Ritvik M. Kulkarni, III BSL LLB, ILS Law College, Pune
An escrow is a financial instrument which is held by a third party (escrow agent) on behalf of the (mostly two) parties to a transaction. The monies in this escrow account are released only after the happening or non-happening of certain pre-decided events.
The most common example of such escrow arrangements can be found in the sale of real estate (in the US), where the buyer is required to deposit a certain amount of money in an escrow account, which is released and paid to the seller after the former has successfully met with all the conditions of their agreement to sell.
Another instance of an escrow arrangement is when a lender asks the borrower to put up security against the loan. In such agreements, the lender requires the borrower to deposit a certain amount of money (either at once or on a monthly basis) in the escrow account. If the borrower fails to pay back the amount of the loan (in accordance with the loan agreement), then the lender can, inter alia, withdraw the borrower’s money in the escrow account to adjust her dues. On the other hand if the Borrower successfully pays back the loan amount, then she will get back all the money in the escrow account.