What Happens to the Excess Escrow Balance When Selling a House?

Sellers occasionally set aside funds to pay for roof repairs required in the sales contract.

Sellers occasionally set aside funds to pay for roof repairs required in the sales contract.

Don't assume that any excess money left over in escrow after your home closes is pure profit. The best bet is to hold onto the returned cash and investigate the reason for the unspent funds. It could be extra cash, but there's also a chance that the cash didn't make it to the right party with legitimate claims to the money. To be safe, keep the funds until you are sure everything and everybody involved in the escrow has been paid in full.

Escrow Process

The escrow service offers an independent third party to assist in transferring property ownership from one person to another. The process involves turning over the real estate purchase agreement, any other instructions and disclosures to the office handling the escrow. Part of the escrow process also requires collecting the deposits, down payments and fees necessary to complete the sale. The laws and official documents signed by the buyer and seller guide escrow operations.

Estimated Closing Costs

Your estimated costs frequently include all sorts of costs for document delivery, faxes and wiring funds. If your escrow didn't use some of the services, the fees come back to you in the form of a refund. Occasionally a seller must make repairs to the house as part of the sales agreement. When this happens, the seller either pays for the repairs outside escrow or contributes cash to escrow based on the estimates given by the repair companies. The escrow arrangement documents the repairs for the new buyer. As part of the escrow process, the repair service submits the final bill to the escrow officer or legal representative supervising the escrow for payment from the escrow account. Any excess is reserved for the seller since the seller contributed the funds to the account.

Final Billing

The closing statements from your home sale list all money coming in from payments and going out to pay fees and costs. Sit down with your escrow officer, real estate agent or loan broker to review the final escrow statement of your costs and expenses for the home sale.

Escrow Balances

Under most state laws, the escrow holder -- escrow or title office or attorney -- must document funds after your house sale closes. Any remaining balance must be returned to you within a required number of days under state laws or sent to the party you specify in written directions submitted to escrow.

Applying Balances

Escrow follows the directions of the buyer and seller to disperse escrow funds. If your account has excess money after the close of your house, you have the option to apply the money to other fees or bills charged outside the normal escrow accounting. The escrow firm has the option, with your written permission, to send a check for the excess funds to the Internal Revenue Service, state tax office or your mortgage company. Some escrow offices offer services to make regular mortgage payments and also pay taxes and insurance from the escrow account.

About the Author

*I have written chapters and articles for Oxford and Harvard University Presses, ABC-CLIO, and others. Arcadia Press published two of my local history texts and I have also written for numerous "article sites," including Pagewise in 2002. My "How to become a...real estate agent" is available as an online text from a Canadian publisher. *I taught writing courses at a branch campus of Indiana University. *I held a California real estate license and have remodeled four of my own homes and advised others on financing homes, repairing credit to qualify for loans, and managing construction (including meeting local, state, and federal regulations for restoration and development grants). *I served as an AmeriCorps*VISTA volunteer and wrote nearly $75,000 in small education grants (under $1,000). *My travels include frequent road trips in Canada, Mexico, U.S., and Europe. I attended school at Cambridge University and used this as a base to explore the UK and Europe.

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