Home shoppers sometimes consider purchasing real estate owned (REO) homes. These homes are ones that the bank previously foreclosed on and attempted to sell at an auction or sheriff’s sale. These properties cost the bank money to maintain until they sell. Home shoppers often receive a good price on these properties because the bank is eager to sell and eliminate the maintenance expense. As part of the sale process, the buyer needs to escrow funds toward the purchase and the seller needs to proceed with the document verification process.
Purpose of Escrow
The purpose of escrowing funds is to set funds or property aside until the transaction either completes or cancels. The funds and property remain separated from the buyer or seller’s accessible assets. At the completion of the transaction, the funds are released to the seller and the property to the buyer. If the transaction cancels, the funds are released back to the buyer and the property to the seller.
When the home buyer decides to purchase the property, she needs to send a letter of intent to her escrow company along with proof of her ability to pay for the property. The proof of her ability to pay consists of a letter from a financial institution agreeing to finance the purchase, or provide verification of the cash balance in her bank account. The buyer’s escrow company verifies the information it receives from the buyer and provides an escrow representation letter to the agent facilitating the transaction.
When the bank agrees to sell the property to the buyer, it sends a representation letter to its escrow company. The bank’s escrow company verifies that the property, which the bank is selling exists and is legal for the bank to sell.
The purpose of document verification is to ensure that both parties fairly represent their ability to participate in the transaction. The escrow companies provide the first level of document verification by verifying the documents provided to them. The agent facilitating the transaction provides the second level of document verification by reviewing the documents provided from the escrow companies, and by verifying the data.
- Ryan McVay/Photodisc/Getty Images