Escrow Agent

What is an 'Escrow Agent'

An escrow agent is a person or entity that holds property in trust for third parties while a transaction is finalized or a disagreement is resolved. The role of escrow agent is often played by an attorney (or notary in civil law jurisdictions). The escrow agent has a fiduciary responsibility to both parties to the escrow agreement.

BREAKING DOWN 'Escrow Agent'

An escrow agent essentially serves as a neutral middleman in the context of an escrow agreement. An escrow agreement is a contract between two parties whereby they agree that a third party should hold an asset on their behalf until their transaction is completed. The funds or assets are held by the escrow agent until it receives the appropriate instructions or until predetermined contractual obligations have been fulfilled. Money, securities, funds and titles to real estate can all be held in escrow.

Escrow Agent and Trustees

There are similarities between the role of a trustee and the role of an escrow agent, but there are significant differences as well. The two roles are similar in that in each case a third party holds property "in trust" for someone else and has a fiduciary duty. However, a trustee has a duty towards the beneficiary (or beneficiaries) of the trust and must act in their best interest. In contrast, an escrow agent's duty is towards both parties to a transaction, and he is tightly bound by the terms of the escrow agreement.

Escrow Agent in Real Estate Transactions

Escrow agents are typically associated with selling or buying a home or other real estate. In some jurisdictions, including the United States, they may be referred to as title agents. In these cases, the escrow agent secures the property and examines documents to make sure the terms of the sale are met on each end, serving both the buyer and seller in the transaction.

An escrow agent may be a title company when it comes to selling a home. In such cases, the title company holds the deed in escrow until all of the terms of both the buyer and seller are met. The buyer may deposit the money for the purchase with the escrow agent, which serves to validate the transaction and reassure the seller until last-minute closing terms are met.

In summary, whether the escrow agent is a business or an individual, the purpose they serve is that of a neutral, trusted third party to transactions that may involve persons who never end up meeting each other.

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