Escrow

Escrow is a legal arrangement in which a neutral third party temporarily holds money, property, or documents until predetermined conditions are satisfied. It is most commonly used in real estate transactions and mortgage servicing.

In a home purchase, earnest money is placed in escrow to protect both buyer and seller during the transaction. The escrow agent releases funds only after all contractual conditions such as inspections, appraisals, and title clearances are met.

For existing mortgages, an escrow account collects monthly payments for property taxes and homeowners insurance alongside the mortgage payment. The lender manages these funds and pays the bills when they come due. While escrow adds convenience, it can sometimes result in shortages or surpluses that require annual adjustment.