Escrow
Escrow is a neutral third-party arrangement where money or documents are held until all conditions of a real estate transaction are met.
Exam Tip
Escrow = neutral third party holding funds until conditions met. Protects both parties.
What is Escrow?
Escrow is a legal arrangement where a neutral third party (escrow agent) holds funds, documents, or assets until predetermined conditions are fulfilled. It protects both buyers and sellers in a transaction.
Escrow in Real Estate Transactions
| Stage | What's Held | Purpose |
|---|---|---|
| Earnest Money | Buyer's deposit | Shows good faith |
| Closing | Purchase funds, deed | Ensures simultaneous exchange |
| Ongoing | Property taxes, insurance | Monthly collection for annual bills |
How Transaction Escrow Works
- Buyer and seller agree to terms
- Buyer deposits earnest money with escrow agent
- Escrow agent holds funds during inspection/financing period
- At closing, escrow disburses funds and records deed
- If deal falls through, escrow follows contract terms for refund
Escrow Accounts (Impound Accounts)
Many lenders require borrowers to pay property taxes and insurance monthly into an escrow account. The lender then pays these bills when due.
Monthly Escrow = (Annual Property Tax + Annual Insurance) ÷ 12
Study This Term In
Related Terms
Earnest Money
Real EstateEarnest money is a deposit made by a buyer to demonstrate serious intent to purchase a property, typically held in escrow until closing.
Closing (Real Estate)
Real EstateClosing is the final step in a real estate transaction where ownership transfers from seller to buyer, documents are signed, funds are exchanged, and the deed is recorded.
Deed
Real EstateA deed is a legal document that transfers ownership (title) of real property from one party to another.
Title
Real EstateTitle is the legal right to own, use, and dispose of real property, representing the bundle of rights that come with property ownership.