Escrow account definition: Escrow is a legal arrangement in which an asset (such as cash, real property or other tangible assets) is deposited into an escrow 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 officer will deliver the asset to the party prescribed by the contract. (Wikipedia)
1- Joe comes and wants Jane to design a web-site.
2- Jane says that she will not design the new web-site unless Joe pays her.
3- Joe says: I won’t pay you until you do my web-site.
4- Mike, who is an escrow officer says to both parties: Let Joe give me the money and I will only pay Jane until you Joe is satisfied with the new web-site design.
5- Both Joe and Jane put a contract in writing stating that Mike will only release the money to Jane until the new web-site is complete and Joe is satisfied with the design.
6-Joe gives the money to Mike and a copy of the executed contract.
7-Mike then puts the money into an escrow account and uses the executed contract to prepare the escrow instructions.
7- Both Joe and Jane sign the escrow instructions which now become the new escrow agreement.
8- Jane gets to work and designs the web-site.
9- The web-site is done and Joe is satisfied with the design.
10- Jane gives a copy of the web-site to Mike, the escrow office.
11- Mike then gives Joe his web-site and Jane her money.
12- At this point, all of the contractual conditions have been met… and escrow can now close.
9- Escrow closes and everybody is happy.
Note: Escrow will act as a neutral third party, will not favor either the buyer nor the seller in a transaction and will not give any legal advice to either party.
Escrow will only hold the money and make sure that all conditions of the contract have been met before releasing any money or transferring any title.
I hope you enjoyed this simple definition of “What is Escrow?”