Escrow

Business, Legal & Accounting Glossary

Definition: Escrow


Quick Summary of Escrow


Escrow is a contractual arrangement in which a third party receives and disburses money or property for the primary transacting parties, most generally, used with plentiful terms that conduct the rightful actions that follow.




What is the dictionary definition of Escrow?

Dictionary Definition


An arrangement under which a deed, money, security, or other property or document is held by a neutral third-party (called an escrow agent) in trust for a first-party (called grantor, obligor, or promisor) for a specified period or until the occurrence of a condition or event. The escrow agent is duty-bound to deliver the asset or document in his or her possession to a named second-party (called grantee, obligee, or promisee) upon the fulfilment of the condition(s) or the happening of a stated event, as established in the escrow agreement.

a bond, deed, or other document kept in the custody of a third party and taking effect only when a specified condition has been fulfilled.

  1. legal A written instrument, such as a deed, temporarily deposited with a neutral third party (the escrow agent), by the agreement of two parties to a valid contract. The escrow agent will deliver the document to the benefited party when the conditions of the contract have been met. The depositor has no control over the instrument in escrow.
  2. legal In common law, escrow applied to the deposits only of instruments for the conveyance of land, but it now applies to all instruments so deposited.
  3. legal Money or other property so deposited is also loosely referred to as escrow.
  • n. a form of account held by an “escrow agent” (an individual, escrow company or title company) into which is deposited the documents and funds in a transfer of real property, including the money, a mortgage or deed of trust, an existing promissory note secured by the real property, escrow “instructions” from both parties, an accounting of the funds and other documents necessary to complete the transaction by a date (“closing”) agreed to by the buyer and seller. When the funding is complete and the deed is clear, the escrow agent will then record the deed to the buyer and deliver funds to the seller. The escrow agent or officer is an independent holder and agent for both parties who receives a fee for his/her/its services.
  • n. originally escrow meant the deed held by the escrow agent.
  • n. colloquially, the escrow agent is called an “escrow,” while actually the escrow is the account and not a person.
  • v. to place the documents and funds in an escrow account, as in: “we will escrow the deal.

Full Definition of Escrow


Funds paid by one party to another to hold until the occurrence of an event, after which the funds are released to a designated individual.

In contract law, escrow is a legal arrangement whereby an asset is held by a third party, called the escrow agent, for delivery from one party to another once certain conditions are met. Escrow is commonly used in high-value transactions. Documents, title to real estate, software code, and of course, cash, can all be held in escrow. In real estate, the buyer’s deposit is typically held in escrow until the closing, when title is transferred. The fiduciary duty of the escrow agent is generally to the seller. The importance of picking a trustworthy escrow agent cannot be understated. There have been several cases of attorneys who, while acting as escrow agent for their client, took funds held in escrow.

Escrow is a legal arrangement in which an asset (often money, but sometimes other property such as art, a deed of title, website, or software source code) is delivered to a third party (called an escrow agent) to be held in trust pending a contingency or the fulfilment of a condition or conditions in a contract such as payment of a purchase price. Upon that event occurring, the escrow agent will deliver the asset to the proper recipient, otherwise, the escrow agent is bound by his or her fiduciary duty to maintain the escrow account.

Not all escrow agreements impose the duties of a legal trustee on the escrow agent, and, in fact, in many such agreements, escrow agents are held to a mere gross negligence standard and benefit from indemnity and hold harmless provisions.

While escrow is best known in the United States 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 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 (such as eBay).

Escrow is also known in the judicial context. So-called escrow funds are commonly used to distribute money from a cash settlement in a class action or environmental enforcement action. This way the defendant is not responsible for the distribution of judgment monies to the individual plaintiffs or the court-determined use (such as environmental remediation or mitigation). The defendant pays the total amount of the judgment (or settlement) to the court-administered or appointed escrow fund, and the fund distributes the money (often reimbursing its expenses from the judgment funds).

In some jurisdictions, real estate brokers are considered to act as escrow agents when they accept deposits or earnest money for the purchase of real property. In many jurisdictions, the duties of such agents are codified.

Source code escrow agents hold source code of software in escrow just as other escrow companies hold cash. The highly valuable (and often secret) source code is only released by the agent to either party upon specific terms of the escrow agreement (such as failure to maintain the application, transfer of ownership of the intellectual property rights, or the liquidation of the owner of the source code).

Escrow is also used in the field of automated banking and vending equipment. One example is automated teller machines (ATMs), and is the function which allows the machine to hold the money deposited by the customer separately, and in case he or she challenges the counting result, the money is returned. Another example is a vending machine, where the customer’s money is held in a separate escrow area pending successful completion of the transaction. If a problem occurs and the customer presses the refund button, the coins are returned from escrow; if no problem occurs, they fall into the coin vault.

Types Of Escrow Services

The workflow of Escrow Services may vary according to the nature of specific industry. For instance, in the electronic components industry, according to Hong Kong Inventory Limited, the escrow services are sub-divided by two types: normal Escrow Service and Escrow Service with Inspection (Escrow/i). The latter consists of a pre-shipment inspection process which has to be carried out before sending the goods to buyers. This is important in electronic components trading since there is not any unified naming system in electronic components. Dispute always come from the difference in understanding with respect to a specific part number.

Escrow/i services are subdivided into two different levels. The standard Escrow/i service includes a visual inspection, known as Inspection Level 1. Inspection Level 2 involves intermediate physical inspection, including visual inspection along with decapsulation, radiography and solderability.


Examples of Escrow in a sentence


When Charles closed on the house, he didn’t need to move in right away, and he allowed the previous homeowners to remain there, once they agreed to pay rent into an escrow account with his lawyer.
Both parties in the bidding war over the antique collection were required by the seller to put ten per cent of their bid into an escrow account as a guarantee of their payment.


Synonyms For Escrow


deposit, impounding, trusted third party, security, guarantee

Cite Term


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Escrow. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. September 23, 2021 https://payrollheaven.com/define/escrow/.
Chicago Manual of Style (CMS):
Escrow. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. https://payrollheaven.com/define/escrow/ (accessed: September 23, 2021).
American Psychological Association (APA):
Escrow. PayrollHeaven.com. Retrieved September 23, 2021, from PayrollHeaven.com website: https://payrollheaven.com/define/escrow/

Definition Sources


Definitions for Escrow are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 28th April, 2020 | 11 Views.