In a real estate transaction, escrow occurs when an impartial third party possesses the documents and funds for the transaction. The escrow holder is responsible for making sure that all conditions of the transaction are satisfied based on the terms of the transaction and the lender’s requirements. Escrow can also refer to an account established by a lender to hold monthly installments from the borrower for property taxes and insurance.
Responsibilities of an Escrow Holder include:
Receiving and holding all payments, documents and instructions pertinent to a real estate transaction
Acting as a liaison between the borrower and lender
Ordering a preliminary title search to determine title status
Requesting the title insurance policy
Requesting a payoff statement from any existing liens on the property
Holding insurance documents, deeds and inspection reports
Adhering to the lender’s requirements for escrow
Furnishing or attaining the grant deed
Prorating taxes, insurance, interest or any other costs related to the property
Recording the deed and any other required property documents
Closing the escrow according to the instructions of the purchase agreement
Disbursing all funds authorized by the agreement including commissions, payoffs, taxes, insurance and any other costs
Preparing final statements detailing dispersion of escrow funds
In many mortgages, the lender will be responsible for making annual payments for the borrower’s property taxes and homeowners insurance. An escrow payment is funds withdrawn from a borrower’s account to satisfy these expenses. Lenders will do a periodic escrow analysis to ensure that the proper amount of funds is being withheld from a borrower’s monthly mortgage payment to cover escrow expenses.