Real estate escrow is a type of closing procedure in which a deed is delivered by a grantor to an escrow agent who is directed to deliver the deed to a grantee when specified conditions are met. These specified conditions are more often than not contingent on the purchasing amount being delivered to an escrow agent.
An escrow closing differs from a conventional closing only in that the buyer and seller do not ever have to meet face to face. The other elements, a written contract, delivery of deed, and delivery of payment, are done in the same way as under a conventional closing. An escrow agent acts as a go between for the buyer and seller for a fee.
When a buyer and seller enter into a real estate escrow transaction, they enter into a contract, in which a specific sum of money is paid for a specific piece of real property. The two parties then appoint an escrow agent, such as a bank. The real estate escrow process may also be used to exchange deeds to real estate.
There are several advantages and disadvantages to escrow closings. If an individual owns a lot of property and they are constantly buying and selling property as part of a business, then an escrow agent is very convenient. The escrow agent attends all the meetings, presents offers and counter offers, and finally performs the actual transaction, all while the buyer and seller never have to meet.
The escrow transaction has a higher success rate because an independent third party is performing the transaction. This protects both the buyer and the seller from either one changing their mind. Of course, this could also be a disadvantage if at the last minute the seller discovers something more valuable in the property than previously known, such as oil or other valuable natural resources.
In order for a real estate escrow to be valid, there must be a valid deed, an enforceable contract, delivery, and an escrow agent. A deed is valid if it is executed properly, abides by all local and state laws, and is ready to be surrendered once the escrow agent has obtained the money. The deed does not have to include the name because the escrow agent may write it in at any point. An enforceable contract is usually a purchase agreement.
Without the purchase agreement, either party can stop the transaction at any time. There also must be a written memorandum for the contract to comply with the statute of frauds. Delivery is a term used through the escrow process. Upon first delivery, the seller presents the deed to the escrow agent. The property is not sold at this point, but the seller is indicating that they are prepared to do so from that point forward.
Delivery in the truest sense of the word does not occur until the seller is no longer able to recall the deed. Lastly, an escrow agent is needed for the escrow transaction to occur. They must be a truly independent third party prepared to hold both the seller and buyers assets until the other party is prepared to deliver theirs. An escrow agent is engaged in a fiduciary relationship, in that he or she must act in accordance with the purchasing agreement.
There are laws in place should the escrow agent take the property they are holding and use it for themselves. This would constitute as fraud as well as larceny. In the event that the escrow agent embezzles the money or the property, the party that would have suffered the loss after the transaction must bear the loss.
Celli & Associates have been the region’s preferred land use attorneys for more than 20 years. They have real estate lawyers in Ambler and throughout the Philadelphia area. For more information about the firm, please visit http://www.realestateattorneypa.com or call 610-525-5380.