Real estate transactions are not always cut and dry. Each deal presents different challenges that may, on the surface, appear to stymie the timing and logistics of the closing. However, the use of an escrow is an extremely beneficial tool to allow for the parties to close on a property even if there are some loose ends.
There are a variety of reasons the title company may hold funds in escrow. Among the most common are repairs to the real property that cannot be finished by the closing date and the sellers are in the process of a divorce, which will not be finalized until after the closing has already occurred. Further, another reason is an owner has passed away within a year from the date of the scheduled closing and his/her estate has not been probated.
Depending on the escrow purpose, the parties to the escrow agreement may differ. The usual actors are the seller, the buyer, the lender, and the title company as the “escrow agent.” The agreement is a legal document (a contract) which binds the parties to certain terms and conditions that must be met to ultimately release the funds to the proper recipient(s). The role of the title company as the escrow agent is to make sure that such terms are being met in accordance with the agreement. The title company will also handle the actual disbursement of the money being held.
A critical component in establishing an escrow agreement is an amendment to the sales contract. The contract amendment is what the title company centers the drafting of the agreement around. It is imperative that the parties consult with their real estate agent to assure mutual understanding, specifically regarding when and how the title company is to disburse the escrowed funds.
When executed properly, an escrow agreement may allow for a deal to close where it otherwise would not be possible.