Hello everyone.
This is Charles McShan with Century 21 Universal in Chicago Ill.I had a client ask me this question.What is Ecrow closing process? Another person once said I am from California is the escrow closing process the same nationwide? Those were both good questions.This blog post will attempt to answer both of those questions.For the second question I will briefly say right now that the escrow closing process in California is completely different than here in the Chicagoland area.Why is it different here? Let’s find out by discussing first what does the term escrow mean.Secondly we will follow the escrow closing process in the Chicagoland area from the start to the closing table.Thirdly we will discuss how escrow process on the West coast is different form how we do it here in the Chicagoland area. So let’s get into it.
What is Escrow Closing Process And How Does Real Estate Escrow Works?
In simple terms escrow is a neutral third-party holding arrangement where money,documents or property are kept safe until all terms of the purchase are met.It works like this. Your real estate agent shows you a list of homes for sell on the market.You fall in love with a home.through negotations you settle on a buying price of let’s say $350.000.In 2026 there are very few homes in the Chicagoland area in good condtion selling at that price but we will use that example You decide to put down and earnest money deposit of $7.000.
Once your offer is accepted and the contract is signed both paries typically enter escrow.During this time the buyer completes the home inspection based on that inspection either the deal moves forward or is terminated due to defects found in the home.Yes if the home inspection finds structrural defects and the homeseller is unwilling to fix them or offer credit to the repairs you the homebuyer can legally back out of the contract.
On the other hand if the buyer backs out of the contract without a valid contractual reason the homeseller can request to keep the $7.000 earnest money check as liquidated damages.Homebuying is a bumpy process but if the deal continues to move forward the next steps are the underwriting and appraisal process.The next steps have either the escrow company or title company depending on the state where you live checkng for public liens, back taxes or ownership claims to enure a clean title.
If all goes well In the Chicagoland area you are requred to purchase homeowner’s insurance.You arrange with your agent to do the final walkthrough followed by the closing where funds and deeds are exhange.The homeseller gets paid and the homebuyer receives the keys to there new home.that first part of the escrow account for many gets closed at that time.Want to know more about how esrow works click this link>https://freedom-title.com/blog/understanding-the-escrow-process-a-step-by-step-guide-for-buyers
What Is The Difference Between Escrow Closing Process in Chicago and The State of California?
A: California and other parts of the country
On the West coast they use the process of a neutral escrow officer who works for either and ecrow company or title company with no ties to either buyer or seller.All contingencies are cleared over 30 to 45 days.The buyers and sellers will meet on seperate dates and times to sign the documents before the deeds are recorded with the counties.All earnest money and funds are held by either the ecsrow company or the title ccompany.
B: Here in the Chicaagoland county areas. While not mandated by law every homebuyer and seller are strongely encorage to have legal consel to represent their interests.Real estate contracts here have the attorney-reveiw period. Both lawyers will decide which Title company will handle the closing process. The Title compny handles the title searches and insurance while the lawyers handle the legal reveiws, prorations and settlement statements.Unlike escrow compamies in other states the title companies here do simultaneous closings. The buyers,sellers and there seperate attornies are in adjorning rooms signing documents and transfering funds via table settlements and or wire transfers.
Illinois Real Estate Law
Here is one of the main differences between and escrow style state and what happens in the Chicagoland area and it is noticable right away.Here in the Chicagoland six county area when you make and offer on a property your earnest money will be held either by your buyer’s office, the seller’s office or last resort the title company.This is normal for us living in this area.We think nothing of it but if you are moving into this area from the west coast for example you will not be acustomed to this way of transfering home ownership.
For the record I will repeat this statement.There is no law whch says you must hire a Real estate lawyer but it is in your best option to do so.Why? If for nothing else because the other side will have a lawyer to represent there interests.So when a legal question comes up and you do not have a lawyer.The deal will stall and your Real estate agent cannot and will not answer any legal questions you have. They will say to you,Please consult and attorney!If an Real estate agent/Broker attempts to answer a legal question they will lose their real estate license.So to close that deal and purchase that home you will need a license attorney to sign off on all real estate documents.
In Illinois earnest money is the specific asset( the good-faith cash deposit) which escrow is the legal status of those funds. Under Illinois law the moment and agreement is signed that earnest money legally becomes classified as “escrow money”.So while other states might say put the deposit into escrow and Illinois Real Estate Agent/Broker will say deliver the earnest money to the buyer’s or seller’s office.There the earnest money is placed into a special heavy regulated non-interest bearing escrow trust account.On other occasins the earnest money can be wired directly to the Title company.Either way under Illiniois law if a real estate contract falls apart the broker cannot just give the money back to the buyer or seller.Illinois law states that the funds are frozen until both parties sign a mutual release form or a judge issues a court order informing both sides what they are entitled to
What Does AI say on this subject based on Illinois Law.
