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Escrow Accounts Make The Mortgage Process Easier

by yak max

When property is purchased, the funds for the transaction may be placed in an escrow account. An escrow account is a legal agreement managed by a neutral third party. Those who are purchasing property will deposit money into an escrow account for the real estate transaction. These funds will remain in this account. They will only be used as instructed, until the contract between the two parties is complete. The escrow account may then be closed.

According to an article at HG Front Door Magazine, “Some see escrow accounts as a lender protection, put in place to avoid losing the collateral (i.e., the house) to unpaid tax liens or natural disaster, in the event of a lapsed homeowner’s insurance policy.”

Expenses
Lenders utilize escrow accounts during mortgage transactions to make certain specific expenses are paid. These expenses usually involve property tax, property insurance and more. The fee for the escrow account can be included in a mortgage payment. Lenders use escrow accounts to fulfill their legal obligations involving the property. Property buyers benefit from escrow accounts. They do not have to worry about making payments on specific items. The funds are taken directly from the escrow account for payment.

Bill Payments
The escrow company will send funds directly to the proper government offices for property taxes. They will send payments directly to insurance companies for a building’s insurance coverage. A property owner will not have to worry about experiencing late fees, insurance cancellation or tax liens. This benefits a lender as their interest in the property will be protected.

Escrow Process
A real estate agent will contact an escrow service company. An escrow account will be established based on the instructions provided by the real estate agent. These instructions will be from a contract signed by the seller and buyer. This will enable a seller to send the buyer all necessary documents for ownership of the property. This will be based on the buyer depositing the agreed upon funds into the escrow account, and following any other contract stipulations. Once the escrow holder has recorded the deed, a policy of title Insurance has been issued, the purchase money will be delivered to the seller. All of this occurs at the closing.

Closing
At the closing, the buyer will be required to sign all the necessary loan documents. Once this is completed, the loan documents are returned to the lender for funding. It will then be confirmed that all stipulations of the loan have been met. A lender will supply funds to the seller a day before the recording of the deed. If all the contract stipulations and conditions are met, the escrow holder may then close the escrow account. This occurs after all the loan documents are recorded. Once this happens, funds will be forwarded according to the contract instructions. Real estate commissions will be paid as well as recording fees and more.

Avoiding Escrow Mistakes
People who manage escrow funds need to carefully follow all of their state’s real estate laws. There are certain things that can be done to avoid problems. An escrow account should not be completely managed by one person. It many cases, it’s just too much work. Detailed records must be kept. Accounts must be reconciled each month. Funds should never be disbursed under any circumstance, until after the closing has taken place. Escrow funds should never be used to settle a dispute. They should only be disbursed in accordance with the contract between the buyer and seller.

Cancellation Agreement
There may come a time when the buyer and seller decide to cancel their contract. In most states, this requires both parties to sign a cancellation agreement. Once this agreement is signed, the escrow funds should be returned to the buyer.

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