Ever feel like “escrow” is a mystery box in the homebuying process? You are not alone. In Massachusetts, escrow can mean a few different things, and each one matters to your budget, your timing, and your peace of mind. If you are buying in Reading or the North Shore, a clear roadmap helps you move from accepted offer to keys with confidence. In this guide, you will learn what escrow is, how it works here in Massachusetts, and the exact milestones to expect so you can plan ahead. Let’s dive in.
Escrow basics in Massachusetts
In Massachusetts, closings are attorney led, and escrow has a few common uses you will encounter.
Earnest money (deposit) escrow
This is the money you put down after your offer is accepted. It shows good faith and is held in a neutral account until closing or a contract resolution. The Purchase and Sale Agreement (P&S) should state who holds the funds and how the deposit will be applied at closing.
- Typical holders: a real estate broker’s trust account or an attorney’s client trust account. In Massachusetts, attorneys use IOLTA client trust accounts for this purpose.
- What to do: make sure the P&S names the escrow holder, then request a written deposit receipt once funds are delivered.
Closing escrow with attorneys
At closing, the buyer’s and seller’s attorneys coordinate funds, prepare closing statements, and handle recording. Your attorney will manage the flow of money in and out of a client trust account and work with the title team to clear liens and insure title.
Lender escrow for taxes and insurance
After you close, your mortgage servicer may collect monthly amounts for property taxes and homeowner’s insurance. These funds go into a lender-managed escrow account and are paid out when bills come due.
From offer to close: the timeline
Every deal is unique, but a typical Massachusetts purchase runs about 30 to 60 days from accepted offer to closing. Here is how escrow shows up at each step.
Offer accepted (Day 0)
- You submit earnest money as agreed in the P&S.
- Confirm in writing who holds the deposit and the rules for release or refund.
Due diligence and contingencies (about 7–21 days)
- Inspection usually happens within 7 to 10 days. You may proceed, request repairs, or cancel if your contingency allows.
- Your mortgage application and document collection begin.
- Your attorney reviews and negotiates the P&S, sets deadlines, and starts title work. A municipal lien certificate may be ordered to verify taxes and local charges.
Appraisal and underwriting (often 2–4 weeks)
- The lender orders an appraisal. If value comes in lower than the contract price, you may renegotiate or bring more cash.
- You work through any underwriting conditions. Expect to receive a Closing Disclosure at least 3 business days before closing for most loans.
Final steps (1–7 days before close)
- Do a final walk-through within 24–48 hours of closing.
- Your attorney prepares closing figures and wiring instructions. The seller’s attorney prepares the deed and related documents.
- You review the Closing Disclosure carefully and plan your final funds transfer.
Closing day
- You sign loan and title documents, and funds are wired to the attorney trust account or delivered by certified check.
- The deed is recorded. Keys are released after recording per local custom.
- Your lender sets up any required tax and insurance escrow for future payments.
Who holds funds and why it matters
Brokers vs. attorneys
Massachusetts practice allows either a broker or an attorney to hold your deposit. Many buyers prefer their attorney’s client trust account so the same professional coordinating title and closing also holds the funds. The right choice depends on the deal and what you and the seller agree to in the P&S.
Get and keep your deposit receipt
Always obtain a written receipt that shows the amount, the holding account, and the date received. File it with your P&S and share it with your lender and attorney.
Key documents to expect
Your team will help you track documents throughout the process. Common items include:
- Purchase and Sale Agreement: sets price, deposit, contingencies, deadlines, closing date, and escrow holder.
- Earnest money receipt or escrow agreement: proves where the deposit is held and terms for release or refund.
- Required disclosures: for pre‑1978 homes, lead paint disclosures and a federal pamphlet are required. Sellers may also provide additional disclosures.
- Loan disclosures: your Loan Estimate appears early in the process. Your Closing Disclosure arrives at least 3 business days before closing for most loans.
- Title work: title search and title insurance commitments. Your lender requires a lender’s policy. You will be offered an owner’s policy.
- Municipal lien certificate: confirms property tax status and certain local charges.
- Deed and recording documents: prepared by the seller’s attorney and recorded at the registry of deeds.
Earnest money and contingencies
Typical deposit amounts
Deposit amounts vary by deal. It is common to see a few thousand dollars or roughly 1 to 3 percent of the purchase price. The exact figure is negotiable and should reflect the strength of your offer and the terms of your contingencies.
Refunds, forfeitures, and avoiding disputes
- If you properly exercise a contingency within the deadline, your deposit is typically refundable.
