What Is Escrow? A Simple Guide for Utah Homebuyers

If you're buying a home in Utah, you'll hear the word "escrow" frequently throughout your transaction. Your real estate agent will say your offer "went into escrow." Your lender will mention "escrow accounts." You'll write a check to the "escrow holder." But what exactly is escrow, and why is it such a critical part of your home purchase?

At its core, escrow is a protection mechanism that makes real estate transactions safe and fair for everyone involved. It ensures that sellers don't receive payment until they've delivered clear title, and buyers don't hand over hundreds of thousands of dollars until they're certain they're getting what they paid for.

In this guide, we'll explain escrow in straightforward terms, walk you through exactly how the escrow process works in Utah, clarify the difference between transaction escrow and escrow accounts, and show you what to expect during your escrow period. Whether you're a first-time homebuyer or need a refresher, this guide will help you understand one of the most important safeguards in real estate.

What Exactly Is Escrow?

Escrow is a financial arrangement where a neutral third party holds money and documents on behalf of the buyer and seller during a real estate transaction. The escrow holder has no stake in whether the sale happens or who benefits—they simply follow the instructions outlined in the purchase agreement.

Think of escrow like a referee in a sports game. The referee doesn't play for either team, doesn't care who wins, and just enforces the rules as written. Similarly, the escrow holder doesn't represent the buyer or seller—they simply ensure the transaction follows the agreed-upon terms.

Here's why escrow exists: imagine if home sales worked like most other purchases. You'd hand the seller a check for $400,000, and they'd hand you the keys and a deed. But what if the seller doesn't actually own the property? What if there are unpaid liens against it? What if they're in the middle of a divorce and only one spouse signed the deed?

Conversely, from the seller's perspective, they don't want to transfer ownership until they're certain your funds are legitimate and available. They need assurance that the check won't bounce and that you've obtained proper financing.

In Utah, escrow services are typically provided by title companies. At Prospect Title, we've been serving as escrow holders for Utah real estate transactions since 1967. Our escrow officers are licensed professionals who understand Utah real estate law and the specific procedures required in each county.

The escrow holder's responsibilities include holding earnest money deposits, collecting funds from buyers and lenders, ordering and reviewing title searches, preparing closing documents, ensuring all conditions in the purchase agreement are satisfied, disbursing funds to the appropriate parties at closing, and recording documents with the county.

How Does the Escrow Process Work Step-by-Step?

Understanding the escrow timeline helps you know what to expect during your home purchase. While every transaction is unique, here's how a typical escrow process unfolds in Utah:

Step 1: Opening Escrow (Day 1-2) begins immediately after the seller accepts your offer. Your real estate agent or the listing agent contacts the title company to open escrow. The title company creates an escrow file, assigns an escrow officer to your transaction, and receives a copy of the signed purchase agreement, which serves as their instructions for the entire process.

Step 2: Earnest Money Deposit (Day 1-3) requires you to deliver your earnest money check to the escrow holder, typically within 24-48 hours of offer acceptance. This money (usually 1-3% of the purchase price in Utah) goes into a trust account and demonstrates your serious intent to purchase. It will be credited toward your down payment and closing costs if the sale completes.

Step 3: Title Search and Examination (Day 3-10) is when the title company performs a comprehensive title search to uncover any issues with property ownership. They examine public records going back decades to verify the seller owns the property and identify any liens, judgments, easements, or other encumbrances that need to be addressed before closing.

Step 4: Inspection and Appraisal Period (Day 5-20) allows you to hire inspectors to examine the property's condition and gives your lender time to order an appraisal. The escrow holder isn't directly involved in these activities, but they track deadlines and may receive inspection reports or appraisal results as part of the file documentation.

Step 5: Resolving Title Issues (Day 10-25) happens when the title company works to clear any problems discovered during the title search. This might involve obtaining payoff quotes for existing mortgages, securing lien releases from contractors or HOAs, correcting errors in public records, or obtaining necessary documents from previous owners. Your escrow officer coordinates all of this behind the scenes.

Step 6: Loan Processing and Approval (Day 15-35) proceeds while title work is happening. Your lender processes your loan application, verifies your employment and assets, and obtains final underwriting approval. The lender also coordinates with the escrow holder to ensure all loan conditions are satisfied before closing.

Step 7: Preparing for Closing (Day 25-40) is when your escrow officer prepares all closing documents including the settlement statement (showing all costs and credits), deed transferring ownership, loan documents from your lender, and various affidavits and disclosures. They also calculate prorations for property taxes, HOA dues, and other costs, determining exactly how much you need to bring to closing.

Step 8: Final Walkthrough (Day 40-45) typically happens 24-48 hours before closing. While the escrow holder isn't involved in the walkthrough itself, this is your opportunity to verify that the property is in the agreed-upon condition and that any negotiated repairs have been completed.

Step 9: Closing Day (Day 30-45) is when everything comes together. You'll meet with the escrow officer (or a mobile notary they arrange) to sign all closing documents. You'll wire or bring a cashier's check for your down payment and closing costs. Once all documents are signed and funds are received, the escrow officer disburses money to the seller, pays off the seller's existing mortgage, pays real estate commissions and other costs, and records the deed and mortgage with the county.

