Escrow
Definition
Escrow is an arrangement in which a neutral third party holds documents, funds, or other items on behalf of the buyer and seller until all conditions of the transaction are met.
Example
After signing a purchase agreement, the buyer deposits $10,000 in earnest money with the escrow company. The escrow agent holds this deposit in a trust account. At closing, once all conditions are met, the escrow agent releases the earnest money toward the purchase and disburses funds to the seller.
Exam Tip
The escrow agent is a NEUTRAL third party — they do not represent the buyer or the seller. Earnest money must be deposited into an escrow or trust account, never the broker's personal account. Exam questions often test the difference between escrow for a transaction (closing escrow) and escrow for taxes and insurance (impound accounts).
Related Title Transfer Terms
Deed
A deed is a written legal document that conveys (transfers) ownership of real property from one party to another. It must be delivered to and accepted by the grantee to be effective.
General Warranty Deed
A general warranty deed provides the greatest protection to the grantee by guaranteeing that the grantor holds clear title and has the right to sell the property. It includes covenants that protect against all defects in title, even those arising before the grantor owned the property.
Special Warranty Deed
A special warranty deed guarantees that the grantor has not caused any title defects during their period of ownership, but does not warrant against defects that existed before the grantor acquired the property.
Quitclaim Deed
A quitclaim deed transfers whatever interest the grantor may have in a property without making any warranties or guarantees about the quality of title. It offers the least protection to the grantee.
Bargain and Sale Deed
A bargain and sale deed implies that the grantor holds title and possession of the property but does not include warranties against encumbrances or title defects.
Deed Requirements (Essential Elements)
For a deed to be valid, it must contain several essential elements including a competent grantor, identifiable grantee, consideration, legal description, granting clause, signature of the grantor, and delivery and acceptance.
Frequently Asked Questions
Test Your Title Transfer Knowledge
Practice with exam-style questions to make sure you can apply Escrow and other title transfer concepts.