The execution of a purchase agreement
Escrow is a process in which an independent escrow officer is employed to manage and coordinate the closing of a real estate transaction through the exchange of documents and money between two parties such as a buyer and seller.
Escrow activities are typically based on a primary agreement, such as a purchase agreement. [See RPI Form 150]
Escrow activity employed to close a real estate transaction consists of:
- one person, such as a seller or buyer of real estate, who delivers written documents or money, called instruments, to an escrow company for the purpose of fully performing their obligations owed to another person under an agreement; and
- the escrow company, who receives and delivers the documents and money to another person on the occurrence of a specified event or the performance of prescribed conditions.
However, “escrow” can mean something different in the context of mortgage situations. Here, it is also known as an impound account.
In this alternative context, escrow generally references the accounting by the lender for receipt and disbursement of funds received from a property owner for the annual payment of property taxes and insurance premiums. Typically, these funds are collected monthly with the regular principal and interest payment.
Collectively, the mortgage principal, interest, property taxes and insurance premiums are referred to as PITI.
