Can You Borrow Against Your Escrow?

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Most people use escrow when making real estate transactions.
Most people use escrow when making real estate transactions. (Image: Goodshoot/Goodshoot/Getty Images)

In real estate escrow accounts exist to ensure transactions between parties involved in the sale of property. Since items held in escrow are not immediately available, this creates a problem for anyone wishing to borrow against an escrow account. However, there are some circumstances in which people have received loans on escrow accounts.

Purpose of Escrow

An escrow account is an intermediate account used to facilitate transactions between two parties. The account itself is held by a third party as a way of guaranteeing that funds will be transferred once certain conditions are met. Escrow accounts are commonly used in real estate transactions and also for the payment of regular monthly bills associated with real estate ownership.

Bank Lending

Banks lend money based on the borrower’s ability to pay back the loan. Therefore, banks review things such as the potential borrower’s income, assets and debt when considering whether or not to issue a loan. An escrow account is not acceptable collateral for a loan because the very purpose of escrow is to guarantee that the funds held in the account are available for some purpose. As long as funds are held in escrow, they are not under the potential borrower’s direct control and are therefore not immediately available to pay back a loan, service or any other expenses save those specified in the escrow agreement.

Special Situations

There are cases of certain professionals obtaining cash advances against money held in an escrow account. For example, there are companies that advance money to real estate agents who are waiting to receive commissions held in escrow. In these cases, the lending company does its own research on the agent and the deal involved and then may advance the commission to the agent for a fee.

Considerations

For people wishing to borrow money based on property or money held in escrow, there are a couple of options. The first option is to apply for a loan once a deal is complete and the funds and property held in the escrow account are distributed to the appropriate parties. Another option is to seek out a third party lending company that advances money against property or funds held in escrow.

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