If you google the subject AI will give you this answer regarding escrow regarding Illinois lawwhich you can read below.
- Exceptions to Cancellation. You cannot terminate an escrow account at the 65% mark if your loan is insured, guaranteed, or assisted by the state or federal government (such as FHA or VA loans) that mandates escrow. Higher-priced mortgage loans must also meet federal cancellation conditions under Title 12 CFR Part 1026 before escrow can be removed. [1, 2]
- Alternative to Escrow. Instead of a standard monthly escrow account, Illinois allows borrowers to pledge an interest-bearing time deposit (like a Certificate of Deposit) with the lender to cover taxes. [1]
- Deposit Caps and Notices. After the first year of the mortgage, lenders cannot require you to hold more than 150% of the prior year’s assessed property taxes in the account. Lenders must also notify you in writing at closing of your rights under the Act, and if they fail to comply, you can sue for actual monetary damages. [1, 2]
- Strict Deposit Timelines. Sponsoring brokers must deposit earnest money into a separate, federally insured escrow account by the next business day after receiving a signed contract.
- Neutral Third-Party Holding. Funds are held by a neutral escrow holder—typically the listing brokerage, a title company, or a real estate attorney—until the transaction closes or terminates.
- Dispute Resolution. If a deal falls through and the buyer and seller disagree on who gets the earnest money, the escrow holder legally cannot release the money to either side. Funds must remain frozen until both parties sign a written release agreement or a court issues an order directing disbursement.
A:There is a mortgage escrow account.If you are a homeowner who finance a home through a lender you know this process well.At the closing table you agreed to pay off the mortgage note on your home.Your financial lender created an arrangement where your lender collects payment for your property taxes, homeowners insurance and your mortgage bill all as one monthly payment.How many people can come up with that massive tax bill twice a year along with your insurance payment If you rich and you can do it more power to you. but for everyone else your lender breaks those yearly costs into 12 smaller chunks and holds the cash until the bills are do.
B;Lenders often legally require and extra cushion which is up to two months of escrow payments to make sure there is enough money if your tax or insurance bills increase unexpectedly. This is very important because of bad weather and public servants asking for raises your taxes and insurance will keep going up and not down.
C; Your service provider will conduct a yearly escrow analysis.If the taxes or insurance went up you will have a shortage.You will have to pay in one lump sum or spread over the next 12 months.I just got this bill in August so I know about it personally.If you over paid on your taxes you will be intitled to a surplus refund check.
Why is all of this necessary? Well, you know the answer. No one does anything free. It is all about the money.If you fail to pay your propert taxes the locaL goverment will place a tax lien on the home or it can go into foreclosure.Everyone loses and the banks or lenders wind up with foreclosures on their books.If your home burns down without active insurance the property loses it value you are now homeless.In short everyone loses.So the lender’s are protecting their assets.Buying a home is one of the biggest investments in your life and the lending instutions do not want to lose on their investements.If you are a homeowner you are aware of this type of esrow account.If you are thinking of buying a home for the very first time please study up on this type of esrow because if you are not a cash buyer the mortgage escrow account will be Mandatory. There is no way around so do your research on this subject and to help you out Freddie Mac publish and article on it and you can read it free.>.https://myhome.freddiemac.com/blog/homebuying/what-escrow
Conclusion!
So remember the two questions in the title of this blog post.
1:What is escrow and by extension what is the escrow closing process? If you read this blog post you now know the answer.
Question number 2: Does the ecsrow closing process have the same meaning nationwide?
No this blog post also answered that question. Chicago has there own way of handling escrow accounts which is different then in the state of California and maybe also different from where you live.If your local area handles escrow accounts differently then please let me know your local process in the comments below. I hope you found value in reading this post.The year 2026 went by fast did it not? Are you thinking of buying or selling a home within the few weeks? If so I look forward to helping you with any and all your real estate needs.My office is located in the heart of the Wedst Ridge area of the City of Chicago. Take care until the next time.
Charles McShan
312 9143678
cmac2121@yahoo.com
Facebook http://www.Facebook.com/charlesmcshanrealtor/
Website http://www.charlesmcshanchicagolandrealtor.com
Blogpost http://www.charlesmcshan.com
