A temporary account held by a third party on behalf of two other parties in a transaction, typically involving real estate. For homeowners, it often holds funds for property taxes and insurance premiums, ensuring these expenses are paid on time.
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Banking
Escrow Account
Definition
A temporary account held by a third party on behalf of two other parties in a transaction, typically involving real estate. For homeowners, it often holds funds for property taxes and insurance premiums, ensuring these expenses are paid on time.
Example
As part of his mortgage, Mark's lender required him to pay a portion of his property taxes and homeowner's insurance into an escrow account each month, which the bank then used to pay those bills directly.
Key Points
- 1Account held by a third party for specific funds.
- 2Common in real estate for taxes and insurance.
- 3Ensures timely payment of recurring property-related costs.
- 4Protects both the borrower and the lender.