Escrow Trust Advisors | Why Does a Home Fall Out of Escrow?
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why home falls out of escrow

Why Does a Home Fall Out of Escrow?

When it comes to purchasing a house, the timeline is complex, and there are many moving parts! Whether you’re a buyer or a seller, the journey can be an exhilarating one. Generally speaking, the process goes as planned. But when that’s not the case, and a home falls out of escrow, it can be a gut-wrenching experience, to say the least. 

We get this question quite a bit: why does a home fall out of escrow. So, we wanted to take a moment to discuss some of the reasons why this can happen. 

Buyer’s Mortgage Application Is Declined

This is one of the most commonly occurring scenarios for why a sale falls through. If a buyer’s mortgage application is ultimately declined by the lender and they do not qualify for financing, a home that has gone “pending” can easily fall out of escrow. This can be because of a job status change, accruing additional debt, and more.

Issues That Pop Up During Home Inspection

Obtaining a home inspection is an essential part of the real estate transaction. It allows the buyer to analyze the home before purchase, while affording them the chance to walk away with their earnest money or deposit should the inspection uncover significant issues. When this happens, a buyer is within their right to terminate the transaction, and the home falls out of escrow.

Home Appraises For Less Than The Sales Price

When a home doesn’t appraise for the sales price, the lender or bank may require the buyer to contribute additional cash to shore up the difference between the home’s appraisal value and the sales price. Or, they can also decline the mortgage altogether. 

Buyer Has Trouble Selling Their Home

For many buyers, their purchase is contingent upon the sale of their existing home. But this scenario does not always pan out simultaneously. When a situation like this happens, and the transactions are not proceeding in-step, it can cause a buyer to fall out of escrow. Often, buyers will write a contingent offer, meaning for them to close, their home needs to sell in a specified timeframe. Otherwise, they can pull out of the deal.  

Property Liens or Title Issues Arise

Before closing escrow on a property, the buyer’s mortgage lender will require a third-party company to complete a title search on the property. The objective is that the title is free and clear, but sometimes, this isn’t the case. Title searches can reveal all kinds of issues like outstanding liens, delinquent property taxes, and/or judgments for unpaid work on the home. Additionally, a title search will uncover any additional parties on the home deed, like a spouse or heir, who are required to sign off on the title transfer. And sometimes, that doesn’t go according to plan, causing the home to fall out of escrow.

For assistance with an escrow or to discuss escrow-related questions, please contact us. It would be our absolute pleasure to assist you!