Escrowing Funds at Closing
Escrowing funds at closing is sometimes the only way to avoid a significant delay in completing the purchase.
This type of escrow is not the same as the account used in the normal course of the closing. This section refers to escrow accounts that are established to deal with problems that occur prior to or at the closing.
It is important to understand the specifics of each situation to insure that your interests are fully protected. This means understanding how an escrow account works and making sure that sufficient funds are escrowed. It is also essential to have supporting agreements and documentation that properly and completely protect your interests.
Funds are usually escrowed to address two different types of problems:
Many purchases are contingent upon the seller completing some type of repair or other work prior to the closing. Aditional problems are often discovered by the buyer's inspector.
If these items are not completed on time the closing may be delayed - causing considerable inconvenience to all parties.
An alternative to delaying the closing is to establish an escrow account to cover the cost of the repairs - which will be completed after the closing. Since the buyer is protected by the escrowed funds the sale can be completed on schedule.
The escrow arrangement should meet the following requirements:
Always make sure you understand the scope and cost of the work involved before agreeing to an escrow arrangement.
If the seller is subject to judgments or other claims, the ability to pass clear title to the buyer may be jeopardized.
Typically, any existing claims are paid at the closing out of the purchase funds. However, sometimes a seller will dispute the validity of a claim and declare the intention have it legally removed.
Unfortunately, this type of action is often unfeasible within the time available before closing. Funds can be escrowed by the seller to protect the buyer and insure that there are no title problems.
In this situation, the escrow agreement should meet the following requirements:
Make sure you fully understand the situation before accepting this type of arrangement.
Talk to Your Attorney
|Home Buyer's Guide - closer look at...