Is Escrow a Requirement or an Option for Purchasing a Home?


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When attempting to purchase a house, the usual process requires the need for escrow procedures and a mortgage company when the home is financed beyond what the individual or couple has available. These processes are necessary to ensure the costs, insurance, liability and other responsibilities are taken care of for the purchase between seller and buyer.

Escrow is what helps the buyer and seller clear the sale of the building involved in the arrangement. For usual circumstances, the buyer must secure loans or similar funding through a lending institution such as a mortgage company or bank. When these organizations or agencies are involved, escrow is generally a required process. The optional times that escrow may be skipped or bypassed usually only occur when the house is either purchased outright or through seller financing where the person selling provides the monies for financing and the buyer pays a prearranged amount each month.

The mortgage company is responsible for various processes to include maintaining insurance on the home during the escrow and similar processes. The buyer and seller are responsible for purchasing homeowner’s insurance policies for their respective time as owner of the property. However, if the building is in transition, the mortgage company may be obligated in keeping the coverage up to date. While some businesses may backdate policies to keep coverage valid, others lapse in protecting the buyer from any complications. If the mortgage company was not performing the required duties, the owners or management may be liable for damages when a disaster occurs.

Why Escrow is Important

Escrow processes are important in facilitating an exchange of earnest money from the buyer to the seller. There is a mutually agreed to purchase agreement put in place for the price and other conditions before the procedure moves to escrow. The deposits of monies placed in an escrow account with the corresponding escrow company. And this institution is a neutral third party that collects funds and documentation necessary for closing the deal. If a lawyer handles these processes instead of an escrow company, this is a settlement and other factors may be in place. The first step when escrow is required is to open the account.

When a mortgage company, financial institution or lending agency is involved in assisting to finance the property purchase, the escrow company, account and processes are to protect both the buyer and seller. The appraisal of the building is important for the buyer and is completed to protect his or her financial interests. Sometimes this value is lower than the asking price, and difficulties in obtaining the necessary funds may transpire. However, once the financing has been acquired, it is time to finalize documentation and progress to the closing stages of the purchase. It is important to note the responsibilities of the mortgage company.

The Mortgage Company

If a mortgage company has become involved in the sale of real estate, there may be additional responsibilities involved by this business. The survey of the land and building are often accomplished by the mortgage company to determine the value and ensure the asking price is not much greater than this amount. Additionally, while the deal is going through escrow processes, the mortgage company may be obligated to ensure homeowner’s or liability insurance policies are placed on the property. This usually includes damage such as natural disaster and fire. This may be in conjunction to what the seller already had on the house. However, once escrow starts, the seller may be exempt from any further responsibilities.

Before the buyer has taken on the property, the mortgage company usually has obligations in keeping the new homeowner protected from damage to the property and other issues. If the house experiences a fire, structural harm or similar problems, the insurance policy the mortgage company is maintaining should cover the damages. However, if the coverage does not exist because of neglect or similar actions on part of the business, the mortgage management or owner could be liable for damages.

Real Estate Lawyer

If a home has been damaged or destroyed outside of the responsibilities of the homeowner, it may be necessary to hire a real estate lawyer to pursue action. The mortgage company may resolve the matter, but if the problem persists, it may require legal representation or a court case to obtain positive results. A lawyer can explain the possible legal avenues that are available, based upon the specific circumstances in the case.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.

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