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Real Estate Escrow
Definition
A neutral third-party account holding funds during a real estate transaction and for ongoing payments.
Explanation
Escrow has two roles: during purchase, the escrow agent holds earnest money and funds. After closing, lenders collect property taxes and insurance in an escrow account and pay them when due, ensuring they're paid on time.
Annual escrow analyses may adjust your monthly payment if tax or insurance costs change.
Example
You deposit $5,000 earnest money into escrow. At closing, $3,000 prepaid taxes go into mortgage escrow, paid to the county when due.