What Is Escrow Disbursement?

Last Updated on March 29, 2023 by Mark Ferguson

In real estate, an escrow disbursement is a process of dispensing the amount held in escrow to pay for homeowners insurance, property taxes, and other property expenses. Lenders usually require borrowers to put money on an escrow account during or after the closing of a property purchase or when property expenses are due.

When the time comes to pay property expenses, escrow disbursement is done. This is strictly carried out by a third party known as an escrow agent.

The role of escrow agents

Escrow agents are the ones entrusted and held responsible for the disbursement of the money placed in an escrow account for specific reasons. They aren’t permitted to use a certain escrow money to pay for purposes other than the one it is intended for.

For instance, an escrow account made by the buyer for the mortgage payment cannot be disbursed to pay for the homeowner’s insurance or the property tax and vice versa. Although these agents don’t earn any interest from the escrow fund, they can charge fees for their services.

Written Instructions

Although not all escrows are done with a written agreement, all escrow agents must be keen when it comes to the written disbursement instructions. All escrow disbursements must be done based on the exact date and manner they should be given as specified by the owner of the escrow account. Breaking the agreement can be a ground for a lawsuit.

The laws on escrows and disbursements are different from state to state. So written agreements must conform to the existing laws of the state.

You can find more definitions for real estate terms in our real estate glossary.

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