THE ESCROW SYSTEM IN THE USA.

You know about the system in India regarding sale of real estate property. I would like to give you what is followed in the USA.

An escrow system in the USA is a legal and financial arrangement where a neutral third party temporarily holds assets—such as earnest money, property deeds, or funds. It ensures that neither the buyer nor the seller can take advantage of the other during or after a real estate transaction. 

The escrow process operates in two distinct phases: during the purchase and after the sale. 

1. The Home-Buying Escrow (Transaction Escrow)

Once a seller accepts your offer, the deal enters "escrow". A neutral entity (usually an escrow agent, title company, or real estate attorney) manages the closing process. 

• Earnest Money: The buyer deposits "good faith" money (usually 1-3% of the purchase price) into an Escrow Account. This protects the seller if the buyer backs out without a valid reason. 
• The Process: The escrow agent holds this money and the legal documents while contingencies are met (e.g., home inspections, appraisals, and securing a mortgage). 
• Closing: Once all terms in the purchase contract are satisfied, the escrow agent disburses the funds to the seller, pays off closing costs, and transfers the property deed to the buyer. 

2. The Mortgage Escrow (Administered by your Lender)

After you buy the home, your mortgage lender may set up an escrow account to ensure your ongoing property expenses are reliably paid. 

• How It Works: A portion of your monthly mortgage payment is set aside to cover your annual property taxes and homeowner’s insurance.
• The Benefit: Instead of paying massive, lump-sum bills once or twice a year, you pay incrementally. Your lender then pays the taxing authorities and the insurance company directly on your behalf. 

Why Escrow Matters

• Fraud Protection: The seller doesn't get the down payment before handing over the keys, and the buyer doesn't get the keys before paying.
• Lender Security: It guarantees the lender that the home they are financing will not be seized by the city for unpaid taxes or damaged without insurance coverage. 

For further details on how an escrow agreement is structured and legally enforced, you can explore the Escrow - Wikipedia guide.

Source: Google