Free escrow agreements aid in drawing up a contract between the parties involved in a legal contract for purchase and sale. Agreements such as these also avoid disagreements.
A Legal Arrangement
An escrow is a legal arrangement involving three parties:
- Escrow Agent
Typically, the depositor entrusts money or property with an escrow agent. After this requirement is fulfilled, the escrow agent holds the deposit until it is to be released to the beneficiary. This occurs after the conditions set forth have been satisfied.
The Escrow Agreement does not have to be a separate document. In many cases, it is included in the body of the Contract for Purchase and Sale. Parties who sign such a contract agree with the escrow provisions.
An escrow agent serves as a fiduciary, with duties to all parties with an interest in the escrow property. The escrow agent's most important duty is to protect the escrow property. If the escrow is money, it must be deposited in a special bank account separate from the escrow agent's personal or business accounts. Other duties performed by the escrow agent include:
- Provide parties with receipt for escrow property
- Provide copy of escrow agreement and keep accurate records
- Provide full accounting of escrow management to depositors and beneficiaries
- Legal duty to comply with terms and conditions of escrow agreement
Provisions of Escrow Agreement
Distribution of escrow property must be done in accordance with provisions set forth in the escrow agreement. If an escrow agent releases escrow property in violation of an escrow agreement, they may find themselves subject to money damages in a civil court action. This action can be brought by any party who suffers economic loss due to the agent's breach of duty.
Down Payment Escrow
Down payment in the purchase and sale of a home or condominium is a common example of an escrow. The sales contract often requires that the buyer's down payment be paid to the seller's lawyer or a real estate broker in escrow until the title closing.
For a down payment escrow, the buyer is the depositor and the seller the beneficiary. In this case, the seller's lawyer or real estate broker functions as the third party escrow agent. The escrow agent safeguards the down payment in a special bank account until contract terms have been performed or canceled by either the buyer or seller.
If the home purchase occurs, the escrow agent releases the down payment to the seller at title closing. However, if the buyer and seller agree to cancel the contract, the escrow agent usually returns the down payment to the buyer.
Earnest Money Escrow Agreement
Earnest money accompanies most offers to buy a house. This money is generally referred to as an earnest money deposit. This initial deposit lets the seller know that the buyer seriously intends to purchase the property.
If the deal falls through early on, normally the deposit is returned to the buyer. However, when a deal goes awry later in the transaction process, both the buyer and seller negotiate a fair solution. Unfortunately, there are times when the buyer and seller find it difficult to agree. Failure to agree ties the money up for awhile, and can possibly lead to further legal hassles. If an earnest money agreement is signed at the beginning of the transaction, it can save headaches when, and if, the deal does not come to fruition.
Closing the Sale
If pending conditions exist for the sale of a house such as passing an inspection, the buyer and seller may agree to use escrow. In such a case, the buyer deposits the payment amount for the house in an escrow account held by a third party. This assures the seller that the buyer is capable of making the payment as they allow the house to be inspected.
Free Escrow Agreement Resources
Free escrow agreement documents can be found online or are available through software that allows individuals to customize escrow agreements to meet specific needs.
- Down Payment Escrow Agreement
- Software - You pay for the software initially, but then have all the forms you need.
Along with the above free escrow agreements, online resources also provide samples of escrow agreements used by companies dealing with various types of escrow to define the handling of escrow funds for the parties involved.
Escrow is a financial instrument. It's held by a third party on behalf of the two parties initiating a transaction. Funds are held by the escrow service until it receives instructions (written or oral) to disburse securities, funds or other assets or until obligations have been fulfilled. Once all conditions to the sale are satisfied, the escrow agent transfers payment to the seller, and title is transferred to the buyer.