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Field Guide to Escrow Accounts/Earnest Money

(Updated March 2014)

Escrow accounts are funds that a lender collects to pay the monthly mortgage insurance premiums, homeowners insurance policy premiums and yearly property taxes. Earnest money, on the other hand, is a good faith sum of money given to bind a contract, for example an agreement to purchase real property or a commitment fee to assure an advance of funds by a lender. This Field Guide will provide you with details on escrow accounts (from the basics to escrow administration) and earnest money as well as information on escrow fraud. You'll also uncover a variety of case summaries on escrow mishandling, in addition to the numerous digital resources available from the Library's eBooks collection and related Field Guides. (K. Bartlett Walsh, Quality Assurance Coordinator)


Know Your Client's Rights - Six Must-Know Escrow Facts

  1. Escrow instructions should specify in writing how and under what conditions monies will be disbursed, especially if the transaction doesn't close.
  2. Escrow is a fiduciary relationship but is limited to the duties involved in the escrow. The escrow agent is a trustee of both parties and is equally responsible to both parties for the administration of the escrow.
  3. If a transaction fails to close as scheduled, monies may continue to be held in escrow provided there is no written demand from one party to cancel the contract. Monies are typically held after the closing date if a date to obtain the loan has passed but the parties still want to proceed with the transaction.
  4. If the transaction is cancelled by either party, the agent holding the escrow monies shouldn't disburse any funds until all parties agree in writing how to disburse them.
  5. If parties can't agree on how to disburse funds, the escrow agent may file an interpleader, which names all the parties that might have an interest in the monies and asks a court to decide how to disburse the money. Otherwise, an escrow agent may be obligated to keep funds indefinitely.
  6. If a transaction is cancelled by the parties, real estate brokers and other third-party vendors may have first claim to escrow funds. That claim would depend on procuring cause.

Source: The list issue: legal - 6 must-know escrow facts, (REALTOR® Magazine, Mar. 2005).


Escrow Accounts

Homebuying Process, (FannieMae, 2014)

FAQs About Escrow Accounts for Consumers (U.S. Department of Housing and Urban Development, 2014).

Common Closing Costs for Buyers, (REALTOR® Magazine, Handouts for Consumers, 2014).

How the term escrow relates to your real estate transaction, (About.com, 2014).

Escrow account—everything you need to know, (Mortgage-x.com, 2014).

FAQs about escrow accounts for consumers, (U.S. Department of Housing and Urban Development, 2014).

Escrow Accounts - What's the Deal?, (HouseLogic.com, Oct. 10, 2010).

7 Tips for a Profitable Home Closing, (HouseLogic.com, Feb. 10, 2010).

7 Steps for a Stress-Free Home Closing, (HouseLogic.com, Feb. 10, 2010).

Escrow accounts—how they are used in your real estate transaction, (ezinearticles.com, Mar.  24, 2006).


Escrow Administration

What is Escrow Management? (wisegeek.com, 2014).

Is outsourced servicing really cheaper?, (Mortgage Banking, Jan. 2010). Q


Earnest Money Deposits

The earnest money deposit, (RealEstateABC.com, 2013).

Earnest money deposits - protect your good faith deposit, (About.com, 2013).

In Earnest, (Tierra Grande, Oct. 2010).

Preventing fraud and deception, (The Appraisal Journal, Spring 2009). Q

Questions and answers on earnest money deposits, (North Carolina Real Estate Commission, 2007).

First-house buys can knock you off your foundation, (Washington Business Journal, Apr. 21, 2006).


Escrow Fraud and Real Estate

Mortgage scams: real estate closing fees kickback scams, (fraudguides.com, 2014).

Don't be a victim of loan fraud, (U. S. Department of Housing and Urban Development, 2014).

Growing ownership makes Hispanics target for predatory lending, (The Business Journal of the Greater Triad Area, Oct. 20, 2006).

Title companies investigated, again, (Realty Times, Mar. 1, 2005).


Case Summaries - Escrow Mishandling

Broker wins lawsuit over escrow retention, Estate of Kupperstein v. Baum, No. 1147SC0518, (National Association of REALTORS®, Legal Case Summaries, Mass. Dist. Ct., Mar. 5, 2013).

Escrow company liable for attorney’s fees, Kangarlou v. Progressive Title Co., Inc., 27 Cal. Rptr. 3d 754 (Cal. Ct. App. 2005).

