YOU ASK:

How does an escrow work in relation with lenders’ title insurance?

WE ANSWER:

An escrow usually involves a separate party that helps to ensure that the parties involved in a transaction (in this case the lender, the seller and the borrower) receive what has been agreed upon. The escrow may either be a lawyer (or any person both parties choose), a separate commercial entity or a department of a title company.

There are various uses of an escrow in relation to title insurance, particularly lenders title insurance. A common situation would be this:

  • The seller delivers to the escrow the property's deed.
  • The escrow will deliver the deed to the buyer when the payment is submitted for the seller (closing costs such as title insurance premium is already deducted from the amount).
  • The buyer will provide the down payment to the escrow, which the escrow will then deliver to the seller.
  • The escrow will record the deed, as well as the title insurance policy which ensures that the property has a clean title and there are no undisclosed and unknown liens.
  • The lender will deposit the proceeds of the loan when the escrow records the deed of sale (between the seller and the buyer) as well as the deed of trust (between the buyer and the lender) and then the escrow is able to deliver the title insurance policy to the lender.

You will notice that the escrow works to ensure that all parties do what they said they will do. In terms of the title insurance, the escrow ensures that the lender will deliver the proceeds of the loan as soon as the title insurance policy is delivered.

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