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Home > Blog > Real Estate (Commercial And Residential) > What Is Escrow And How Is It Used After A Real Estate Closing Is Over?

What Is Escrow And How Is It Used After A Real Estate Closing Is Over?


At your real estate closing, or before it, you may hear your attorney talk about the possibility of holding money in escrow, after the closing is over. But what does that mean, and why would any money need to be held in escrow?

Money Held for Contingencies

In simplest terms, money is held in escrow, to account for a contingency that may or may not happen, after the closing is over. Often holding money in escrow can be a good solution, allowing a real estate closing to move forward, whereas it may otherwise have to be canceled.

An Example of Escrow

Let’s say, for example, you contract to purchase a home. Upon inspection, you find that the garage in the home has been illegally built, and is accruing daily city code violation fines.

You could, of course, cancel the sale and walk away from the deal—that would be a valid reason to do so. But the seller promises you that he will fix the problems. He will get any previous fines erased by the city, and fix the garage. And you do want the property.

Of course, the seller may be telling the truth—but we don’t know if any of that will happen, and if it does, it surely won’t happen before the closing date.

The solution is holding money in escrow. The seller has the option of putting money in escrow, to pay for the fines. If the seller does, in fact, get the fines erased, and fixes the garage, the seller gets the money he put in escrow, returned. But if he does not, the buyer can then use that money to pay the fines and fix the garage.

The escrow money is a way of “insuring” the buyer against loss, or financial issues, while at the same time, giving the seller time to fix those problems.

The Agreement Matters

Of course, there are more details than that to any agreement to put money in escrow—that’s why your real estate attorney will draft up an escrow agreement, with all the terms and conditions which will say how the money is kept, when it is returned to whomever deposited it, or when it can be distributed to either party.

This agreement is an important part of the closing process where an escrow is needed. Like any business transaction, lawsuits can arise after closing, about the agreements related to the escrow funds.

Who is the Escrow Agent?

Any attorney can serve as an escrow, holding the funds in his or her trust account, or a closing agent can hold the funds. The agent cannot “side” with either party—the party depositing the funds or the other party. If there is a dispute, the escrow agent will have to file a separate lawsuit, asking the court to decide who gets the escrow funds.

Call the West Palm Beach real estate lawyers at The Law Offices of Larry E. Bray today for help today, and for solutions to any problems that may arise in your real estate closing.




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