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Topic of the Day: Escrow
Escrow is a legal arrangement in which an asset (such as cash, real property or other tangible assets) is deposited into safekeeping (e.g. a bank account) under the trust of a neutral third party (escrow agent) pending satisfaction of contractual contingency or condition. Once the condition has been met, the escrow agent will deliver the asset to the party prescribed by the contract. Escrow is best known in the United States in the context of real estate (specifically in mortgages where the mortgage company establishes an escrow account to pay property tax and insurance during the term of the mortgage), escrow companies are also commonly used in the transfer of high value personal and business property, like websites and businesses, and in the completion of person-to-person remote auctions (such as eBay). In the UK escrow accounts are often used during private property transactions to hold solicitors' client's money, such as the deposit, until such time as the transaction completes. Some solicitors have/had taken to using this money as a loan and got themselves into severe trouble. Escrow is also known in the judicial context. So-called escrow funds are commonly used to distribute money from a cash settlement in a class action or environmental enforcement action. This way the defendant is not responsible for distribution of judgment monies to the individual plaintiffs or the court-determined use (such as environmental remediation or mitigation). The defendant pays the total amount of the judgment (or settlement) to the court-administered or appointed escrow fund, and the fund distributes the money (often reimbursing its expenses from the judgment funds). In some jurisdictions, real estate brokers are considered to act as escrow agents when they accept deposits or earnest money for the purchase of real property. In many jurisdictions, the duties of such agents are codified.
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