Explaining Escrow and Escrow Accounts
A reader asks:I recently moved to San Francisco and have heard the term "escrow" used when speaking of real estate. Can you please explain what escrow is and the process involved in buying a home in California?
Our reply:
Think of escrow as a non-interested 3rd party to handle the transaction, attached to neither the buyer's nor the seller's interests. As the middle man, the escrow officer oversees the transaction and holds funds. The legal-speak reads, "an escrow is a deposit of funds, a deed or other instrument by one party for the delivery to another party upon completion of a particular condition or event." So essentially escrow is opened as soon as the deal is ratified by both buyer and seller and the buyer's deposit is put into an escrow account.
After the purchase is complete there may be what is called a mortgage escrow account, also known as an impound account, which is explained by alliemae.org as, "Mortgage escrow accounts ensure that homeowners' property taxes, fire and hazard insurance premiums, mortgage insurance premiums and other escrow items are paid in a timely fashion. They are a guarantee that there is always enough money to pay these bills when they are due so that the homeowner avoids the risk of lapsed insurance coverage or delinquent taxes." These are more common when property is purchased with little or no downpayment. In these instances most lenders will add extra funds to the mortgage payments which are then held in an impound account to ensure that property taxes and insurance get paid on behalf of the buyer.
- Mick Orton
posted by SFResidence.com @ 2:03 AM
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