We frequently get questions from people relocating to San Diego who wonder about out Escrow Companies and how real estate transactions are handled. So how do we explain?
To make it simple: An escrow account is a designated savings account into which funds get deposited for a specific purpose.
With respect to San Diego real estate and home loans, escrow accounts are used to pay real estate tax bills and homeowners insurance payments.
Hence, escrow accounts are managed and disbursed by lenders.
When a homeowner “escrows” his home mortgage, along with his scheduled monthly mortgage payment, he or she must also send an additional payment to the lender equal to 1/12 of the home’s annual real estate tax bill plus 1/12 of the annual homeowners insurance bill.
By sending a pro rata portion of the tax and insurance bill each month, the homeowner’s escrow account will always, in theory, have enough funds to make payments in full as tax bills and insurance premiums come due.
On the other hand, instead of using attorneys to handle real estate transaction in San Diego, we use the services of a neutral third party–or escrow companies. They handle transactions from the time all documents are signed until the final deed is recorded with the San Diego County Recorder’s Office. We entrust deposit funds to them–as do lenders, who expect prior liens to be paid off along with other demands.