What is Escrow?

by Investing School on December 10, 2009

If you are like many people who have heard this word used for a variety of situations, you may have wondered if you understood exactly what it meant. Escrow, when used in United States, usually refers to real estate situations, but can also be applied to other instances as well. You are about to learn precisely what escrow means.

Escrow is a special account. There are different types of escrow accounts. If you are a real estate broker, you have the authority to open an account on behalf of someone else for the purpose of holding funds to pay obligations such as property taxes and insurance premiums.

Escrow companies are used quite often in the sale of business and personal property, and remote auctions like eBay. In the US, escrow accounts are used to keep sellers’ client’s money, i.e. deposit, etc. until the transaction is completed.

Escrow can also be heard in judicial circumstances. Escrow funds can be used to distribute the monies from settlement that came as a result of a class action suit. The defendant will pay the amount that was decided upon for the judgment to the escrow account and the funds will then be distributed by an escrow officer.

Escrow can also be seen in automated banking machines. This is the method in which a machine is able to hold and distribute money. The machine is able to hold the money deposited separately and if there is a problem the money can be returned from escrow.

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