A Definition. Escrow is a legal arrangement in which a third party temporarily holds large sums of money or property until a particular condition has been met (such as the fulfillment of a purchase agreement).

What does it mean to be in escrow for a house?

"In escrow" is a type of legal holding account for items, which can't be released until predetermined conditions are satisfied. Typically, items are held in escrow until the process involving a financial transaction has been completed. Valuables held in escrow can include real estate, money, stocks, and securities.

How does an escrow work?

Each month, the lender deposits the escrow portion of your mortgage payment into the account and pays your insurance premiums and real estate taxes when they are due. Your lender may require an “escrow cushion,” as allowed by state law, to cover unanticipated costs, such as a tax increase.