Escrow Account

An escrow account is an account designated to hold escrow funds. The escrow accounts purpose is to keep funds held under an escrow agreement segregated from any other account of the escrow agent. The escrow agent has fiduciary responsibility to disburse the funds in the escrow account according to the agreement. An escrow account is often used in real estate transactions. The buyer's contract deposit is held in the escrow account until closing. For example, in New York City, the seller's attorney usually handles the escrow account. That fiduciary duty to handle the escrow account legally supersedes the attorney's loyalty to the seller. Thus, the seller's attorney cannot release the buyer's funds from the escrow account to the seller before the closing. If the deal fails to close, circumstances dictate who is legally entitled to the escrow account funds. In one famous case, $2million sat in escrow throughout litigation until a judge ruled that the buyer had forfeited the funds by backing out. Escrow account interest can therefore be meaningful.