Do You Get Escrow Back When Selling a House?

When selling a house, many homeowners wonder what happens to the funds held in escrow. Escrow refers to different accounts in a real estate transaction. Understanding these differences clarifies how and when you might receive funds back.

Types of Escrow in Real Estate Sales

In the context of a home sale, two primary types of escrow accounts play distinct roles. The first is a mortgage escrow account, often called an impound account. This account is established and maintained by your mortgage lender or servicer to collect and hold funds for recurring property-related expenses, such as property taxes and homeowners insurance premiums. Each month, a portion of your mortgage payment is allocated to this account, ensuring that sufficient funds are available when these larger bills become due. This type of escrow account remains active throughout the life of your mortgage.

The second type is a transactional escrow account, sometimes referred to as closing escrow. This is a temporary account managed by a neutral third party, such as an escrow company, title company, or closing attorney. Its purpose is to securely hold all funds and documents related to the home sale, including the buyer’s earnest money deposit, the buyer’s down payment, and loan funds, until all conditions of the purchase agreement are met. Once all terms are satisfied, this account facilitates the proper distribution of funds to the seller and other parties involved in the transaction.

Reconciling Your Mortgage Escrow Account

When you sell your home, your existing mortgage loan is typically paid off in full at closing. This loan payoff triggers the closure of the associated mortgage escrow (impound) account by your lender. The funds held in this account were collected to cover property taxes and homeowners insurance up to the point of sale.

At closing, property taxes, homeowners insurance premiums, and other recurring charges like homeowner’s association fees are commonly prorated between the buyer and the seller. This proration ensures that each party pays for these expenses only for the period they owned the property. For instance, if you, as the seller, have prepaid taxes beyond the closing date, you will receive a credit for the unused portion from the buyer. Conversely, if taxes are due but not yet paid, your share will be deducted from your proceeds.

Your mortgage lender will perform a final accounting of your escrow account after the loan is paid off. This involves calculating any outstanding tax or insurance payments that were due before the payoff date and determining the remaining balance. If there is a surplus in your account after all obligations are settled, these excess funds are due back to you.

Receiving Your Escrow Funds After Closing

After your mortgage loan is paid off and the associated escrow account is closed, any surplus funds will be returned to you by your former mortgage lender. This refund is typically issued within 20 to 30 business days after the mortgage payoff, allowing for final reconciliation.

Disbursement is usually by check mailed to your forwarding address, though direct deposit may be available. You should also receive a final statement from your former mortgage lender detailing the account closure and the refund amount. The buyer’s earnest money deposit, held in the transactional escrow account, is not returned to the seller; it is applied toward the buyer’s down payment and closing costs.