Real Estate
What is Escrow?
Definition
Escrow is a neutral third-party account that holds funds or documents during a real estate transaction until all closing conditions are met. Post-closing, an escrow account may also collect monthly property tax and insurance payments alongside the mortgage.
Real-World Example
A buyer deposits $12,000 earnest money into escrow. The funds are released to the seller only after inspections, appraisal and title clearance are complete.
Why It Matters
Escrow protects both parties from fraud and premature release of funds. Post-closing escrow accounts also prevent property tax delinquency, which can trigger foreclosure faster than a missed mortgage payment.
Frequently Asked Questions
Who runs the escrow?
Depending on the state, it is a title company, escrow company or real estate attorney.