What is an Escrow?

An escrow is a title, a bond, or alternative document taking effect only when a given condition was met. It is then kept in the custody of a 3^rd party called an escrow agent. An escrow account is a legal arrangement where a sum (may be in cash, property or other tangible goods) are deposited with an escrow agent for safekeeping. This sum is placed in the custody of a neutral party until the contract or the conditions are met. Once the contract or conditions are finalized, the agent will give the sum that was in the escrow account to the entity or person as stated in the contract.

The escrow accounts are widely used in the real estate market. Generally, institutions that lend money for mortgages, ask borrowers to deposit money in escrow accounts. This money has a purpose which is usually to pay insurance or taxes on the property.

Process of Escrow

• The buyer delivers the item to the escrow agent;
• The agent retains the item until they meet certain requirements;
• Having fulfilled the conditions, the agent pays the amount to the correct party.

Escrow Accounts in Real Estate

The escrow accounts are the accounts that lenders set up for collecting money “up front” to cover future expenses when you take a mortgage, such as property taxes and insurance. Lenders provide these accounts to ensure that the property taxes and insurance will be paid on time.

The escrow account is beneficial to borrowers because it helps them plan and save to pay property taxes and insurance charges. The fact that the lender may charge you each month means you do not have to worry about missing your property tax payment or insurance payment.

Legal Consequences

Escrow agents are held to a gross negligence standard and gain and hold harmless provisions. Not all escrow arrangements impose the obligations of a legal trustee to the escrow agent. Substantially higher legal standards may apply in the event the escrow agent is licensed by governmental authority.