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Escrow is a financial agreement involving two parties, usually a buyer and a seller. The buyer deposits money, securities or other funds into the escrow account, where they are held until both parties involved meet certain pre-defined conditions. The funds then transfer to the seller. The escrow agent is a third party who acts as the escrow account trustee by overseeing the fulfillment of the escrow agreement, and then releasing the funds.

There are a number of different situations that use escrow.  One of the most common is the sale of real estate.  When selling a house, the sales contract may specify that the sale is not complete until certain conditions are met. These can be anything from proof that certain repairs have been made, to passing an inspection, to the buyer qualifying for financing.  Money is usually held in escrow until the sales process is finished.  Even on the day of sale, money is held in escrow until the buyer, seller and their mortgage companies are satisfied that all documents are in order. 

Escrow takes on another meaning after the real estate transaction is complete.  The mortgage company needs to ensure that the new homeowner will pay the insurance and property taxes on the house. An escrow agent holds the money deposited for property taxes and insurance each month, then uses it to pay the premiums when they become due. 

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