What Is an Escrow and When Is It Needed?

Where does your money go when it is “in escrow”? Who is responsible for this? So you’re in trouble? Looks like you’re in trouble. Money still exists, right?

Even if you’ve never dealt with an escrow before, you will likely run into it at some point. If you’re buying a home or dealing with a troubled landlord, an escrow may come in handy. You can also hear this term if you buy or sell anything of value: a car, a boat, a work of art. If significant money and assets change hands, don’t be surprised if an “escrow” appears.

But what is it? Think of it as monetary uncertainty, but more as useful monetary uncertainty. When your money is in escrow, it simply means that it is being held by an impartial third party. This usually happens when you exchange money for something of value to keep the buyer and seller honest until the deal is formalized.

How escrow works for home buyers and sellers

When you buy a home, you can place your money on escrow so that the seller accepts your offer and fulfills all conditions of the sale, such as renovations. At the same time, the seller can transfer the house for escrow. After the conclusion of the transaction, the seller receives the money, and you receive the document. Escrow staff make sure that the timing of the transaction runs smoothly.

Your lender can also open an escrow account for you. Some lenders may collect funds monthly to pay bills, such as property taxes, and then make those payments when the due date approaches. Your lender says, “We will keep this money until you need it, but we will not use this money for our business.”

How escrow works for tenants and landlords

Now you might be thinking, “Hey, I have no special value. This does not apply to me. ” But even if you are just starting to build your financial foundation, you may run into escrow.

Say that the heater in your apartment is broken and the landlord says they will fix it. But that was November and now December. This is problem. If your landlord violates your basic needs for safety and comfort, you can withhold your rent. But you won’t do that by simply ignoring the first of the month and wasting that money. Instead, you can apply for an escrow rent through your local court system.

Community Legal Aid , a non-profit law firm based in Ohio, explains that you must provide written notice to your landlord before applying for an escrow transfer. But this is the last resort you should be aware of if you have a landlord who is known to be difficult to reach.

Bottom line: If you are dealing with money in escrow, it is because both parties want to make sure that the transaction is completed honestly. You have no problem and your money still exists.


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