Understanding escrow is essential for anyone planning to buy a real estate property in Florida. Escrow is what allows the completion of all the closing requirements, including the money transfers that legitimize the process.

On that note, it can be confusing to keep tabs on the assets that go into the escrow account, so we’ll study escrow from the standpoint of real estate transactions, including the cases in which property taxes become relevant to escrow.

How Does Escrow Work?

Escrow refers to a process in which funds are transferred from one party to another. The funds are held in an escrow account until a specific set of terms are met. A neutral third party oversees the assets and makes sure that everything is distributed appropriately at the end of the transaction.

Most people know of escrow because of its uses in real estate transactions. In this case, the escrow account is created after the seller accepts an offer so the buyer can deposit the earnest money.

Escrow accounts are commonly used in corporate transactions during mergers and acquisitions. It can be used to guarantee payment and delivery in freelance work and when buying and selling online or high-value goods and services. Other applications for escrow include software agreements, mergers and acquisitions, and legal settlements.

From there, the escrow account is meant to hold all the closing funds until the settlement. Now that we’ve covered the basics, let’s study the purpose of these funds, and answer one pressing question: Does escrow include property taxes?

Yes, it does, but only in some cases. There are a few exceptions that we’ll look into, including some of the most common uses of an escrow account in real estate purchases.

When Does Escrow Include Property Taxes?

From here, we’re going to study different types of escrow accounts in the real estate industry with a focus on the cases where property taxes are required.

• Property buying escrow: This is the standard real estate escrow where an escrow account is opened after buyers and sellers reach an agreement for the closing process. The buyer starts by transferring the earnest money to the escrow account, and this is a clear sign of commitment to follow the terms of the escrow contract. It shows that the buyer is serious about their intention to purchase the property.

• Mortgage escrow: Essential for homebuyers, this type of escrow is meant to manage the monthly payment of multiple property fees. This is the most common area of escrow where property taxes are included, along with other payments like homeowner association fees, mortgage insurance, and homeowner’s insurance.

• Rental escrow: Rental escrow is used as a security measure for tenants and landlords alike. For tenants, it ensures that they’ll get their deposit back if everything is in order, and landlords, can count on the deposit to settle damages or unpaid rent. Since this type of escrow works primarily to solve rental disputes, it doesn’t include property taxes.

• Construction escrow: Arguably the less common type, these accounts are meant to protect the property’s funds during the construction period, covering provisions and materials, as well as the contractor fees. Property taxes are also included among these assets.

Circling back to mortgage escrow accounts, these are often created during the closing, which is why property taxes are still part of the property purchase even when they’re not included in the original escrow account.

Upon completing all the requirements in the escrow agreement, the mortgage provider sets up a mortgage escrow account to manage different fees attached to home ownership.

As outlined by Wells Fargo, every time you make a mortgage payment, part of it will go into the escrow account and cover multiple expenses, including property taxes. Each year, your lender will perform what is called an escrow analysis, which helps ensure there will be enough funds in the account to cover future tax and insurance payments.

You don’t have to include property taxes in your escrow account if you choose to pay for your taxes yourself, especially if you want to keep close tabs on the allocation of your money as tax prices continue to fluctuate. It’s all about hashing out the terms properly with your mortgage lender.

We’re Ready To Assist You If You Have Additional Questions

Learn all about escrow from the most knowledgeable experts in Florida real estate. The staff at Key Title & Escrow will be happy to answer all your questions about escrow transactions in Florida, all the requirements, and the payments you’re expected to make depending on whether you’re a buyer or a seller. If you want the best assistance to make your transaction flow more smoothly, contact us today! Just call (305) 235-4571 or toll-free at (800) 547-0006 to get in touch with our specialists. And remember that you can also contact us via the website’s contact form.