If you’ve ever bought or sold a home, you’ve no doubt heard the word escrow mentioned several times. Once an offer on a home has been accepted, it is said to be “in escrow.” But what exactly is escrow?
By definition, escrow is the neutral third-party handling of funds, documents, or tasks specific to the closing of a home sale as specified in the contract. Essentially, the escrow officer is the unbiased middleman between the seller and buyer. They exist to protect everyone’s interests.
Escrow in South Carolina
The escrow officer is typically an attorney or a closer from a title company. In South Carolina, attorneys are the closers and are chosen by the buyer and/or seller. They are responsible for following the instructions set forth in the sales agreement by the buyer, seller, lender, and real estate agent. Once all terms have been met, they will provide a closing statement and disburse funds at closing.
The first time you hear the word escrow is probably when the buyer hands over an earnest money check when an offer is accepted. The earnest money check is held in an escrow account to ensure that no money will change hands until all conditions of the contract have been fulfilled. These conditions might include a home inspection, the completion of repairs, and the purchasing of home insurance. Earnest money is either refunded at closing or applied to the purchase price, which will be noted on the settlement statement.
You might also hear about escrow when you discuss mortgage payments. Since your lender holds an interest in your home, the last thing they want is for anything to put that interest in danger. For example, what happens if your home insurance lapses and there’s a fire or a flood, leaving the house in a state of irreparable damage? You and the lender lose a whole lot of money. What if the home is subject to a tax lien due to unpaid property taxes? The mortgage company will only get whatever amount is left over after the taxes have been paid upon sale of the home. Instead of taking that chance, lenders add on a certain extra amount to your principal mortgage payment each month. The extra money goes into an escrow account to pay your homeowner’s insurance and taxes. That payment is typically known as PITI: principal, interest, taxes, and insurance. There’s a bonus side to this: when an escrow account gets overpaid, you get a little refund after insurance and tax bills are paid!
Escrow can seem like complicated jargon if you’re not sure what it means, but it’s actually a fairly simple concept. If you have any other questions about what escrow is and how it benefits the parties in a transaction, don’t hesitate to contact us for more information.