Escrow is a financial term that confuses many people, but having a better understanding of the legal complexities involved can help make the process of buying or selling property more manageable. If you are moving forward toward purchasing or selling real estate, having the skilled legal guidance of an experienced South Carolina real estate attorney backing you up is always advised.
Escrow
Escrow is a kind of account that is used in business transactions, such as real estate deals, to help the transaction run more smoothly. Those who regularly engage in real estate transactions are used to the term, but if you’re a new homebuyer or are selling a home for the first time, the matter of escrow may be a new concept. Ultimately, escrow is an account that holds your money until it’s paid out appropriately, and it’s handled by a neutral third party, which is generally the lender when it comes to purchasing a home.
There are both federal and state laws that guide how escrow accounts are handled, and there are two primary types of escrow accounts.
Real Estate Escrow Account
A real estate escrow account is sometimes called a pre-closing escrow account. This applies to the person buying the home, and it’s where the earnest money that the buyer puts down is held until closing. Once the sale closes or the contract is canceled, the funds are released to the appropriate party by the party handling the account.
Mortgage Escrow Account
Once you close your home purchase, the real estate escrow account will be closed, and a mortgage escrow account will replace it. At this point, the amount of your mortgage payments that is designated to cover property tax and property insurance will be held in the mortgage escrow account – to be paid as they come due. This ensures that you remain up to date with both your insurance premiums and your property tax, which helps protect you and the lender.
Being In or Out of Escrow
Whenever someone who is buying a home says that they are in escrow, it means that their earnest money is in the escrow account and is ready to be distributed to one of the following:
- The lender
- The party selling the home
- The real estate agent
- The real estate attorney
When someone who is purchasing a home says they’ve fallen out of escrow, it means that the sale won’t be going through, and this is generally because one of the following applies:
- They didn’t qualify for the necessary mortgage.
- Expensive problems were revealed during the home inspection.
- The seller backed out.
When this happens, the matter of where the money in escrow will go depends on the situation and on whether either party caused the sale to fall through.
Consult with an Experienced Greenville, SC, Real Estate Attorney Today
The seasoned Greenville, South Carolina, real estate attorneys at Blackacre Law LLC are well-versed in the intricacies of escrow and are well-prepared to help guide you seamlessly through the legal process of buying or selling a home. Learn more by contacting us online or calling us at 864-775-5400 today.