Seller's creditor cannot garnish escrowed funds, General R.A.C., Inc. v. Coldwall Banker Residential Real Estate, Inc., 876 So. 2nd 606 (Fla. Dist. Ct. App. 2004).

Broker liable for failing to follow escrow agreement, Int'l Capital Corp. v. Moyer, No. 1-02-2401, 2004 WL 438976 (Ill. App. Ct. Mar. 10, 2004).

Real estate commission reversed, Djokic v. Dep't of Bus. & Prof'l Regulation, Div. of Real Estate, 875 So. 2nd 693 (Fla. Dist. Ct. App. 2004).

Licensee punished for withholding escrowed funds, Hayber v. Dep't of Consumer Prot., No. CV020513973S, 2004 WL 574662 (Conn. Super. Ct. Mar. 8, 2004).

Filing disciplinary complaint does not violate bankruptcy protections, McMullen v. Sevigny (In re McMullen), 386 F.3d 320 (1st Cir. 2004).

Lawsuit against escrow agent over depository bank failure proceeds, Bazinet v. Kluge, No. 110143/01, 2003 WL 21361746 (N.Y. Sup. Ct. May 29, 2003).

Escrow company liable for attorney's fees, Kangarlou d v. Cleveland, No. 02AP-485, 2002 WL 31870134 (Ohio Ct. App. Dec. 24, 2002).

No breach of fiduciary duty by buyer's representative who did not pay deposit to seller, Ballard v. Cleveland, No. 02AP-485, 2002 WL 31870134 (Ohio Ct. App. Dec. 24, 2002).

In Alabama, appraisers can be liable to third parties for negligent misrepresentation, Fisher v. Comer Plantation, Inc., 772 So.2d 455 (Ala. 2000).

New York broker stripped of license for claiming an unearned commission, In the Matter of Emil T. Pagano and Irene F. Baker Real Estate Agency, 77 D.O.S. 99 (Apr. 12, 1999).

Release contained in cancellation agreement is invalid, Johnson v. Maki & Assoc. , 289 Ill. App. 3d 1023, 682 N.E.2d 1196 (Ill. Ct. App. 1997).


eBooks & Other Resources

eBooks.realtor.org

The following eBooks and digital audiobooks are available to NAR members:

American Mortgage - Everything You Need to Know About Purchasing and Financing A Home (Adobe eReader)

Busted - Life Inside the Great Mortgage Meltdown (Overdrive Audio)

Chain of Blame - How Wall Street Caused the Mortgage and Credit Crisis (Adobe eReader)

The complete idiot’s guide to mortgages (Adobe eReader)

Decoding the New Mortgage Market (Adobe eReader)

Fast Track Your Mortgage (Adobe eReader)

How to Save Thousands of Dollars on Your Home Mortgage (Adobe eReader)

How to Sell a House When It is Worth Less than the Mortgage (Adobe eReader)

Insider Secrets to Financing Your Real Estate Investments (Adobe eReader)

The Insider's Guide to Home Equity Borrowing (Adobe eReader)

An Insider's Guide to Refinancing Your Mortgage (Adobe eReader)

The Little Black Book of Wealth Building Mortgage Secrets (Adobe eReader)

The Mortgage Answer Book - Choosing the Right Loan for You (Adobe eReader)

The Mortgage Encyclopedia (Adobe eReader)

Mortgage Myths - 77 Secrets that will Save You Thousands on Home Financing (Adobe eReader)

Mortages 101 (Adobe eReader)

The new rules for mortgages (Adobe eReader)

The Pocket Mortgage Guide (Adobe eReader)

Reverse Mortgages for Dummies (Adobe eReader)

Salomon Smith Barney Guide to Mortgage-Backed and Asset-Backed Securities (Adobe eReader)

Field Guides & More

These Field Guides and other resources in the Virtual Library may also be of interest:

Field Guide to Buying vs. Renting

Field Guide to Green Homes and Green Mortgages

Field Guide to Investing in Real Estate

Field Guide to Mortgage Fraud

Field Guide to Reverse Mortgages

Field Guide to Sales Closings

Field Guide to Social Benefits of Home Ownership

Field Guide to Women Homebuyers

Field Guide to Working with First-Time Home Buyers

Field Guide to Working with FSBOs

Field Guide to Working with Single Homebuyers

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