Escrow Holdback

Funny, when I click in the title section in the program I use to write blog posts it reads, Add a Catchy Title. There is absolutely nothing catchy about "Escrow Holdback," but there is no other word for it. And hopefully, it is so boring and mundane that you think to yourself, "Self, Julie usually has such witty and compelling blog titles, that this post can't be about something as dry and drab as escrow holdbacks. Wait, what IS an escrow holdback? Maybe it is useful info I should know. Damnit, I am clicking on this boring post because I think I should know."

First off, thank you so much for saying I have such compelling blog titles! I work really hard coming up with these titles! :) And secondly, thank you for clicking on this boring title and reading. It most certainly is some useful info. And it is good content for upcoming Holiday parties. If there is an awkward silence, you can bust out with, "Do you know what an escrow holdback is?" To which you will most certainly get a blank stare and an, "Um, no. Do you?" To which you can reply with, "YES! I learned all about them from Real Estate Travel Mom!" And then they will ask, "Who is Real Estate Travel Mom?" And then you will pull up your phone, pull up my blog, and show them the post about Escrow Holdbacks, and this formerly dying, no DEAD conversation Is revived thanks to little old MOI. :) You're welcome.

Okay, okay, now on to the topic at hand. It is a real estate topic, if you hadn't guessed that by now.

What is an escrow holdback?

An escrow holdback is when a party holds back funds at closing. The party can be a lender, buyer, or contractor, but either way, the funds are held at escrow until repairs are complete. Once the repairs are complete, the money is then released to the seller (or contractor).

Why am I bringing up this topic? Because it just happened to me!

TRUE STORY:

My seller is closing on his home on Monday. We went with an FHA buyer, and when the appraiser did her inspection, she called out some health and safety items that needed to be completed before closing. This is one disadvantage of going with an FHA or VA buyer: their appraisers are more strict and have a higher tendency to call out repairs that need to be made before the loan can be funded. In our case, we had peeling paint, trees touching the house, and vegetation in contact with the siding/foundation.

Thankfully, in our case, the buyer was willing to take on the cost of the repairs. THIS ISN'T ALWAYS THE CASE! The buyer's agent was amazing and found a contractor who could start the work quickly. All was moving along swimmingly, until...RAIN. It's November in Seattle. Rain is inevitable. Exterior painting + rain do not go well together. Everything but the exterior paint had been completed. We are supposed to close on Monday (today is Friday). The appraiser was going to go back to the house today to do the final inspection, BUT the buyer's agent contacted me last night to let me know the work was not completed yet. So, time to get creative.

The buyer's agent spoke with the lender and he said we can still close on Monday if we do an escrow holdback. What that means, is we will still close on Monday, pending the work get completed. To incentivize the seller to ensure the work is completed, escrow is going to hold back $2500 from his proceeds until the work is complete. Once the work is complete, post-closing, escrow will release the $2500 to the seller. In our case, the contractor has already been paid, so it is only the seller who is on the hook.

But, in other cases, the escrow holdback might be for payment to a contractor. Let's say a new roof needed to be put on before closing (the lender would not fund the loan until a new roof is on), but the seller does not have the funds to pay for a new roof out of pocket, the lender agrees that the sale can close as long as the work is done. So the lender and contractor make an agreement with the seller, and with escrow, that once the house closes, the work will be done and the contractor will get paid from the seller's proceeds. Escrow will ensure that there is enough money "held back" to pay the contractor.

There are many different scenarios where an escrow holdback might be used, and in my 10+ years in the business, TODAY is the first day I have had a client be involved in an actual holdback! Thankfully, everyone was on board with this, and we can close on time!

I would love to hear your holdback stories. Or, even better, I would love to hear your Holiday party story where you saved a dead conversation with the story of the beloved escrow holdback.

<3