New service gives downpayment insurance.

New service gives downpayment insurance

A new trend in handling real estate down payment escrow funds, providing "down payment insurance" for home buyers and sellers, has been introduced by Escrow Services of New York (ESNY), headquartered in Rockville Centre on Long Island.

ESNY and a similar firm in Manhattan are believed to be the first "escrow insurance" companies in the Northeast, introducing an "escrow agent" service concept which has been popular for years in California and other states.

It involves the use of escrow agent firms to provide protection for escrow depositors and eliminate escrow deposit bookkeeping headaches for attorneys.

ESNY's concept of using such an independent escrow agent was reviewed last month by the Nassau County Bar Association's Committee on Professional Ethics. The digest of the Committee's opinion (#91-30) states that: "An attorney may permit or recommend the use by the attorney's client of an independent third party escrow agent to hold the purchaser's deposit in a real estate transaction where the funds are paid directly to the escrow agent pursuant to agreement between purchaser, seller and the escrow agent."

Reports about the new service and its advantages have appeared in Newsday, The New York Times and on the front page of the New York Law Journal, and it is drawing considerable attention from both escrow depositors and attorneys.

"Brokers can help protect a client's position by encouraging the use of an escrow agent," said William Voss, president of ESNY.

Attorneys can have their clients contract directly with ESNY for escrow agent service, just as they already do for other services involved in a real estate closing or other escrow situations.

ESNY provides bonded independent security for escrow deposits, assuming direct responsibility for escrow funds at every step of the escrow process, "right through to the delivery of signed and certified checks at closings."

ESNY credits all interest earned on escrowed funds directly to the client with clients being billed directly for ESNY's services at closings, on a fee schedule based on the amount in escrow.

As a result, ESNY's Voss said, "escrow service clients have clear, fully insured protection at little or no cost and the client's attorney is out of the thankless business of record-keeping and worrying about escrowed funds."

A key attraction of this escrow agent service, Voss added, is that "the funds are absolutely protected every step of the way. We're assuring this for the attorney's clients by having one of the country's largest financial service organizations, which already safeguards more than $800 billion, serve as ESNY fund custodian. A nationally recognized money management firm will handle the escrow funds, which will be invested in short-term U.S. government treasuries, exclusively."

There is no cost to the attorney for the escrow service. One hundred percent of the interest earned on an escrow deposit is credited to the client and, in many cases, will cover the modest fee charged for the service or even result in a small profit for the client.

The service includes dollar-for-dollar escrow insurance with no upper limit, eliminating the need to maintain escrow accounts at more than one bank due to limited FDIC deposit insurance.

That means larger amounts, say $5 million, are protected dollar for dollar since the ESNY custodian firm's minimum insurance cap is $250 million, and can be as high as $800 million depending on technical circumstances.

ESNY's service also provides storage of all financial records, deposit slips and canceled checks for 10 years, a period even longer than required usually by statutes, in certified, fireproof vault storage.

"All of this," Voss said, "sets up a business situation where everybody wins. Attorneys are now relieved of all the time consuming escrow fund management obligations and their clients receive the highest security through bonded protection for the funds they put in escrow, at little or even no net cost."