Escrow is an account that is used to store money, typically in the form of a down payment or closing costs, and hold it until the conditions of the transaction have been fulfilled. Once the requirements have been met, the funds are then released to the appropriate party, allowing the transaction to be completed. This type of account is an important tool in ensuring the safety of the funds and that all parties involved in the transaction are satisfied before the funds are exchanged.
For example, when purchasing a home, the buyer’s down payment and closing costs are typically held in escrow until the purchase is finalized, at which point the funds are released to the seller. Similarly, when selling a home, the buyer’s mortgage payments are held in escrow until the sale is completed, and then released to the lender. In both cases, the escrow account ensures that the funds are secure and that all parties involved in the transaction are satisfied before the funds are exchanged.