Escrow account
Definition of "Escrow account"
If escrow is the legal “moment” where assets are held by a third party (an escrow agent) hired by both the buyer and the seller of goods like real estate and insurance until the transaction is completed; it is only natural for the escrow account to be the “place” where the monies of this transaction are held.
For instance: a home buyer and a home seller go into an agreement regarding the fair market value of the house. Home buyer and home seller open an escrow account where the first will deposit the earnest money to the latter and - at least metaphorically – for the latter to store the title of the house to the first because during escrow he is not allowed to touch the house title and sell it to anyone else. They open the escrow account because, if the home inspection unexpectedly shows something unwanted, the escrow agent will be able to return the money to the home buyer, while the home seller will have the security of knowing that the home buyer has the funds to “put his money where his mouth is”. Because the dispute over the findings of the home inspection would commonly go to a “my word against his” that would lead to court battles, and, most of the times, once it was settled, the losing-part would say “well, I don’t have the money anymore” or “Well, I already spent the money”, real estate agents decided to institute a way to secure the money of the transaction, and that was a third-party temporary account: the escrow account.
Once all due diligence regarding the home is done, the escrow agent transfers the funds to the home seller and the transfer of title is done.
Being a temporary account, it gets closed right after all contract conditions in connection with the transaction are met.
Real Estate Tips:
Use our Real Estate Glossary as a real estate knowledge escrow account! Search away until you can't take it anymore and you decide to find a real estate agent to transfer the title of responsible for the home buying/home selling process!
Popular Insurance Terms
Same as term: Additional Living Expense Insurance: coverage under a Homeowners, Condominium, and Renters policy, that reimburses costs of residing in a temporary location until the ...
Sum the insurance company is legally obligated to pay an insured for losses incurred. ...
Financial instruments whose principal and income are established in advance according to contractual terms set forth in the financial instrument's document. Examples of such investments ...
The term pro rata comes from Latin and translates to in proportion, proportionally, the proportion of, proportionately determined, or according to a specific rate. It is often used in legal ...
Value in life insurance policies that entitle the insured to these choices: to relinquish the policy for its CASH SURRENDER VALUE. (Note that in the beginning years the cash value may be ...
Amount that a policyowner can borrow from a cash value of a permanent life insurance policy. ...
One of four types of risks used by the society of actuaries (SA) to determine a life insurance company's overall risk profile when fluctuations in interest rates result in abnormal cash ...
Frequency of premium payment; for example annually, semiannually, quarterly, or monthly. ...
Right that has a limited time in duration for an individual to receive the income generated by assets owned by another individual. ...
Have a question or comment?
We're here to help.