What Does Escrow Do?

by Sheryl Landrum
CMR Columnist

Especially when homeowners are refinancing their current home loans, they often ask why they need to have an escrow account. What does an escrow account give to a borrower and why is escrow so important to have?

Escrow is important because it acts as the neutral party when borrowers are seeking to buy a new home or to refinance an existing home mortgage. A neutral party means that all parties' interests are protected--not just the sellers in a new home purchase and not just the lenders in a home loan refinance. In a new home purchase, escrow collects the sales contract with addendums to ensure that the contract is in compliance. It is, in fact, the depository for all funds, instructions, and documents pertaining to the home sale and purchase or home mortgage refinance. These documents may include:
  • Title insurance
  • Security deposit on a home purchase
  • Hazard insurance
  • Homeowners association (HOA) certification
  • Grant deed
  • Termite and home inspection reports
  • Wills and other legal documents that may affect title
  • Loan documents for your new home loan


Not only does escrow collect all the documents needed for a new home mortgage, it also:
  • Verifies that the parties are who they state they are
  • Arranges for the notary to witness the home loan document signing
  • Returns the loan documents to the lender
  • Funds the new home loan when final approval is given
  • Records the new trust deed
As you can see, escrow is the glue that makes home loans happen.

About the Author
Sheryl Landrum is a Senior Loan Officer with Charter Funding, Inc. in Carlsbad, California and a freelance writer specializing in mortgage issues.

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