- If you breach the P&S without a contractual right, the seller may be entitled to keep the deposit. Exact outcomes depend on the contract.
- To avoid disputes, keep contingency deadlines and remedies in clear written language, get deposit receipts, and have your attorney oversee the P&S.
Lender escrow for taxes and insurance
How monthly payments are set
Your lender estimates annual property taxes and homeowner’s insurance, then divides that total across 12 months and adds it to your mortgage payment. Many programs allow a cushion as permitted by federal rules.
Annual analysis and changes
Servicers complete an annual escrow analysis. If tax or insurance bills rise, your monthly payment may increase or you may owe a shortage. If bills fall, you may receive a surplus or a reduced payment. Ask your lender about the initial escrow funding at closing and how future adjustments are handled.
Reading and North Shore specifics
Municipal lien certificates and local charges
In Reading and many Massachusetts towns, attorneys often order a municipal lien certificate to confirm property taxes and certain assessments. If unpaid items appear, they must be cleared or escrowed before closing. Build time into your schedule for the town’s processing.
Older homes: lead paint, oil, septic
Many North Shore homes predate 1978. Expect lead paint disclosures for those properties. Older houses may have or once had oil heat. Confirm the presence and condition of tanks and check for any local requirements. If the property is not on municipal sewer, the seller may need to provide septic information or inspection details that can affect timing.
Flood zones and coastal factors
Parts of the North Shore fall within FEMA flood zones. If the property is in a high‑risk zone, your lender may require flood insurance, which can influence your monthly costs and escrow setup. Ask your attorney and lender early in the process so there are no surprises.
Condominiums
For condos, lenders and title insurers often require a review of master insurance, reserves, budgets, and a condo questionnaire. You may need to plan for prorated condo fees at closing.
Risks to watch and how to prevent them
- Wire fraud: Never rely solely on emailed instructions. Before wiring funds, call your attorney using a phone number you already trust to confirm routing and account details.
- Title or municipal surprises: Order the title search and municipal lien certificate early so any liens or balances can be addressed in time.
- Appraisal gap: If the appraisal is lower than the contract price, be ready to negotiate or bring more cash to close.
- Missed contingency deadlines: Put every critical date on a shared calendar and ask your attorney for reminders.
- Escrow shortfalls after closing: Plan for possible increases in your monthly payment after the annual escrow analysis.
Buyer checklist: escrow and closing
Use this quick list to stay on track once your offer is accepted:
- Confirm who holds your deposit and get a written receipt.
- Track contingency deadlines for inspection, financing, appraisal, and title.
- Ask your attorney which municipal certificates will be ordered and when.
- Confirm if your lender requires an escrow for taxes and insurance.
- Review title insurance options, including an owner’s policy.
- Verify wiring instructions by phone before sending any funds.
- Ask about local timelines that could affect closing, such as lien certificate processing or flood insurance documents.
- Schedule your final walk‑through and plan for utility transfers.
When you understand how escrow works in Massachusetts, you reduce surprises and protect your deposit. With the right team, you can move from offer to close with clarity and control. If you are planning a purchase in Reading or the North Shore, our team is ready to guide you through each step and coordinate the details with your lender and attorney. Connect with the Livingston Group to schedule a complimentary strategy consultation.
FAQs
What does “escrow” mean in a Massachusetts home purchase?
- It can refer to your earnest money deposit held in a neutral account, the attorney-managed funds and documents at closing, or a lender account that pays your taxes and insurance after you own the home.
How much earnest money is typical in Reading, MA?
- Deposit amounts vary by deal and are negotiable. You often see a few thousand dollars or about 1 to 3 percent of the purchase price, applied to your costs at closing.
Who holds my deposit and how do I verify it?
- A broker’s trust account or an attorney’s client trust account typically holds deposits. Make sure the P&S names the holder and ask for a written receipt once funds are delivered.
When is my deposit refundable?
- If you cancel properly within a contingency window in the P&S, your deposit is typically refundable. If you breach without a contractual right, the seller may be entitled to keep the deposit.
Do I have to escrow taxes and insurance with my lender?
- Many lenders require a tax and insurance escrow, especially for certain loan programs or lower down payments. Ask your lender early about requirements and the initial escrow deposit due at closing.
What could delay closing escrow in Reading?
- Common causes include appraisal delays, underwriting conditions, unpaid municipal charges shown on the lien certificate, title issues, or late changes to wiring instructions. Early ordering and careful verification help avoid delays.
