Legal Word of the Day
Entry: Escrow
Pronunciation: es - kro
Definition: something (such as a legal document, money, real estate, etc.) delivered by one person to a neutral third person for the third person to hold and deliver to a different person when certain conditions or events are met; verb: to put into escrow
Ok, that may sound like a lot, but it’s fairly straightforward. Escrow can best be understood if we give it some context. So, let’s take a look at how escrow basically works in real estate transactions.

Escrow – In Real Estate Transactions

Escrow is usually the best known in the context of real estate transactions. In particular, escrow in real estate occurs when a buyer places money for the purchase of a property in an escrow account until all the conditions of a purchase agreement are met by the seller, including such things as financing, home inspections, title search, etc. So, the buyer places the money "in escrow" to show the seller than he or she is serious about purchasing the property, but the seller will not receive any money until the seller satisfies all the conditions that the buyer wants (such as adequate financing, a clear home inspection, etc.)

Escrow – In Other Transactions

Escrow also occurs in many other situations, such as in judicial decisions. For example, money may be placed in an "escrow account" by a defendant to pay a plaintiff that wins or settles a case for a certain amount of money. That way, the defendant is not responsible for actually paying the plaintiff. Rather, the defendant sends the money to an escrow account and the administrator of the escrow account sends the money to the plaintiff. This helps to reduce any fighting between the plaintiff and defendant and "keep the peace" after the case is over.

In an even simpler example, a vending machine or other holding device can act as an escrow account holder. When you place coins into a vending machine the vending machine holds the money in a separate compartment until the transaction is completed. If during the course of the transaction you want your money back before you receive anything, you likely can get the coins from the "escrow" compartment of the machine by pressing the release button on the vending machine. So, even vending machines can act as an escrow account.

Now, the next time you are a buyer, seller, borrower, lender, plaintiff, defendant, or otherwise, and you hear the word "escrow," you’ll have a better idea of what’s going on. In addition, escrow holders can be individuals or companies, and they’re usually companies in corporate transactions (such as a bank or separate escrow company). You should realize that escrow holders have certain obligations, including: safeguarding the funds and/or documents in the escrow account; properly disbursing the funds and/or documents; and complying with all the other terms and conditions set up for the escrow account.

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