What is an Escrow Account and How does it Works?
An escrow account is a financial arrangement where a neutral third party holds funds or assets on behalf of two transacting parties until the terms of an agreement are fulfilled (both the seller and buyer (or their solicitors) are joint account holders). It is commonly used in real estate, where buyers and sellers engage in large transactions providing protection for all parties. For example, the buyer deposits funds into the escrow account, ensuring the seller that the payment is secure. Once all conditions, such as inspections or title transfers, are met, the funds are released to the seller. Escrow accounts are also used by mortgage lenders to manage homeowners’ payments for property taxes and insurance. The lender collects these funds monthly, holds them in the escrow account, and pays the taxes and insurance when due. This process provides security and ensures all parties meet their obligations.