Escrow is best known in the context of real estate. An escrow account is setup by an impartial third party such as a bank, lending institution or real estate agent. The escrow holds all the valid documents, deeds and contracts that the buyers and sellers must sign. Close of escrow refers to the closing of all contracts and funds are transferred from the buyer to the seller and relevant documents such as deeds are transferred from the seller to the buyer.
An escrow closing is the high point of a real estate deal. This signifies that all conditions have been met, all documents signed, insurance documents transferred, deeds transferred to the buyer and the grant deed is recorded in the relevant registry. Usually an escrow officer takes care of all the formalities and distributes the documents and records the details. Along with an escrow officer, the real estate agent is also involved, ensuring the clients needs are met and the contractual obligations are satisfied.
However, escrow is not limited to real estate. Escrow accounts are used when large business transactions are carried out; such as buying of businesses. Sometimes escrow accounts are setup to deal with funds that are under litigation. These accounts hold the said funds until the court determines the utilization of these funds. These types of funds run in to millions and billions of dollars and it’s useful for an impartial third party to be involved.