1. What is an escrow?
An escrow is an arrangement in which a neutral third party, called an escrow holder, holds legal documents and funds on behalf of a buyer and seller, and distributes them according to the buyer’s and seller’s instructions. People buying and selling real estate often use an escrow for their protection and convenience
2. Who picks the escrow agent?
The selection of the escrow holder is normally done by agreement between the principals. If a real estate broker is involved in the transaction, the broker may recommend an escrow holder. However, it is the right of the principals to use an escrow holder who is competent and who is experienced in handling the type of escrow at hand.
3. How does the escrow process work?
An escrow account is a written agreement between a buyer and a seller held by an approved impartial holder. It contains specific instructions for the holder from both parties. The instructions will direct the escrow holder how the funds for the sale will be obtained, and how they should be distributed, what each party is obligated to do in order to meet the requirements of the sale. The escrow agreement enables the holder to proceed independently with the preparation of documents for the sale without having to consult the parties. Finally, it allows the escrow holder to notify either party if any aspect of the agreement is violated.
4. What is title insurance and what role does it play in a transaction?
Title insurance is a contractual obligation that protects against losses that occur when title to a property is not free and clear of defects (e.g. liens, encumbrances and defects that were unknown when the title policy was issued). The terms of the policy define what risks are covered and what risks are excluded from coverage. The title insurer will reimburse you for losses that are covered, up to the face amount of the policy, and any related legal expenses. This protection is effective as of the issue date of the policy and covers defects arising prior to your ownership. Two types of title insurance policies for real property are common: a lender’s policy and an owner’s policy. 2. How title insurance is different: where most insurance is a contract where the insurer protects a party against a future loss (such as an accident or death), title insurance generally insures a homeowner for a title problem such as an encumbrance, lien, or judgment that arose in the past before they owned the property.