Escrow protects buyers and sellers in a real estate transaction. If you are involved in a real estate transaction, it is important to understand the role of an escrow account and your rights regarding the money in that account. In this article, our Florida real estate attorney explains the role of escrow in a Florida real estate transaction.
What Is Escrow in a Real Estate Transaction?
Escrow is an agreement whereby parties deposit assets or documents to be held during legal transactions. A neutral third party holds the money and assets. The escrow agent may be a real estate attorney, title company, or escrow company. Neither the seller nor the buyer has access to escrow funds. The purpose of escrow is to ensure both parties meet their contractual obligations.
Basic Escrow Process for a Florida Real Estate Transaction
The basic steps in the escrow process for a real estate transaction include:
Agreement to Purchase
The buyer and seller agree to the terms of the sale. A purchase agreement is drafted and signed by all parties.
Opening Escrow
The buyer deposits earnest money with the escrow company. The earnest money demonstrates the buyer’s commitment to purchase the property.
Title Search
An appraisal and title search is performed. The appraisal confirms the value of the real estate. A title search examines the history of the property to confirm there are no problems with the title, such as outstanding liens, boundary problems, encroachments, etc. If there are title problems, the seller must correct the title problems before closing.
Property Inspection
The purchaser may want to pay for an inspection before closing. The inspection reveals any problems with the structure, writing, electrical, roof, etc. Depending on the terms of the sales contract, the seller may need to repair some problems, or the parties may negotiate repairs. The transaction is contingent upon an acceptable property inspection, or the property may be sold “as is.”
Loan Processing
The mortgage company prepares the closing package if the purchaser obtains a loan. The escrow agent coordinates the preparation of these documents for closing.
Final Walk-Through
The contract often stipulates a final walk-through of the property to ensure it is in the agreed-upon condition in the sales contract. Any last-minute issues can be corrected be closing.
Closing, Settlement, & Disbursement
The parties review the closing documents at the closing. If the buyer obtains a mortgage, the buyer must sign the loan documents from the mortgage company. After verifying and signing all documents, the escrow agent disburses the funds to the appropriate parties.
What Happens if Real Estate Transactions Fall Through?
Generally, the earnest money paid by the buyer “holds” the property from being sold to another party. If the seller backs out of the contract, the buyer receives their earnest money. There could be other damages depending on the terms of the contract.
Likewise, if the buyer backs out of the contract, the seller receives the earnest money. It is essential to discuss the consequences of breaking a contract with a real estate attorney before signing a sales contract.
Get More During a Consultation with Our Florida Real Estate Attorney
If you have questions about escrow or need assistance with a Florida real estate transaction, contact The Law Offices of Jeffrey A. Herzog, P.A., to speak with a Florida real estate attorney. We handle all matters related to real estate, including residential and commercial real estate transactions, zoning, foreclosures, and modifications.