escrow n : a written agreement (or property or money) delivered to a third party or put in trust by one party to a contract to be returned after fulfillment of some condition

English

Etymology

From Middle English word escrowl, scroll.

Noun

1. 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. In common law, escrow applied to the deposits only of instruments for conveyance of land, but it now applies to all instruments so deposited.
3. Money or other property so deposited is also loosely referred to as escrow.

Translations

• Dutch : borg
• Finnish: kolmannen haltuun uskottu asiakirja, escrow
• French: fiducie
• German: Treuhand
• Lithuanian: Salyginio deponavimo sutartis
• Spanish: fideicomiso
• Swedish: deposition

Escrow is a legal arrangement in which an asset (such as cash, real property or other tangible assets) is deposited into safekeeping (e.g. a bank account) under the trust of a neutral third party (escrow agent) pending satisfaction of contractual contingency or condition. Once the condition has been met, the escrow agent will deliver the asset to the party prescribed by the contract.

Types of escrow

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). In the UK escrow accounts are often used during private property transactions to hold solicitors' client's money, such as the deposit, until such time as the transaction completes. Some solicitors have/had taken to using this money as a loan and got themselves into severe trouble.

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 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.

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.

Digital assets

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).

Legal implications

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.

See also

• Closing
• Escrow instructions
• Internet escrow
• Power of attorney
• Real estate
• Stewardship

External links

• Mortgage escrow description with tips and scams
• Escrow Process Elements & Tips
• Example Escrow Agreement Form

References

bail, bond, earnest, earnest money, gage, handsel, hock, hostage, mainprise, pawn, pignus, pledge, recognizance, replevin, replevy, surety, token payment, undertaking, vadimonium, vadium