Field Guide to Escrow Accounts/Earnest Money
(Updated May 2009)
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. (K. Bartlett Walsh, Quality Assurance Coordinator)
Know Your Client's Rights - Six Must-Know Escrow Facts
Escrow instructions should specify in writing how and under what conditions monies will be disbursed, especially if the transaction doesn't close.
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.
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.
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.
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.
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 
How the term escrow relates to your real estate transaction, (About.com, 2009).
Escrow account - everything you need to know, (Mortgage-x.com, 2009).
FAQs about escrow accounts for consumers, (U.S. Department of Housing and Urban Development, June 20, 2009).
Escrow accounts provide you with peace of mind, (Fannie Mae, 2008).
The new word in home sales - "cancelled" - buyers back out of deals in record numbers, a $30,000 deposit lost, (The Wall Street Journal, Nov. 3, 2006). Q
Escrow accounts - how they are used in your real estate transaction, (www.ezinearticles.com, March 24, 2006).
Do it yourself, (Kiplingers, Mar. 2003). Q
How to keep escrow shocks to a minimum, (Money, June 1998). Q
Escrow Administration
Escrow and trust record keeping - 10 tips for safer escrow accounts, (REALTOR® Magazine Creating and Monitoring Business Systems Toolkit, 2009).
6 musts for escrow and trust record keeping, (REALTOR® Magazine Creating and Monitoring Business Systems Toolkit, 2009).
Post-contract pitfalls, (www.realtor.org, Mar. 13, 2008).
Earnest Money Deposits
The earnest money deposit, (RealEstateABC.com, 2009).
2 Strategies for resolving earnest money disputes, (REALTOR® Magazine Keeping the Transaction on Track Toolkit, 2009).
Earnest money deposits - protect your good faith deposit, (About.com, 2009).
Questions and answers on earnest money deposits, (North Carolina Real Estate Commission, 2007).
Earnest money - risky refunds, (REALTOR® Magazine Online, Aug. 1, 2007).
First-house buys can knock you off your foundation, (Washington Business Journal, Apr. 21, 2006).
Mortgage scams: real estate closing fees kickback scams, (www.fraudguides.com, 2009).
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).
Don't be a victim of loan fraud, (U. S. Department of Housing and Urban Development, Aug. 18, 2003).
Case Summaries - Escrow Mishandling
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:
The Little Black Book of Wealth Building Mortgage Secrets (Adobe eReader)
How to Save Thousands of Dollars on Your Home Mortgage (Adobe eReader)
An Insider's Guide to Refinancing Your Mortgage (Adobe eReader)
Mortgage Myths - 77 Secrets that will Save You Thousands on Home Financing (Adobe eReader)
American Mortgage - Everything You Need to Know About Purchasing and Financing A Home (Adobe eReader)
Reverse Mortgages for Dummies (Adobe eReader)
Salomon Smith Barney Guide to Mortgage-Backed and Asset-Backed Securities (Adobe eReader)
The Pocket Mortgage Guide (Adobe eReader)
The Mortgage Answer Book - Choosing the Right Loan for You (Adobe eReader)
Insider Secrets to Financing Your Real Estate Investments (Adobe eReader)
The Insider's Guide to Home Equity Borrowing (Adobe eReader)
The Mortgage Encyclopedia (Adobe eReader)
Books, Videos, Research Reports & More
The resources below are available for loan through Information Central. Up to three books, tapes, CDs and/or DVDs can be borrowed for 30 days from the Library for a nominal fee of $10. Call Information Central at 800.874.6500 for assistance.
An American Epidemic - Mortage Fraud - A Serious Business, (New York, NY: iUniverse, Inc., 2005).
Residential Mortgages Lending - Principles and Practices, (Mason, OH: South-Western, 2004).
The Complete Guide To Your Real Estate Closing - Answers to All of Your Questions from Opening Escrow, to Negotiating Fees, to Signing Closing Papers, (New York, NY: McGraw-Hill, 2003).
Going into Escrow, (Philadelphia, PA: Xlibris Corporation, 2000).
All about Escrow, (El Cerrito, CA: Express, 1999).
Field Guides & More
These Field Guides and other resources in the Virtual Library may also be of interest:
Field Guide to Working with First-Time Home Buyers
Field Guide to Working with FSBOs
Field Guide to Social Benefits of Home Ownership
Field Guide to Reverse Mortgages
Field Guide to Green Homes and Green Mortgages
Field Guide to Investing in Real Estate
>> Have an idea for a new Field Guide? Click here to send us your suggestions!
The inclusion of links on this Field Guide does not imply endorsement by the National Association of REALTORS®. NAR makes no representations about whether the content of any external sites which may be linked to this Field Guide complies with state or federal laws or regulations or with applicable NAR policies. These links are provided for your convenience only and you rely on them at your own risk.
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