Escrow In Real Estate Transactions
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What Is Escrow?
Escrow is a security device where a third party is brought into a real estate transaction to make sure that the two main parties involved in the transaction fulfill their individual promises to each other. One or both parties deposit property or legal documents with the third party for a given amount of time or until the occurrence of some condition, at which time the third party is to hand the deposited items over to the appropriate party.
Who Is Involved In Escrow?
There are typically three parties involved in escrow. Their general classifications are as follows:
- Promisor (buyer): The promisor is the initial party in a transaction that promises to perform some act for a second party (promisee) on the condition that the promisee upholds his end of the bargain. In most escrow situations, the promisor is the buyer of real estate.
- Promisee (seller): The promisee is the party to which a promise is owed by the promisor. The promisee usually also agrees to perform some duty once the promisor has fulfilled his promise. In most escrow situations, the promisee is the seller of real estate.
- Third party (escrow agrent): The third party is commonly known as the escrow agent. His job is to hold the documents or property that are the subject of the transaction in escrow until both parties perform their specified duties, and then deliver them once the duties have been completed.
What Is An Example Of Escrow In A Real Estate Transaction?
The following is a typical example of how escrow is used in a real estate transaction:
- Step One: The buyer decides that he wants to purchase a piece of property from the seller for $500K. The seller accepts the buyer's offer and promises to deliver the deed to his parcel of land within 30 days.
- Step Two: The buyer hires an escrow agent to fascilitate the transaction.
- Step Three: The buyer deposits a portion of the property's price ($100K) with the escrow agrent, promising that the remainder of the money will be deposited once the seller deposits the property deed within 30 days. The buyer is putting the money in escrow, and the transaction will not be complete until the seller gives the escrow agent the deed within the proper time.
- Step Four: Once the seller gives the escrow agent the property deed, the buyer deposits the remaining amount of money to purchase the property ($400K) with the escrow agent. The escrow agent then gives the property deed to the buyer, and gives the money to the seller. At this point, the escrow will said to be closed.
Do I Need a Real Estate Lawyer to Help with Escrow?
A real estate attorney is generally not used as an escrow agent, but is often involved at other stages of a real estate transaction. Real estate agents are typically familiar with the escrow process and generally have pre-designated escrow agents that they prefer to work with. If your escrow agent fails to perform his duties during the escrow process, contact a real estate attorney immeditately.
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Last Modified: 03-31-2015 09:33 AM PDT
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