Final answer:
Escrow involves the use of a neutral third party to handle funds and documents in real estate transactions, particularly instruments affecting real property, to ensure proper execution of terms such as confirming a clear property title and managing payments for home insurance and property taxes.
Step-by-step explanation:
An escrow handled by a title company generally involves the safeguarding and execution of documents and funds that are critical to real estate transactions. This process specifically concerns itself with instruments that affect real property, which refers to land and any structures attached to it. In the context of buying a home, escrow services facilitate the proper handling of a buyer's funds, ensuring that the payment for the property is released to the seller only when all conditions of the sale have been met, such as ensuring a clear property title.
During the escrow process, parties in a real estate transaction are assured that their interests are protected. For instance, the title company in charge of the escrow account can manage the payment of home insurance and property taxes, integrating these costs into the buyer's monthly mortgage payment, making it more convenient for the homeowner. There's also the matter of transferring property rights which allows the new owner the right to enter into contracts concerning the property. In the case of a discrepancy in the possession date due to unforeseen circumstances, escrow can also involve the refunding of sums paid or the adjustment of the agreement accordingly.