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An arrangement whereby an escrow agent holds the final title documents to a contract for deed. Holding escrows are often suggested as the solution for the problems that arise under a contract for deed when the buyer is ready to pay off the balance owing on the contract but the seller either cannot be found or is not cooperative about executing the deed. Under a holding escrow, the seller, at the time the contract for deed is signed, deposits with the escrow agent an executed deed or assignment of lease and instructs the escrow agent to deliver the conveyance to the buyer when full payment is made under the contract. Many escrow companies are reluctant to handle holding escrows, even when they are indemnified against loss, because of the following possible complications:
* It may be difficult for the holding escrow to ascertain whether there has been a full payoff, whether the amount deposited in escrow is the correct amount, and whether the buyer is in default under any other terms of the contract for deed.
* Difficulties may arise if the seller dies, particularly in terms of determining the rights of his or her heirs. Other problems may arise if the seller remarries, and new dower, curtesy, or marital rights must be considered. (See relation-back doctrine)
* If the buyer has resold the property still under contract and used a different escrow agent, the seller is requested to draft new documents conveying title directly to the new buyer. Thus, there sometimes are added costs.
While the holding escrow practice is good in theory, these practical problems may prevent its effective use. A good alternative is to establish a collection account with the lending institution where the seller has his existing mortgage. The collecting agent knows how to contact the seller if the buyer wants to quickly pay off the outstanding balance and receive a deed to the property. Also, the buyer can thus be assured that the seller’s mortgage payments are being made as long as he makes his contract for deed payments—and vice versa—the seller can be notified if the buyer is in default in making his payments. This situation is sometimes called a true escrow.
Dearborn Real Estate Education
This "Word of the day" is excerpted from The Language of Real Estate, 6th Edition by John Reilly (published by Dearborn Real Estate Education, 2006 copyright). To purchase the complete book, with over 2800 key terms and definitions, or to browse through Dearborn's hundreds of other professional real estate titles, including Real Estate Technology Guide by Klein, Barnett, Reilly, click here.