Step 10: Recording and Completion (Closing Day + 1) is when the deed and mortgage are officially recorded with the county recorder's office, making the ownership transfer a matter of public record. Once recording is confirmed, you officially own the home and can pick up your keys. The escrow holder then provides final settlement statements to all parties and closes out the file.

What's the Difference Between Escrow and Closing?

People often use "escrow" and "closing" interchangeably, but they're actually different concepts. Understanding the distinction helps you better navigate the process.

Escrow is the entire period from when your offer is accepted until ownership transfers—typically 30-45 days in Utah. During this time, your transaction is "in escrow," meaning a neutral third party is holding funds and managing the process according to the purchase agreement.

Closing is the final step of escrow. It's the specific event (usually a 1-2 hour appointment) where you sign all final documents, pay your closing costs, and officially take ownership of the property. Closing is sometimes called "settlement" or "close of escrow."

Think of it this way: escrow is the entire journey from accepting the offer to becoming the owner. Closing is the destination—the final moment when the journey ends and you get the keys to your new home.

Your closing process appointment will take place at the title company's office, at your home (with a mobile notary), or occasionally at your lender's office. You'll review and sign numerous documents including the final settlement statement, the deed, your mortgage and note (if financing), the affidavit of title, and various state and federal disclosures.

After closing, the escrow holder still has work to do. They must record your deed and mortgage with the county recorder, disburse all funds to the appropriate parties, prepare final accounting statements, and provide you with copies of all recorded documents. Only when all of this is complete is the escrow truly closed.

What Are Escrow Accounts for Taxes and Insurance?

There's another type of escrow that can confuse homebuyers: the ongoing escrow account (or impound account) for property taxes and insurance. This is completely different from the transaction escrow we've been discussing.

An escrow account for taxes and insurance is an account your mortgage lender sets up to collect and pay your property taxes and homeowners insurance on your behalf. Instead of paying these bills yourself when they're due, you pay a portion to your lender each month as part of your mortgage payment.

Here's how it works: let's say your annual property taxes are $3,600 and your homeowners insurance is $1,200. That's $4,800 per year total. Your lender divides this by 12 months, adding $400 to your monthly mortgage payment. This $400 goes into your escrow account. When your tax and insurance bills come due, the lender pays them directly from this account.

For most conventional loans with less than 20% down, lenders require an escrow account. This protects their investment by ensuring taxes and insurance are paid on time. If you put 20% or more down, you might have the option to waive the escrow account and pay taxes and insurance yourself, though some lenders still prefer to maintain the account.

The advantage of tax and insurance escrow accounts is convenience—you don't have to remember to pay large bills once or twice a year. The disadvantage is that you're not earning interest on that money, and you're trusting your lender to pay the bills correctly and on time.

These ongoing escrow accounts are not managed by your title company. After closing, Prospect Title's involvement ends, and your mortgage servicer takes over management of any tax and insurance escrow. If you have questions about your monthly escrow payments, you'll contact your lender, not the title company.

Who Manages the Escrow Process in Utah?

In Utah, escrow services are almost always provided by title insurance companies. Unlike some states where escrow companies and title companies are separate businesses, Utah law allows title companies to perform both functions, and most do.

At Prospect Title Insurance Agency, our licensed escrow officers handle all aspects of the escrow process. We're licensed by the Utah Department of Insurance and must maintain strict compliance with state regulations governing trust accounts, record-keeping, and professional conduct.

The escrow officer is your main point of contact throughout the transaction. This person manages your specific file, coordinates with all parties (buyers, sellers, agents, lenders), ensures deadlines are met, prepares closing documents, and conducts the closing appointment. They're essentially the quarterback of your transaction.

The title examiner works behind the scenes researching property records, analyzing the chain of title, and identifying any issues that need to be resolved. While you might not interact directly with the title examiner, their work is crucial to ensuring you receive clear ownership.

Escrow assistants help process paperwork, order payoffs and documents, track deadlines, and handle administrative tasks that keep your transaction moving forward. They work under the supervision of the licensed escrow officer.

In Utah, the party who pays for the owner's title insurance (typically the seller) usually chooses the title company, which then provides escrow services. However, this is negotiable. Buyers can request a specific title company as part of their offer terms, though sellers may be less inclined to accept such offers unless there are other compelling factors.

It's important to note that while the escrow officer works for the title company, they must remain neutral in the transaction. They cannot favor one party over the other or provide legal advice to either side. Their role is to follow the instructions in the purchase agreement and applicable laws, ensuring a fair and legal transaction.

What Happens If Something Goes Wrong During Escrow?

Not every transaction proceeds smoothly. Understanding how escrow handles problems helps you navigate challenges if they arise during your purchase.

