Escrow Agent Services

 

An escrow is:

  • a contractual arrangement in which a third party receives and disburses money or documents for the primary transacting parties, with the disbursement dependent on conditions agreed to by the transacting parties, or

  • an account established by a broker for holding funds on behalf of the broker's principal or some other person until the consummation or termination of a transaction; or,

  • a trust account held in the borrower's name to pay obligations such as property taxes and insurance premiums.

The word derives from the Old French word escroue, meaning a scrap of paper or a scroll of parchment; this indicated the deed that a third party held until a transaction was completed.

Escrow generally refers to money held by a third-party on behalf of transacting parties. It is best known around the world in the context of real estate (specifically in mortgages where the mortgage company establishes an escrow account to pay property tax and insurance during the term of the mortgage).

Escrow is an account separate from the mortgage account where deposit of funds occurs for payment of certain conditions that apply to the mortgage, usually property taxes and insurance. The escrow agent has the duty to properly account for the escrow funds and ensure that usage of funds is explicitly for the purpose intended. Since a mortgage lender is not willing to take the risk that a homeowner will not pay property tax, escrow is usually required under the mortgage terms. Escrow companies are also commonly used in the transfer of high value personal and business property, like websites and businesses, and in the completion of person-to-person remote auctions, although the advent of new low cost online escrow services has meant that even low cost transactions are now starting to benefit from use of escrow.

Escrow accounts are often used during private property transactions to hold solicitors' clients' money, such as the deposit, until such time as the transaction completes.

Other examples include:

  • purchases of commodities and real estate

  • purchases a second hand car, where the money may be released at the end of a warranty period

  • deposits for a property rental, where the money is released after the tenant moves out

  • provision of construction services, where the money may be released when the building work is complete to a defined standard, or when defined parts of the work are complete.

 

An unrelated type of escrow is when a purchaser of a complex system, such as bespoke process control software or a large industrial installation, may require the supplier to place the design into source code escrow, so that the purchaser remains in a position to maintain and modify the system in case of the demise of the supplier.