Definition
Escrow Closing involves an intermediary, often an escrow agent or title company, who holds onto necessary property documents and funds from the buyer and seller until all specified conditions in the sale contract have been fulfilled. Upon meeting these conditions, the escrow agent or title company ensures that the property title is transferred from the seller to the buyer, and the funds are released to the seller.
Examples
Example 1
Elaine sells her land in California to Connie. The title company acts as the escrow agent. Elaine surrenders her deed to them, and Connie deposits her purchase money with them. When all conditions of the sale are met, the title company transfers the deed to Connie and the purchase money to Elaine, completing the escrow closing.
Example 2
In Washington state, John sells a commercial property to Adam. The appointed escrow agent collects all relevant documents and funds. Once all conditions such as inspections and financing approvals are satisfied, the agent releases the funds to John and the deed to Adam.
Frequently Asked Questions (FAQs)
Q1: What is the role of an escrow agent?
- An escrow agent is an impartial entity that holds onto and manages the transfer of documents and funds between the buyer and seller until all conditions of the sale contract are met.
Q2: How does escrow closing differ from regular closing?
- In states using deeds of trust, escrow closings involve an escrow agent or a title company as intermediaries who ensure that all sale conditions are met before the title transfer and the release of funds. In regular closings, these tasks are often carried out directly by the buyer and seller or their attorneys.
Q3: What documents are typically needed for an escrow closing?
- Documents such as the property deed, purchase agreement, title insurance, financing documents, and specific local requirements like certifications or inspections may be required.
Q4: Can an escrow closing fail?
- Yes, an escrow closing can fail if the sale conditions are not met, such as financing falling through, failed inspections, or title issues.
Q5: Is escrow closing used in residential and commercial real estate?
- Yes, escrow closing is used in both residential and commercial real estate transactions, specifically in states where deeds of trust are common.
Related Terms
Deeds of Trust
A deed of trust is a legal document that establishes a trust and the entity (trustee) that holds the title to the property on behalf of the lender until the borrower pays off the loan.
Mortgage
A mortgage is a legal agreement by which a bank or other lender lends money at interest in exchange for taking the title of the debtor’s property, with the condition that the conveyance of title becomes void upon the payment of the debt.
Escrow Agent
An escrow agent is a third party who holds and regulates the payment of funds required for two parties involved in a given transaction. They ensure that the transaction is secure by maintaining the payments from escrow accounts until predetermined contractual obligations are met.
Title Company
A title company conducts the closing for real estate transactions, issues title insurance policies, clears title issues, and acts as an escrow agent to hold funds and documents until the transaction is complete.
Online Resources
- Department of Housing and Urban Development (HUD)
- American Land Title Association (ALTA)
- National Association of Realtors (NAR)
References
- Federal Deposit Insurance Corporation. “Understanding Escrow and Escrow Closing.” FDIC Consumer News.
- American Land Title Association. “Role of Escrow in Real Estate.” ALTA Resources.
Suggested Books for Further Reading
- “Real Estate Escrow” by Terrence M. Balling
- “The Essentials of Real Estate Law” by Lynn T. Slossberg
- “Real Estate Transactions: Problems, Cases, and Materials” by Robin Paul Malloy and James Charles Smith
- “The Language of Real Estate” by John W. Reilly
