Escrow Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Escrow, written in plain English, along with examples of how it is used.
What is Escrow?
1\) n. a form of account held by an “escrow agent” (an individual, escrow company or title company) into which is deposited the documents and funds in a transfer of real property, including the money, a mortgage or deed of trust, an existing promissory note secured by the real property, escrow “instructions” from both parties, an accounting of the funds and other documents necessary to complete the transaction by a date (“closing”) agreed to by the buyer and seller. When the funding is complete and the deed is clear, the escrow agent will then record the deed to the buyer and deliver funds to the seller. The escrow agent or officer is an independent holder and agent for both parties who receives a fee for his/her/its services. 2) n. originally escrow meant the deed held by the escrow agent. 3) n. colloquially, the escrow agent is called an “escrow,” while actually the escrow is the account and not a person. 4) v. to place the documents and funds in an escrow account, as in: “we will escrow the deal.”
History and Meaning of Escrow
Escrow is a process commonly used during real estate transactions and other financial transactions. The term "escrow" originates from the French word "escroue," which means "scroll" or "piece of parchment." In the 19th century, escrow accounts were commonly used in California gold rush transactions as a safe way to hold funds and ensure proper delivery of goods.
Today, escrow is an arrangement in which a neutral third party, known as an escrow agent, holds onto funds and documents until both parties involved in a transaction fulfill the terms of the agreement. The escrow agent is responsible for ensuring that all conditions of the transaction are met before releasing the funds or documents.
Examples of Escrow
- When buying a home, the buyer typically deposits the funds into an escrow account held by a title company. The funds are held in the account until the sale is completed and then disbursed to the seller.
- In online transactions, an escrow service may be used to hold the funds until the buyer receives the product and confirms that it is as described in the listing.
- In a mortgage refinance, the lender may hold the funds in an escrow account to ensure that property taxes and insurance premiums are paid.
- During a business acquisition, the buyer and seller may agree to use an escrow account to hold funds until certain conditions, such as the transfer of intellectual property rights, are met.
- In a security offering, an escrow agent may be used to hold securities until certain conditions are met, such as the completion of a merger or acquisition.
Legal Terms Similar to Escrow
- Trust account - a type of account used by lawyers and other professionals to hold funds for clients. Like an escrow account, the funds are held until certain conditions are met.
- Fiduciary - a person or entity that holds a position of trust and responsibility for managing assets or funds on behalf of another party.
- Closing agent - a neutral third party responsible for overseeing the closing of a real estate transaction and ensuring that all funds and documents are properly transferred.