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In a real estate purchase the buyer delivers the purchase money to the seller and the seller delivers
the deed to the buyer. What if one party hands over his part of the transaction and the other party
fails to hand over their part? This problem is solved by using an Escrow Company.
The purchase contract forms the basis of a set of instructions, agreed upon by buyer and seller, which
the Escrow Company will carry out. Escrow is a neutral third party in the transaction, favoring neither
side over the other. Escrows job is to follow the escrow instructions and, when all conditions have
been satisfied, to take posession of the funds from the buyer and the deed from the seller. The deed is then
given to the buyer and the purchase money is given to the seller. Escrow cannot close until all the conditions
have been fulfilled.
Download Stewart Title Report: Checklist for Closing Costs
Escrow performs many useful functions as dictated by the escrow instructions. Some examples follow:
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Hold the buyers deposit.
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Work with a Title company to obtain a Preliminary Title Report and, eventually, a policy of Title Insurance.
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Obtain the loan documents from the lender and have them signed and notarized by the buyers.
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Handle any final conditions required by the lender prior to funding the loan.
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Provide financial statements to buyer and seller and disburse the funds.
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Coordinate with title company on the recording of the deed.
One of the many forms escrow will ask you to fill out is the Statement of Information. This form asks
for a lot of personal information. This may seem like an invasion of your privacy but it is for the protection of
the parties involved in the escrow and the information will be kept confidential. The reason that the information
is required is that there are likely other people with the same name as yours and it is possible that their
bankruptcies, judgements and leins could be wrongly attributed to you. The personal information you provide
can help eliminate this.
Part of escrows job is to collect and account for the closing costs. These are the accumulation of
various charges paid to different providers for services rendered during the real estate buying and selling process.
Examples include commissions, title insurance premium, escrow fees, recording fees and loan fees.
Also included in the closing costs is an apportionment of the currently paid (or delinquent) property taxes. The
following table shows how the taxes are split between buyer and seller depending upon the closing month.
| Closing Date |
Buyer Pays |
Seller Pays |
| January 1 |
6 months of second installment |
6 months of first installment |
| February 1 |
5 months of second installment |
1 months of second installment |
| March 1 |
4 months of second installment |
2 months of second installment |
| April 1 |
3 months of second installment |
3 months of second installment |
| May 1 |
2 months of second installment |
4 months of second installment |
| June 1 |
1 months of second installment |
5 months of second installment |
| July 1 |
6 months of first installment |
6 months of second installment |
| August 1 |
5 months of first installment |
1 months of first installment |
| September 1 |
4 months of first installment |
2 months of first installment |
| October 1 |
3 months of first installment |
3 months of first installment |
| November 1 |
2 months of first installment |
4 months of first installment |
| december 1 |
1 months of first installment |
5 months of first installment |
Shortly before the close of escrow the buyer will be asked to bring in any additional funds needed to complete.
This should be in an immediately available form such as a cashiers check or bank wire.
In order to protect their investment the lender will require the buyer to purchase and maintain a homeowners
insurance policy. You should obtain quotes from a number of companies and compare rates and coverages. Do
not leave this until the last minute as it can delay the close of escrow.
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