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How Does Escrow Work?

Using a mortgage escrow account to successfully close the sale

Once you’ve made it to escrow, all the hard work should be done.

To finalize the sale of your home, a neutral, third party (the escrow holder) is engaged to assure the transaction closes properly and on time.

The escrow holder ensures that all terms and conditions of the seller’s and buyer’s agreement are met prior to the sale being finalized, including:

  • Receiving funds and document
  • Completing required forms
  • Obtaining the release documents for any paid loans or liens

Taking care of all these terms and conditions will help assure you clear title to your property before the purchase price is fully paid.

Documents Necessary for Escrow

The documentation the escrow holder may collect includes:

  • Loan documents
  • Tax statements
  • Fire and other insurance policies
  • Title insurance policies
  • Terms of sale and any other seller-assisted financing
  • Requests for payment for various services to be paid out of escrow funds


Once all instructions of the escrow have been completed, closing can take place. All outstanding payments and fees are collected and paid at this time.

The title to the property is then transferred to the seller and appropriate title insurance is issued.

The Escrow Holder Will:

  • Prepare escrow instructions
  • Request title search
  • Comply with lender’s requirements as specified in the escrow agreement
  • Receive funds from the buyer
  • Prorate insurance, tax, interest and other payments according to instructions
  • Record deeds and other documents as instructed
  • Request title insurance policy
  • Close escrow when all instructions of seller and buyer have been met
  • Disburse funds and finalize instructions

The Escrow Holder Won’t:

  • Give advice – the escrow holder must maintain neutral, third-party status
  • Offer opinions about tax implications

Mortgage Escrow Account

A Mortgage Escrow Account is established to pay ongoing expenses while there is a loan on the house. These expenses include property taxes, home insurance, mortgage insurance and other escrow items.

Generally, the Escrow Account is partially funded at closing and the home buyer makes ongoing contributions through their monthly mortgage payment.