What is Escrow?
Escrow is a process by which the buyer, seller and lender engage a neutral third party, the escrow officer or agent, to protect each party's interest in the real estate transaction. Real estate transactions today are complex and rife with the possibility of error or fraud. The escrow closer must assure:
- steps are taken to obtain required priority
- clear title is obtained or in place
- all necessary laws for recordation are followed
In a real estate transaction, the closing officer can be looked upon as a "Safety Mechanism" for all parties involved. As the neutral third party the escrow closing agent holds funds and disburses those funds to the respective parties when all conditions for disbursement have been met. Any and all authority of the escrow closer is strictly limited by the instructions provided by the parties involved (Buyer/Seller/Lender). These instructions are usually contained within the purchase agreement. Consequently the closing agent acts on the mutual instructions given and does not represent any single party to the transaction. Some of the responsibilities of the closing agent include:
- ordering payoff information on existing liens
- calculating and prorating taxes, interests, rents and insurance premiums
- arranging for title protection for Buyer and Lender
- paying costs and liens as agreed upon by parties to the transaction
- arranging for proper execution of all documents (i.e., Deeds, Mortgage, Affidavits, etc.), properly witnessed and notarized as required
- preparing settlement statements for the parties, showing all charges and disposition of funds
- arranging for recording of the conveyance documents and any other legal instruments necessary to transfer ownership
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