Why the Confusion Over Escrow Fees?

By
Title Insurance with Texas Homeland Title

A common source of confusion in the title business in Texas is the Escrow Fee. Upon presenting the settlement statement, we often hear a buyer ask a question like, “I’m not escrowing, so why am I paying an Escrow Fee?”

cartoon image of a man with question marks and dollar signs

The buyer has recognized the word “escrow” as it applies to mortgage lending, i.e., paying a portion of the yearly property taxes and hazard insurance premium each month along with the principal and interest to the lender for the lender to hold in its escrow account so that it can pay those bills at the end of the year on behalf of the borrower. The buyer’s confusion arises from the fact that escrowing in the mortgage lending context has nothing to do with the Escrow Fee charged by Texas title companies.

president bush holding the phone backwards with caption "you're doing it wrong"

In Texas, the Escrow Fee is charged by title companies on virtually every transaction. While many may describe it as an “administrative fee” or a “service fee,” it is more accurately described as the fee charged by title companies for the use of their escrow account and for escrow services. An escrow account is a special bank account setup by the title company for the sole purpose of holding clients’ money.

 

piggie bank with money sticking out of it

 

Escrow services can be generally described as those services necessitated by receiving and holding client funds (earnest money, buyer purchase money funds, loan funds, etc.) and then disbursing those funds by either check or wire to the various payees. This involves escrow accounting. A separate accounting ledger is set up and maintained for each transaction, and all funds must be received before any funds can be disbursed. The lender often “nets out” its own loan fees from the loan funds wire, and the account must be balanced before any checks are cut.

rocks balancing on see-saw

As you can see, both the buyer and the seller benefit by a title company’s escrow services. This is why contracts (including the TREC promulgated form contracts) often call for the buyer and seller each to pay half.

half

So next time your buyer or seller complains about the Escrow Fee, explore their complaint by asking questions to determine whether they might be confused as to what the Escrow Fee actually is. If they are, a quick explanation of title company escrow services can usually clear things up and make them happy.

 

Comments (6)

Dan Edward Phillips
Dan Edward Phillips, Humboldt and Del Norte Counties, CA - Eureka, CA
Humboldt and Del Norte Counties, CA

Good Morning David, excellent input on escrow fee's!

Dec 27, 2010 08:28 PM
Paula McDonald, Ph.D.
Beam & Branch Realty - Granbury, TX
Granbury, TX 936-203-0279
Thank you David for explaining this clearly. I wil bookmark to use to send to a client that is fuzzy on this. Hope you had a great Christmas.
Dec 28, 2010 02:24 AM
David Stevens
Texas Homeland Title - Conroe, TX

You are welcome.  I hope it helps.  Happy New Year!

Dec 28, 2010 03:21 AM
Ron Wickes
Keller Williams - Broker Associate - Conroe, TX

Thanks for the clarification.

Dec 28, 2010 09:08 AM
Anonymous
Angelia Garcia

hey,

just had this question come up by me.  LOL

Thanks for explaining it.

Angelia

Sep 22, 2012 05:21 AM
#5
Anonymous
Don Moore

According to NORTH AMERICAN TITLE COMPANY:  The Escrow Fee charged by North American Title Co. to respective parties as a miscellaneous handling fee and includes costs for notary fees, issuance of checks, handling of monies, etc.

From what I understand, the cost title policies in Texas are already the highest in the U.S. The escrow fee just adds insult to injury to the buyer and sellers and is really no more then a money grab. I suggest that agents shop around for a good title company that charges the lowest fees. After all we work for our clients and to many times the sellers/buyers do not know one title company from another. How many times have you heard "the sellers wants to use so-n-so title company"? It's not he seller it's the agent. If the agent was really looking afte his client then the cost would be factor. if all agents would look at the cost then I think escrow fees would be great reduced.

Nov 28, 2012 09:16 AM
#6

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