Whether you are buying or selling residential real estate in NYC, it’s important to understand how the escrow process works. Escrow accounts are used to collect funds for paying the monthly mortgage premiums by the lender. The funds may also be used to pay yearly property taxes and homeowners insurance policy premiums. An escrow account is different from earnest money, which refers to a good-faith amount of money given in order to officially bind a contract.
As a buyer or seller of residential real estate in NYC, you should be clear about how escrow works before you engage in a sale. Escrow instructions should clearly outline in writing under what conditions and how money will be dispersed, with particular attention to how the situation should be handled if the transaction doesn’t close. While escrow is a fiduciary relationship, this relationship is limited by the duties in the actual escrow. An escrow agent is a trustee for both parties and has equal responsibility to both parties for escrow administration.
If the transaction does fail to close, money may still be held in the escrow account unless one party brings forth a written demand to officially cancel the contract. If the date to actually obtain the loan has passed but both parties want to continue with the transaction, money is usually held in the escrow account after the closing date. In the event that a transaction is canceled by either party to the sale of residential real estate in NYC, the escrow agent should hold off on disbursing any funds until both parties have agreed about the best way to do this. It’s important to know that if the transaction is canceled, third-party vendors and real estate brokers may have first claim to money.