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What Is Escrow?

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The word “Escrow” comes from the French word “escroue” which literally means a piece of paper, which signifies a deed which the third party “holds on to” until a transaction is finalized. In simple words, Escrow is a legal arrangement whereby a neutral third party, called the escrow agent, holds something (generally money or documents) on behalf of the other two parties during the period in which the deal is being finalized. For Example, If you’ve ever made an informal bet with a friend, you may have asked a third person to hold the money until the wager was resolved.

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Putting money in escrow means that parties involved in some financial transaction entrust the money to a third party. It is the responsibility of that third party to hold onto the money until certain conditions are met. Now, when we say “third party” we are of course referring to certain qualified agencies. The third party is supposed to be neutral and not working for or influenced by any of the two parties involved in the transaction. You can contract the services of an escrow agent for various deals and there is no minimum or maximum amount of money required.

An escrow account can be used in the sale of a house, for example. If there are conditions to the sale, such as the passing of an inspection, the buyer and seller may agree to use escrow. In this case, the buyer of the property will deposit the payment amount for the house in an escrow account held by a third party. This assures the seller – in the process of allowing the house to be inspected – that the buyer is capable of making payment. Once all of the conditions to the sale are satisfied, the escrow transfers the payment to the seller, and title is transferred to the buyer.

Putting money into escrow is not an investment; it is merely a way to ensure that certain monetary transactions go smoothly.

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