The Escrow Process Can Prevent and Solve Many Otherwise Common Issues in a Home Sale
It’s not unusual for the average person to have little knowledge of the escrow process. While we’ve covered that in previous blogs, this week we’re going to take a step back to talk about why this process exists in the first place. What issues is it addressing or preventing? Continue reading to learn more, and if you have any questions, consult our escrow resources.
Between the buyer and the seller, there is a lack of trust
This may appear negative, but it is not; the plain truth is that the buyer and seller in the vast majority of real estate transactions are strangers. Do you want to write a check to a seller for hundreds of thousands of dollars, expecting that they will do what they are legally required to do and sign over the house to you? An escrow is similar to a holding account where you write a check, the money is held, cleared, and only delivered to the seller when they have provided everything they are required to provide.
The absence of formal, legally binding contracts
There are alternative options for creating a formal, binding contract, but escrow is a convenient one. It is agreed upon by both parties, and they are given specific instructions on how to have escrow cleared and the deal closed.
Requirements for title insurance
A title company searches a property’s records to ensure that there are no existing liens that have not been reported and that the person or entity selling the property has the legal authority to do so. The escrow process includes this insurance.
A quick and easy way to transfer government licenses
There is more to some properties than just land and houses. For instance, if you are purchasing a business, it is possible that it will come with an alcohol license. Transferring the license to the new owners is part of the escrow process.
Problems with paying off debts, loans, and vendors
If a firm holds a lien on a property, they will not want to relinquish it until they have been paid. However, the seller usually uses the sale profits to pay off the liens, and the sale cannot go through if there are liens in place. Because the money goes into one account, a third party (the escrow agent) pays off all liens, and the property may then be transferred, escrow is the best solution.
There is a scarcity of information on funds and documents
There can be a lack of information on what monies are needed, where money is maintained, and which documents are still pending if there is no central escrow process. Because there would be no central clearinghouse, this would be the case. Escrow can also help with this issue.
