A home mortgage involves large sums of money and reams of documentation. For most people, it's the most complicated and intimidating financial transaction they will ever undertake. Knowing how to apply for a home mortgage is best left for the pros. But what happens to a potential buyer if the financing falls through at the last minute, or their own house doesn't sell in a timely fashion?

How does a buyer protect his or her investment in the event of an unforeseen problem with the title, home inspection, or financing of the purchase?

What is escrow? The escrow process allows all documents and funds for a potential homebuyer's purchase to go to a neutral third party, usually an escrow or title company, which coordinates all the funds, documents and instructions necessary to complete the transfer. It's basically a way of making sure all conditions of the sale are met before the transaction becomes final. The escrow process can be completed in as little as one week, but generally takes 30 to 45 days.

1: Find an escrow officer. Regional custom will dictate whether the buyer or seller chooses the neutral third party and who that third party will be. It can be an escrow officer from an escrow company, someone from a title company or from a title and escrow company. In some areas, title and escrow attorneys are used. Custom and market conditions also dictate which escrow costs the buyer or seller pays. The amount typically totals about 1 to 2 percent of the cost of the home. If you're the one doing the choosing, you'll want to get referrals from people you trust, and then compare services, cost and convenience as you find a suitable escrow officer.

2: Title search. Your escrow officer gets the process rolling by assigning your escrow an account number and collecting the contract and other instructions, along with the buyer's deposit and any additional funds or documents related to the transaction. These deposits will be applied to the purchase price of the home, or returned to the buyer if the deal should fall through. You'll also obtain title insurance, as a safeguard for both you and your mortgage lender against any problems with the title on the property. Then, the escrow officer will perform a preliminary title search, which reveals the current legal owner of the home and any liens or claims against the property (such as tax assessments, outstanding home loans, and third party restrictions that could limit your use of the property). If there are no problems with the title, or you agree to any restrictions there might be, the title is transferred to your name and recorded with the county.

3: Resolve or remove any contingencies. When making an offer, you, as the buyer, will list certain contingencies that must be satisfied before the sale can be finalized. These may include successfully obtaining a mortgage at a particular interest rate, accepting the results of a property inspection, and, maybe, selling your current home. If any one of the contingencies is not met, the deal can be cancelled. But assuming they all fall into place, your deal is a go.

Escrow is a practical arrangement for working through the sticky details of a real estate transaction. While it can be a complicated process, escrow is intended to help.