Whenever a buyer deposits 20% on a house purchase, the odds are high that the lender will call for an escrow account. It is a challenging process when dealing with the sale of your home to buy another. Your role as a seller during the closing process and the escrow is relatively small as compared to the buyer but it is good to understand the process entirely.
If you are a new home buyer or seller and you don’t know the whole process then it could be really risky. You can get scammed or face loss. Before starting the whole process understand the Escrow system fully. In this article, you can find everything that you need to know about the escrow when you sell a house in Florida.
How Does Escrow Work When Selling a House
An Escrow Account
An Escrow is a holding account where both parties involved in the sale put something of value and is held by a third party until the closing of the deal. The buyer in this scenario deposits a down payment into the account and you the seller deposits the deed to your home. The terms of the contract are usually discussed including the escrow period and the closing as well as other contingencies. Once the deal is complete, and the terms of the agreement are met, everyone receives what they wanted.
Excess mortgage escrow balances
You may be required to maintain an escrow account if a lender finances your house. You will deposit one-twelfth of your homeowner’s insurance and property tax each month to the escrow account. Mortgage escrow tends to build up big balances mainly because of the scheduling of payments completed from them. The accounts accrue money over some months usually from the mortgagors prorated tax payments for their house. When the property’s tax and insurance are due, the lender settles the payments for you.
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During the escrow period, the lender may require you to retain a ‘cushion’ in the account in case your homeowner insurance or property tax bills increase. The Real Estate Settlement Procedures Act restricts the cushion to one-sixth of your yearly property tax and homeowner insurance payments. If you maintain the cushion in your account, your escrow balance may be in excess at the end of your escrow period if all factors remain constant.
Selling the real estate property
After the sale of your home to a buyer, the escrow account is no longer needed and can be closed off. However, it is a necessity that the lender should receive full payment for the balance on your mortgage. After the full payment of the mortgage, the lender gives the home’s title and no longer settles homeowners insurance or property tax payments for you. If there is an excess balance in your escrow, the lender needs to refund the amount to you.
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When you sell your house, and there is a deficit in the escrow account rather than a positive balance, the lender can require you to settle it before he/she releases the title deed. Also, if you sell your house before property taxes are due, you will still be liable for the payment even if the house is owned by a new buyer on the due date. If the lender already cleared the escrow account, you will be required to pay the payments out of your funds.