Failed inspections are one of the most common issues. If your inspection reveals significant problems, you typically have three options: negotiate with the seller for repairs or credits, proceed with the purchase as-is, or cancel the contract under your inspection contingency and receive your earnest money back. The escrow holder doesn't make these decisions but facilitates whatever resolution you and the seller agree upon.

Title problems discovered during the search must be resolved before closing. Common issues include unpaid liens, boundary disputes, missing signatures on previous deeds, or unreleased mortgages. Your title company works to clear these issues, but if they can't be resolved, the transaction may need to be delayed or canceled. Serious title defects that can't be cleared might allow you to cancel under your title contingency.

Appraisal shortfalls occur when the property appraises for less than the purchase price. If you're financing, your lender will only loan based on the lower appraised value, leaving you to either bring more cash to closing, renegotiate the price with the seller, or cancel the contract if you have an appraisal contingency.

Loan denials can happen even after initial approval if your financial situation changes, your lender discovers new information, or the property doesn't meet lending requirements. If you've met all loan contingency deadlines and acted in good faith, you should be able to cancel the contract and recover your earnest money.

Disputes over property condition sometimes arise between the final walkthrough and closing. If the property is damaged or in significantly different condition than when you made your offer, you may need to delay closing while issues are resolved, negotiate a credit from the seller, or in extreme cases, cancel the transaction.

When disputes arise, the escrow holder's neutral position becomes especially important. They cannot release earnest money to either party without either mutual written agreement from both buyer and seller, or a court order. If you and the seller disagree about who should receive the earnest money, the escrow company will continue holding it until you reach an agreement or a court decides.

How Much Does Escrow Cost in Utah?

Escrow fees in Utah are separate from title insurance premiums, though they're often handled by the same company and listed together on your closing costs statement.

Typical escrow fees range from $500 to $1,200 depending on your purchase price and transaction complexity. The fee covers the administrative work of managing your transaction: opening the file, holding funds in trust accounts, coordinating with all parties, preparing closing documents, conducting the closing, recording documents, and disbursing funds.

In Utah, escrow fees are customarily split 50/50 between buyer and seller, meaning if the total fee is $800, you'd each pay $400. However, like most closing costs, this is negotiable. In your purchase offer, you can propose different arrangements:

• Seller pays entire escrow fee (common seller concession in buyer's markets)
• Buyer pays entire escrow fee (possible in competitive seller's markets)
• Split 50/50 (standard Utah practice)
• Split proportionally based on other negotiated costs

Some title companies charge a flat escrow fee regardless of purchase price, while others use a sliding scale where the fee increases with higher purchase prices. Escrow fees may also be higher for complex transactions involving multiple properties, land contracts, or commercial real estate.

Additional escrow-related costs might include wire transfer fees (typically $25-$50 if you're wiring your down payment), mobile notary fees ($75-$150 if you want them to come to your location for closing), overnight courier fees for urgent document delivery, and recording fees charged by the county (these aren't escrow company fees, but the escrow holder collects and pays them on your behalf).

When comparing title companies, look at the total cost including both title insurance premiums and escrow fees. One company might have lower title insurance rates but higher escrow fees, while another might have higher insurance rates but lower escrow fees. The total matters more than individual line items.

What Documents Will You Sign During Escrow?

Throughout the escrow process and at closing, you'll sign or receive numerous documents. Understanding the most important ones helps you know what to expect and what you're agreeing to.

Purchase Agreement is the contract you and the seller signed when your offer was accepted. This is the escrow holder's instruction manual—it specifies the purchase price, closing date, contingencies, who pays what costs, and all other terms of the sale. You signed this before escrow opened, but it governs the entire process.

Earnest Money Receipt confirms the escrow holder received your earnest money deposit and is holding it in trust. This is typically provided within a few days of opening escrow.

Preliminary Title Report (also called a commitment for title insurance) is issued by the title company after completing the title search. It shows the current owner, any liens or encumbrances, exceptions to coverage, and the conditions that must be met before they'll issue the final title insurance policy. Review this carefully with your real estate agent.

Settlement Statement (Closing Disclosure for financed purchases) is the detailed accounting of all money in the transaction. It shows the purchase price, your down payment, closing costs, seller credits, prorations, and the exact amount you need to bring to closing. Lenders must provide this at least three business days before closing, giving you time to review before signing.

The Deed is the legal document that transfers ownership from the seller to you. In Utah, most residential transactions use a warranty deed or special warranty deed. The seller signs this before or at closing, and it's recorded with the county after closing to make the transfer official.

Loan Documents (if financing) include your promissory note (your promise to repay the loan), the mortgage or deed of trust (which gives the lender a security interest in the property), and numerous disclosures and acknowledgments required by federal and state law. Your lender prepares these, and the escrow holder facilitates signing.

Affidavit of Title is signed by the seller swearing that they haven't incurred any new liens, aren't involved in bankruptcy or divorce, and that the property is in the same condition as when you made your offer (aside from agreed-upon changes).

Final Title Insurance Policies are provided after closing. You'll receive your owner's policy (keep this with your important documents—you'll need it if you ever file a claim or sell the property), and your lender receives their lender's policy.