Learning the Rights and Responsibilities of Escrow - American Trust Escrow
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Learning the Rights and Responsibilities of Escrow

Learning the Rights and Responsibilities of Escrow

Escrow Title DifferencesPrior to looking into the process of buying a home, the term “escrow” may be foreign to you. After you’ve been through it however, you quickly realize what an important part of the process escrow is and why prospective home buyers should learn more about it.

When buying or selling a home, a large amount of money is at stake. Escrow is the term that essentially ensures the safety of this money and is a crucial part of the process that enables the transaction to take place.

Defined in layman’s terms, escrow is what happens when money is deposited by a buyer into an account proctored by a neutral third party. That neutral third party is known as an escrow agent or officer. This agent essentially holds onto the funds until all sides of the sale agreement are fulfilled by both the buyer and seller. Upon the completion of all tasks necessitated by the terms of the contract, the escrow account is opened and the money is then transferred to the seller.

This service works to ensure the safety of both the buyer and the seller. Prior to purchasing a home, a buyer wants to make sure that all measures are in place to make the investment a sound one, while a seller wants to make sure that the buyer has the appropriate funds to make sure the sales goes through. If something falls through on the deal, the money in the escrow account can be transferred back to the buyer.

Escrow Versus Trust

Many home owners often think of escrow as a trust agreement. While these two terms are often used interchangeably, there is an important difference between these two terms that often begs an explanation.

In terms of banking, there is not much to discern a trust agreement from escrow. Each is the process of depositing funds to a third party until the payer and payee both complete terms of an agreement. However, the key difference between these two terms lies in how the terms of said agreements are carried out.

In a trust, the relationship between the agent and the beneficiary can be a lot less defined than that of an escrow agent and the buyer and seller. A trustee’s duties are to take care of the trust assets so as to benefit the beneficiary in the agreement. This can include a broad range of activities and practices that only work to improve the standing of whoever is set to receive the funds.

An escrow arrangement is a lot like this, but with a narrower dictation as to how the deal is to be carried out. In escrow, the agent or officer works as a fiduciary between buyer and seller, rather than a representative of either. The element of the deal that dictates the officer’s action is the terms of sale written into the contract itself. This is a very narrow and special type of trust arrangement that only takes place in the real estate field.