The mortgage closing process is administered by a settlement agent who handles the transfer of funds and property ownership through an escrow or trust account. A settlement agent is also known as a closing agent or escrow agent. In short, the settlement agent's role is to make sure that all parties deliver and receive what they are supposed to when your mortgage closes. The lender provides loan funds to the buyer and receives a note, the buyer receives the funds from the lender, the property from the seller and the grant deed and the seller receives the funds from the buyer and a deed of reconveynace from their lender that basically says they have paid off their mortgage. At the bottom of the page, we provide a diagram that illustrates the role of the settlement agent in the mortgage closing process.
In the western U.S., the settlement agent is typically an escrow company or title company (the company that provides the title report and title insurance). In the eastern U.S., an attorney typically serves as the settlement agent. Many title companies have in-house settlement agent or escrow divisions that provide mortgage settlement services but with purchase mortgages title and settlement services are typically provided by separate companies. With refinancings it is more common for both title and settlement services to be provided by a title company, except for in states where real estate attorneys serve as settlement agent.
Borrowers may be able to save money on the combined cost of title and settlement fees by using a title company to provide both services. For example, instead of using a title company for the title report and insurance and a separate third party escrow company for settlement services the borrower may receive a discount by using a title company for both services. In some states borrowers are required to use a real estate attorney for settlement services so it is not possible to use one company for both title and settlement services.
Where it is legally feasible, we encourage borrowers to shop around and compare the cost of obtaining title and escrow services separately to the cost of obtaining these services from one company. Although title insurance fees are set by state regulators, escrow fees are not, so you may be able to save money by working with one company for both services.
When the settlement agent opens an escrow or trust account, it is often referred to as "opening escrow." The settlement agent also provides an escrow agreement which is a contract between the buyer and seller that outlines the key terms of the property purchase. Additionally, the settlement agent typically provides the Closing Disclosure to the borrower that discloses the final, actual terms of the mortgage, although the lender is legally responsible for the content of the Closing Disclosure. The Closing Disclosure must be provided to the borrower at least three days prior to the mortgage closing.
All funds involved in the mortgage process are deposited into the escrow or trust account administered by the settlement agent and distributed to the appropriate parties at the closing of the transaction. For example, you will likely be required to submit earnest money or a deposit when your offer to purchase is accepted. This deposit is held in an escrow or trust account until the closing of the transaction when it is applied to the property purchase price. If the transaction does not close, the deposit or earnest money may be returned to the buyer or may be forfeited to the seller, subject to the terms of the purchase contract. The proceeds from your down payment as well as the mortgage funds from your lender are also held in the escrow account until the mortgage closes, usually for less than a day.
The lender provides instructions to the settlement agent that determine how the funds are distributed at mortgage closing. The settlement agent provides escrow instructions to ensure that all third parties, such as real estate agents, receive their fees and commissions, that the seller's bank is repaid if he or she has a mortgage on the property and that any remaining proceeds go to the seller.
On the flip side, the settlement agent ensures that the buyer receives the grant deed, the legal document that conveys property ownership, and that the lender receives the deed of trust or mortgage, the legal document that indicates that there is a lien on the property. The settlement agent is also responsible for filing legal documents with the county recorder office that record property title and the mortgage on the property.
The escrow account is typically open for a fixed period of time â€“ 30, 45, 60 or 90 days. If the mortgage is not completed during this fixed period of time it may be necessary to extend the escrow and refresh some of the documents, such as the title report.
Settlement agent fees vary by loan amount, property value and city but generally range between $800 and $2,000. Technically, the borrower has total control in selecting the settlement agent. In practice, however, the choice of settlement agent is typically made by mutual agreement between the buyer's and seller's real estate agents.
As depicted in the chart below, the settlement agent administers the mortgage closing process and manages the transfer of funds, properties and legal documents to all parties involved in the mortgage process.
"How It Works: The Closing Process." My Home by Freddie Mac. Freddie Mac, February 17 2016. Web.