WHAT IS ESCROW?

The word Escrow derived from the French word ‘escroue’, which means a piece of paper. This signifies the English definition of escrow which is a deed that a third party holds onto until certain condition(s) are met. For example, when we go to an ATM to withdraw money, the ATM is holding the money until we select which amount and then verify the withdrawal. In this case the ATM is the third party and the condition(s) are verification, pin, etc. Most often escrow is used in real estate.

WHEN IS ESCROW USED AND WHO IS INVOLVED?

In real estate, an escrow account is opened involving a third party that is non-emotionally linked and neutral to the lender and the borrower to ensure certain conditions are met. The third party is usually called an escrow officer or agent and they also have the responsibility of making sure all documents are properly signed and processed in accordance to the agreement between the seller, buyer, and lender. Escrow is always a legal arrangement and involves tangible assets such as cash and real property.

WHY IS ESCROW USED?

Basically, escrow is used to assure that no cash, real property, and/or other tangible assets change hands until ALL conditions are met. Whether it is primarily protecting the buyer, lender, or seller, in the end it is making sure that all parties involved are in accordance with the agreement.

BENEFITS OF ESCROW

The benefits of escrow include legality and helping the buyer spread payments over the course of 12 months. The legality is mainly to assure that if everything doesn’t happen smoothly or one party doesn’t hold up their part of the agreement, then legal action can be taken such as liens on property. The buyer can benefit from having an escrow account so they are able to evenly spread out their payments rather than have two or three large payments in a 12 month period. This benefit appeals to many buyers.