June 15th 2023
When it comes to buying or selling a house, both parties want to ensure that the transaction is completed successfully. To help ensure the process runs smoothly, the use of a lawyer's trust account is relied upon. Understanding how escrow works is an essential feature of real estate in Ontario.
An escrow is a contractual agreement between two parties where money or important documents are securely held by a third party until all the terms of the contract are met. The third party, known as the escrow agent or lawyer, is a neutral entity whose role is to protect both parties from fraudulent behavior during the real estate transaction process.
The purpose of escrow in a real estate transaction is to keep the buyer’s funds or any other payments made during the purchase process safe until the deal is finalized. The buyer's lawyer would typically have received both the mortgage funds and their own clients' funds and would send this money into the trust account of the selling lawyer. After both law offices have adjusted for any items such as tax, common expenses, or prepaid propane, the balance due is typically paid on the scheduled closing date of the transaction.
Typically, the agreement between buyer and seller will include conditions that the sale is conditional upon. If the agreed conditions of the sale are not met, the deposit funds will be returned to the buyer via the escrow agent. This means that if a real estate Brokerage is holding funds from the deposit in escrow, under some conditions the funds will be returned upon the seller's failure to perform the contract. Some common instances where a deposit would be returned include discovery of certain issues of land upon a lawyer's search of the title.
The role of the escrow agent is crucial in ensuring a smooth transaction. Once both parties agree to the terms of the sale, the buyer will transfer funds to the attorney or escrow agent. The seller must agree to the transfer of funds and will be notified when the transaction is complete. The escrow agent is responsible for holding and managing the funds until the purchase is complete, ensuring that the funds are available when needed.
Sometimes, a buyer may not be able to provide the full payment. In these instances, the buyer and seller can agree to extend a transaction with further deposits being made, with the escrow agent holding the funds until the agreed-upon full payment is met.
In conclusion, escrow is an essential part of a real estate transaction in Ontario. It protects both parties from fraudulent behavior during the transaction process and ensures that the sale proceeds according to the agreed-upon terms. Make sure to discuss escrow options with your real estate lawyer or agent to ensure the safe and secure transfer of funds throughout the transaction process.
Michael Craig Liddiard, BA MA JD