Escrow refers to an arrangement in which a neutral third party holds funds, documents, or both on behalf of two parties until the conditions of a transaction are satisfied. In a real estate purchase, an escrow agent might hold a buyer's earnest money deposit until closing, releasing it to the seller once all contractual conditions have been met or returning it to the buyer if the deal falls through under agreed terms.
Escrow also plays an ongoing role after closing. Lenders commonly require borrowers to fund an escrow account, sometimes called an impound account, from which the lender pays recurring obligations like property taxes and insurance on the borrower's behalf. This protects the lender's collateral by ensuring those bills stay current. Commercial loans may also require escrow reserves for items such as capital expenditures or tenant improvements, giving the lender additional assurance that the property will be maintained through the loan term.
Further reading: Because You Built This
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