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Completion Escrow Account for Landscaping and
Driveway
Should Monies be Escrowed for Work to be
Completed after a House Mortgage Closing
By Mark J. Donovan
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Question: Mark,
Should I require a completion escrow account or some type of mortgage escrow
account be set up for holding back monies from the builder until the landscaping
and driveway are completed? I am in the process of building a new home and the
home is not expected to complete until the dead of winter. Consequently the
landscaping and driveway will not be completed until spring when the ground has
unthawed. Since the closing will be in February I am debating asking the builder
or my lending bank to set up a mortgage escrow account or completion escrow
account to hold back the monies necessary for completing the landscaping and
driveway. What are your thoughts on this? CD
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| Answer: CD, You should absolutely require a
completion escrow account to be set up for the funds necessary to complete
the landscaping and driveway when the weather warms. Mortgage escrow
accounts are normally setup by the mortgage bank to collect taxes,
insurances and other fees from the buyer that will be due shortly after the
closing. Likewise, a mortgage lender, or the closing attorney, should also
want to set up a completion escrow account for construction work that will
not be completed by the time of closing.
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It is in both the
interest of the lending bank and the buyer to do this. A completion escrow
account is normally reserved for exactly the type of items you mention.
With escrow accounts a trusted and independent third party receives the funds
from the buyer or lending institution and then disburses the funds to the
particular parties per the stipulations in the contract. For example, the buyer
/ mortgage lender will deliver to the completion escrow agent the funds
necessary to pay the builder. Upon the completion of the landscaping and paving
of the driveway by the builder the escrow agent will pay the builder with the
funds in the completion escrow account.
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The funds held back
in the driveway and landscaping completion escrow account should be of a value
that will allow you or the bank to go out and hire a 3rd party to complete the
work in the event it is not completed by the builder. Consequently the monies
set aside in the escrow account should be at a higher amount than what the
builder says it will cost him to complete these projects. In addition, there
should be a complete date, or a maximum number of days after closing to
complete, included as part of the completion escrow account agreement.
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This way, in the event it is not completed by the specified date, the
monies can be returned to the homeowner or lending bank to allow them to hire a
3rd party contractor to finish the work.
Though water under the bridge at this point, since you are already under
contractual agreement to buy the home upon its completion, it’s always wise to
address these types of issues up front during the home construction contract
negotiations. Besides identifying the possible items that may not be able to be
completed prior to the mortgage closing, the dollar figure for the completion
escrow funds should also be agreed upon. Likewise the expected finish date
should also be included. This information should be included in the purchase and
sales agreement so that the mortgage lender is aware of the need to include
these items in a completion escrow account.
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