What is Escrow?
Escrow is a financial process often used in real estate transactions to ensure buyer and seller security. In an escrow arrangement, a third-party intermediary holds funds or property documents until both parties fulfill all terms of the purchase agreement. The escrow agent ensures that payments are made and documents are transferred at the appropriate time.
In the context of home insurance, escrow can be used to manage homeowners insurance and property taxes. Mortgage lenders may require borrowers to have an escrow account, into which monthly payments for taxes and insurance are deposited. The lender then pays these obligations on behalf of the homeowner, ensuring that coverage and taxes are up to date.
Escrow protects all parties involved by guaranteeing that obligations are met before funds or assets are released. It ensures that the buyer’s money is safe until the seller fulfills their contractual obligations and vice versa.
Escrow accounts can also be useful in the insurance claims process, where disputed funds may be held by an escrow agent until the settlement is finalized.