Escrow
Also known as: Escrow Account, Impound Account
A neutral third-party arrangement where funds and documents are held until all conditions of the sale are met. In new construction, escrow typically refers to where your earnest money is held and the closing process itself.
Detailed Explanation
Escrow serves as a neutral intermediary in real estate transactions. An escrow agent holds the buyer's deposit, manages the exchange of documents, and ensures that all conditions are met before releasing funds.
In new construction, your earnest money should ideally be held in an escrow account by a title company or attorney, not in the builder's operating account. This protects your deposit if the builder faces financial difficulties.
After closing, your mortgage lender may require an ongoing escrow account where portions of your monthly payment are set aside for property taxes and insurance.
In Your Contract
Look for references to "escrow," "trust account," or "third-party deposit" in the earnest money and closing sections of your contract.
Key Points
- 1A neutral third-party holds funds until all conditions are met.
- 2Your earnest money should be held in escrow, not by the builder directly.
- 3The escrow agent manages the closing process and fund transfers.
- 4Post-closing escrow accounts hold funds for taxes and insurance.
- 5Ask where your deposit will be held before you pay it.
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