Real Estate Law · Haute Lawyer Network
What Is Escrow in a Real Estate Transaction?
Last reviewed: June 2026
Escrow is a legal arrangement in which a neutral third party — the escrow agent — holds funds, documents, or other assets on behalf of two or more parties to a transaction, to be released when specified conditions are met.
In real estate transactions, escrow serves multiple functions at different stages.
During the contract period, escrow holds the buyer's earnest money deposit — protecting both parties and ensuring the deposit is available to be applied to the purchase or returned to the buyer depending on the outcome.
At closing, escrow is the process through which funds and documents change hands — the buyer's funds, the lender's funds, and the executed deed are all held by the escrow agent until all conditions are met, then released simultaneously.
After closing, the escrow account associated with the mortgage holds monthly payments for property taxes and insurance.
Frequently Asked Questions
Who is the escrow agent?
In most western states, escrow is handled by a licensed escrow company or title company. In attorney states — including Florida, New York, and others — a real estate attorney or title attorney typically serves as the settlement agent.
Can the buyer get their earnest money back?
Yes, if a contingency is not satisfied within the contingency period — financing falls through, inspection reveals problems, or the appraisal comes in low. If all contingencies are removed and the buyer fails to close without a valid reason, earnest money is typically forfeited to the seller.
Who controls the escrow account?
The escrow agent holds the funds in a neutral capacity — neither the buyer nor the seller can unilaterally demand the funds back. If the parties dispute what should happen to the funds, the escrow agent may file an interpleader action with the court.
What are closing costs paid through escrow?
Lender fees, title insurance premiums, escrow fees, recording fees, prepaid taxes and insurance, and prorated items are all typically paid through the closing escrow.
Can a real estate transaction close without escrow?
In some jurisdictions and for some transaction types, yes — but it requires extreme care and trust between the parties. Escrow protects both buyer and seller by ensuring simultaneous exchange and is strongly recommended for virtually all real estate transactions.
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