Day 3: LEARN SOMETHING EVERYDAY
What does it mean to be “in escrow”?
Nick and I drive by real estate for-sale signs all the time that say “IN ESCROW” and haven’t been able to come up with a good definition. I always thought that if you were selling your house and had finally reached a deal with a buyer but they were slow to pay you (possibly because they were still trying to sell their house) it put you in escrow. Then I thought that a higher bidder - wearing a ten-gallon hat, no doubt - could come along and pay cash for your house, edging out the buyer and rendering them homeless, twice.
Wikipedia thinks that escrow is when “…the mortgage company establishes an escrow account to pay property tax and insurance during the term of the mortgage.”
Wait, but what’s an “escrow account”?
- “an account established by a broker, under the provisions of license law, for the purpose of holding funds on behalf of the broker’s principal or some other person until the consummation or termination of a transaction, or
- a trust account held in the borrower’s name to pay obligations such as property taxes and insurance premiums.”
You lost me at “provisions” and then again at “principal” - is that like in calculating compound interest? I know about that, I took Finance. Does it have to do with Elementary school principals?
“a principal is a person– legal or natural–who authorizes an agent to act to create one or more legal relationships with a third party.”
A legal person is a lawyer, so does that make a natural person a caveman, or a nudist?
“a natural person is a human being perceptible through the senses and subject to physical laws, as opposed to an artificial, legal or juristic person.”
So an agent is like what celebrities have?
“an agent is a person employed to do any act for another or to represent another in dealings with third persons.”
Ha! I was technically right about that, but I’m getting the runaround here. Let’s see if I can cut and paste a few things to re-write the definition and get this figured out:
Escrow is when the mortgage company, or broker, establishes an account, under the provisions of license law. This account has the purpose of holding funds on behalf of the broker’s principal’s agent, who creates a legal relationship with a third party, until the consummation or termination of a transaction. The escrow account may also be used as a trust account held in the borrower’s name to pay obligations such as property taxes and insurance premiums.
Hmm. Or we could just ask Freeadvice.com:
“It’s simply (this is unecessary mockery - they don’t know what I’ve gone through to find out this information) an arrangement where a third party – such as a title insurance company or a lawyer – holds money or documents and distributes them according to instructions from both parties.
In a commercial real estate transaction, for example, the escrow agent may obtain funds and documents from the buyer, the seller, and the commercial lender. When everything is ready, the escrow agents make sure the money and papers wind up in the right hands. Escrow agents make transactions flow smoothly and reliably.”
So a ten-gallon hat-wearing auctioneer can’t swoop down - like a crow, get it? - and buy your house instead. It would be much more interesting if treasure chests, secret passageways and mysterious tapping heels were involved. It’s time to pick up a Nancy Drew book and do a little sleuthing, though I don’t own The Case of the Mysterious Escrow.
