An escrow is a neutral third party with whom valuables such as money or documents are deposited by the parties to a transaction.
Who can be an Escrow?
Most commonly, the escrow is a bank with which funds are deposited by the purchaser of goods or services. But, the escrow could also be a lawyer with whom title deeds of a property may be deposited in a real estate transaction.
Importance of Escrow
The escrow is a trusted entity acceptable to all the parties to the transaction. The service provider or seller is comfortable because he knows that the purchaser has contributed the agreed value. The purchaser is satisfied that the funds will not be released by the escrow until the terms and conditions of the transaction are fulfilled.
How it Works?
In a construction project, funds released by lenders would be deposited with an escrow. Home buyers may also deposit their funds in such an account. Disbursements would be released by the escrow to the builder against certificates issued by a project engineer, or otherwise, in accordance with contractual terms. Lenders and home buyers are thus satisfied that funds will not be diverted and the builder knows that funds will not be a constraint for construction progress.
