Every day HPP Cares answers clients’ questions about why they should fully-fund their escrow accounts, to access the CalHFA ADU (Accessory Dwelling Unit) Grant funds that have been awarded to them. Before going into the reasons for fully funding the account, it is important to define what an escrow account is. “Escrow is a legal concept describing a financial agreement whereby an asset or money is held by a third party on behalf of two other parties that are in the process of completing a transaction,” according to www.investopia.com. Escrow accounts are managed by an escrow agent. The agent releases the funds only upon the fulfillment of predetermined contractual obligations or upon receiving appropriate instructions.
HPP Cares and the State have an obligation to ensure that the Grant funds issued to homeowners go towards funding predevelopment costs associated with building an ADU. Therefore, as soon as a homeowner is awarded, the $40k goes into the homeowners’ managed escrow account. The State also needs to ensure that the ADU project will not end at predevelopment stage, therefore they expect the homeowner to fully fund the escrow account with the required construction amount before accessing the grant funds already in the escrow account. The construction amount is based on a detailed Scope of Work provided by the contractor who is going to be working on the ADU project.
A fully funded escrow account gives everyone involved in the project (the State, HPP Cares, Contractor, etc) peace of mind that the project will be completed as all the fund required are available as it provides protection for CalHFA ADU Grant recipients, contractors and HPP Cares, mitigates risks, builds trust and transparency. It is a valuable tool for anyone involved in a financial transaction, whether large or small.
