An escrow is a legal agreement where a third party temporarily keeps a large amount of money or property until a particular condition (like a purchase agreement) is fulfilled. It is mandatory in real estate transactions to safeguard both the seller and buyer throughout the property buying process. During the mortgage tenure, an escrow account will keep the fund, for the homeowner’s insurance and tax payments.

In real estate transactions, escrow is usually used for two reasons:

To ensure the buyer’s faith deposit goes to the right party according to the agreement.

To keep the fund for the homeowner’s taxes and insurance.

Since it serves two different purposes, it can be categorized into two kinds of accounts. One is for purchasing properties, second is applicable throughout the mortgage term.

While buying an estate, your purchase contract will generally include a good faith deposit which implies that you are serious about purchasing the estate. If the agreement gets canceled because of the buyer’s fault, the seller will receive the money. If the purchase is successful, the deposit is adjusted against the buyer’s down payment. If the money is held in escrow after the property is sold, it is called an escrow holdback. Once all the conditions are met properly, the right party will get to have the money.

After purchasing the property, your mortgage provider may create an escrow account for paying your insurance and taxes. Once closed, the mortgage servicer or lender can take a part of your monthly mortgage payment and keep it in the escrow till your insurance and taxes are in arrears.

Title insurance is a form of indemnity insurance that insures against financial loss from defects in title to real property.

Although your tax deed investment was issued by the county, which extinguishes many encumbrances against title, a tax deed does not offer warranties against title. This means you have no protection of challenges against title, which could result in a financial loss if the sale is overturned or a claim is filed against the title to the property.

Today’s title companies research property titles just like conveyancers did, in what’s known as a title search. But since the late 1880s, they’ve also provided title insurance. That’s their guarantee that if a problem turns up that they didn’t find, you’re protected.