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.
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.
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.
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.
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.
- Realtor.com: What Is Escrow?
- Lending Tree: Escrow -- What It Is and How It Works
- Cornell University Law School Legal Information Institute: Rhode Island Legal Ethics
- Federal Reserve Board: A Consumer's Guide to Mortgage Settlement Costs
- MSNBC.com: As Housing Prices Drop, Closing Costs Are Rising
- State of Michigan: Consumer Information -- Mortgage Escrow Accounts
- Brand X Pictures/Brand X Pictures/Getty Images