Legal Dictionary
Escrow
Definition
A bond, deed, or other document kept in the custody of a third party and taking effect only when a specified condition has been fulfilled.
Deep Dive
Escrow is a legal and financial arrangement where an asset, typically money or documents, is held by a neutral third party (the escrow agent) on behalf of two other parties involved in a transaction. The escrow agent holds these assets until specified conditions in a contract are met, at which point they are released to the appropriate party. This arrangement provides security and trust, mitigating risk for both buyer and seller by ensuring that all obligations are fulfilled before the transaction is finalized.
Examples & Use Cases
- 1In a home sale, the buyer's down payment and earnest money are placed in an escrow account until all contingencies are met and the deed is ready to be transferred.
- 2A portion of the purchase price in a business acquisition being held in escrow for a year to cover potential indemnification claims or warranty issues post-sale.
- 3A software vendor placing its source code in escrow, to be released to customers only if the vendor ceases operations or fails to provide agreed-upon support.
Related Terms
FiduciaryTrust AccountContingency