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A common source of confusion in the title business in Texas is the Escrow Fee. Upon presenting the settlement statement, we often hear a buyer ask a question like, “I’m not escrowing, so why am I paying an Escrow Fee?”

The buyer has recognized the word “escrow” as it applies to mortgage lending, i.e., paying a portion of the yearly property taxes and hazard insurance premium each month along with the principal and interest to the lender for the lender to hold in its escrow account so that it can pay those bills at the end of the year on behalf of the borrower. The buyer’s confusion arises from the fact that escrowing in the mortgage lending context has nothing to do with the Escrow Fee charged by Texas title companies.

In Texas, the Escrow Fee is charged by title companies on virtually every transaction. While many may describe it as an “administrative fee” or a “service fee,” it is more accurately described as the fee charged by title companies for the use of their escrow account and for escrow services. An escrow account is a special bank account setup by the title company for the sole purpose of holding clients’ money.

Escrow services can be generally described as those services necessitated by receiving and holding client funds (earnest money, buyer purchase money funds, loan funds, etc.) and then disbursing those funds by either check or wire to the various payees. This involves escrow accounting. A separate accounting ledger is set up and maintained for each transaction, and all funds must be received before any funds can be disbursed. The lender often “nets out” its own loan fees from the loan funds wire, and the account must be balanced before any checks are cut.

As you can see, both the buyer and the seller benefit by a title company’s escrow services. This is why contracts (including the TREC promulgated form contracts) often call for the buyer and seller each to pay half.

So next time your buyer or seller complains about the Escrow Fee, explore their complaint by asking questions to determine whether they might be confused as to what the Escrow Fee actually is. If they are, a quick explanation of title company escrow services can usually clear things up and make them happy.