An escrow is an arrangement wherein a third party (considered to be neutral or objective) holds funds, documents, or any other property.
This impartial third party acts in behalf of two other parties who are engaged in a business transaction. When this business transaction has been completed, the third party – usually called the escrow agent – releases the funds, documents, or property to the rightful party. When this arrangement is put into place, we normally say that we “put something in escrow.”
There are many applications for putting something in escrow. If you’ve ever bought something online via an auction, you might have had an escrow experience. Sometimes, an escrow service is used in an effort to protect both seller and buyer. When the requirements have been met by both parties, then the money is released.
Escrow services are also often used in huge (as in millions) sales. As an act of faith, the party upon whose shoulders the payment rests puts the money in escrow. The party who is supposed to get the money has the assurance that there is money indeed. The party who is buying has the assurance that the money will not be received and used by the other party unless all the terms of agreement have been met. It’s a win-win situation for everyone involved.
Real estate is also a field which makes use of escrow services on a regular basis. An example is a mortgage escrow. In this situation, homeowners can put money into an escrow account. This money will be held by an escrow agent, which will make the payments when the due dates come around.