Settlement Agent Role in the Refinance Process

By Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience

Edited by Michael Jensen, Mortgage and Finance Guru

Updated March 15, 2020

The refinancing closing process is administered by a settlement agent who handles the transfer of funds through an escrow or trust account.  A settlement agent is also known as a closing agent or escrow agent. In short, the settlement agent's role is to make sure that all parties deliver and receive what they are supposed to when the refinance closes -- the lender provides mortgage funds to the borrower and receives a note, the borrower receives the funds from the lender and the borrower's existing mortgage is paid off.  At the bottom of the page, we provide a diagram that illustrates the role of the settlement agent in the refinance process.

In the western U.S., the settlement agent is typically an escrow company or title company (the company that provides the title report and title insurance). In the eastern U.S., an attorney typically serves as the settlement agent. Many title companies have in-house settlement agent or escrow divisions that provide mortgage settlement services. With refinances it is common for both title and settlement services to be provided by a title company, except for in states where real estate attorneys serve as settlement agent.

Borrowers may be able to save money on the combined cost of title and settlement fees by using a title company to provide both services. For example, instead of using a title company for title insurance and a third party escrow company for settlement services the borrower may receive a discount by using a title company for both services. In some states borrowers are required to use a real estate attorney for settlement services so it is not possible to use one company for both title and settlement services.

Where it is legally feasible, we encourage borrowers to shop around and compare the cost of obtaining title and escrow services separately to the cost of obtaining these services from one company. Although title insurance fees are set by state regulators, escrow fees are not, so you may be able to save money by working with one company for both services.

When the settlement agent opens an escrow or trust account, it is often referred to as "opening escrow."  The settlement agent also provides the loan documents to the borrower that outline the key terms of the refinance transaction including the Closing Disclosure.  The Closing Disclosure outlines the final, actual terms of the mortgage, although the lender is legally responsible for the content of the Closing Disclosure.  The Closing Disclosure must be provided to the borrower at least three days prior to the mortgage closing.

• Review our Day-by-Day Mortgage Closing Schedule

All funds involved in the refinance process are deposited into an escrow or trust account administered by the settlement agent and distributed to the appropriate parties when the transaction closes.  The lender provides instructions to the settlement agent that determine how the mortgage funds are distributed at closing. The settlement agent provides escrow instructions to ensure that all third parties receive their fees and commissions, that the borrower's bank is repaid and that any leftover proceeds go to the borrower.

The settlement agent also ensures that the property owner receives the grant deed, the legal document that conveys property ownership, and that the lender receives the deed of trust or mortgage, the legal document that indicates that there is a mortgage on the property. The escrow account is typically open for a fixed period of time – 30, 45, 60 or 90 days. If the refinance is not completed during this fixed period of time it may be necessary to extend the escrow and refresh some of the documents, such as the title report.

Settlement agent fees vary by loan amount, property value and city but generally range between $800 and $2,000.  Technically, the borrower has total control in selecting the settlement agent.  In practice, however, the choice of settlement agent for a refinancing is typically made by the lender.

As depicted in the chart below, the settlement agent administers the refinancing closing process and manages the transfer of funds, properties and legal documents to all parties involved in the refinance process.

Sources

"How It Works: The Closing Process."  My Home by Freddie Mac.  Freddie Mac, February 17 2016.  Web.