Accounting & tax
Escrow
Money or documents held by a neutral third party until specific conditions of a deal are met.
Glossary
Accounting & tax
Primary references on this page:
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CFPB Regulation X, 12 CFR 1024.17: Escrow accountsEscrow is an arrangement where a neutral third party holds funds or documents until the agreed conditions are satisfied, then releases them. In real estate it shows up in two common places: during a purchase, an escrow agent holds the buyer’s earnest money and paperwork until closing; and with a mortgage, the lender may keep an escrow account to pay property taxes and insurance out of your monthly payment.
The point is trust — neither side has to rely on the other’s word, because a third party controls the money until the terms are met. Some jurisdictions also require security deposits to be held in a separate account, a related idea of keeping funds segregated.
Closing escrow and mortgage escrow are different records
A purchase escrow is a transaction arrangement: an escrow holder follows written instructions for money and documents through closing. A mortgage escrow or impound account is administered by a servicer to collect and disburse property taxes, insurance, or other covered charges. Neither meaning should be confused with a tenant security-deposit account, whose custody rules depend on state and local law.
For a mortgage example, $4,800 of annual property tax plus $1,800 of annual insurance equals $6,600, or a simple $550 monthly planning amount. The actual servicer deposit can differ because bills change, disbursement dates differ, an initial deposit or cushion applies, and the annual analysis can identify a shortage, surplus, or deficiency.
The landlord decision is who controls each payment
A landlord with mortgage escrow still needs to verify that the correct parcel and policy were paid, especially after a refinance, insurance replacement, assessment change, or servicing transfer. If the loan has no escrow, the owner needs a separate calendar and cash reserve for the large bills instead of assuming the principal-and-interest payment is the full property obligation.
RESPA and its implementing rules address covered mortgage escrow administration, but coverage and requirements depend on the loan and facts. Security-deposit segregation follows a different body of law. Use the account statement and current rule that actually govern the funds in question.