey title when all the provisions of the escrow have been complied with.

Escrow works when the principals; the buyer, seller, lender and borrower, cause the escrow instructions, usually in writing to be created, signed and delivered to the escrow officer. If a real estate broker is involved, they will normally provide an escrow officer with the information necessary for the preparation of the escrow instructions and documents.

The escrow officer will process the escrow, in accordance with the escrow instructions, and when all conditions required in the escrow can be met or achieved, the escrow will be closed.

The duties of an escrow holder include; following the instructions given by the principals and parties to the transaction in a timely manner; handling the funds and documents in accordance with the instruction; paying all bills as authorized; responding to authorized requests from the principals; closing the escrow only when all terms funds in accordance with instructions.

The selection of the escrow holder is normally done by agreement between the principals. If a real estate broker is involved in the transaction, the broker may recommend an escrow holder. However, it is the right of the principals to use an escrow holder who is competent and who is experienced in handling the type of escrow at hand.

Although escrow seems like a straightforward process, there are many complexities to be considered. Ensure that you are represented and comfortable with the process. Allow time for considerations to be met. I would also recommend that all agreements are submitted in writing.