Real Estate Trends: Is it Escrow, or What?
Posted February 16, 2020 in Real Estate Trends
Last week in this space, Mortgage Advisor Michael Pattullo mentioned escrow in his article about financing. It reminded me that the term “escrow” is used a few different ways in real estate. The escrow that we perform at the title company is to collect the signed documents from Buyer and Seller and hold them in escrow until the Buyer and their lender have deposited with us sufficient money to pay for the costs of the transaction (purchase price and closing costs).
Escrow avoids the stand-off where the Seller says “Pay me the sales price first and THEN I’ll sign the deed,” while the Buyer says, “Sign the deed first, THEN I’ll pay you.” Once escrow closes, we record (file) the deed and disburse ALL of the money we collected to pay property taxes, excise tax, recording fees, Realtor commissions, loan fees, pay off the Seller’s loan, etc.
One of these closing costs are “escrow” in a different sense: money collected by us and paid at closing to the lender to fund the Buyer/borrower’s escrow or impound account. These escrow funds are held by the lender (not the title company) until it’s time to pay the property taxes (twice a year, in April and October) or homeowner’s insurance (once a year). At closing, we collect several months of “reserves,” so that the lender will have sufficient funds to pay those taxes and insurance even if they become due a short time after closing.
Some lenders, depending on the amount you are borrowing, compared to the value of the house, will give you the option of paying the taxes and insurance directly rather than paying every month into your escrow or impound account. Many people, even if given a choice, like the idea of paying the same amount every month instead of budgeting big bills every six months.
When you’re dealing with escrow, make sure you know which escrow you’re talking about: the escrow that title companies do when you buy or sell, or the escrow that you pay into each month with your loan payment.
If you have any questions about real estate transactions, please call Clark County Title! If we don’t know the answer, we’ll find someone who does!
Clark County Title
1400 Washington St, Ste. 100
3200 SE 164th Avenue, Ste. 219
Vancouver, WA 98683