Escrow or an escrow account—also known as an impound account or a reserve account—is a legal document that transfers possession or ownership of a legal document or property to a third party who is not a party to the underlying transaction that the escrow is intended to secure.

For example, escrow or an escrow account may be used to secure a transaction for the sale of real property (a warranty deed held in escrow) or for a loan to purchase real property (a deed of trust transferring ownership to the escrow).

Escrow or an escrow account might also refer to a bank or other account that holds money or other property (earnest money) while the parties to the underlying transaction are in the process of completing the transaction and fulfilling their contractual obligations.

An escrow agreement requires the escrow or escrow agent (a person or entity) to hold a document or property in trust for a specified amount of time or until the occurrence of a certain condition (full payment) or until both parties to the underlying transaction have fulfilled their contractual obligations—at which time the escrow agent is to hand over the document or the property to the grantee (buyer of real property) or the mortgagee (lender for purchase of real property), for example.

An escrow is like a trust account in that the escrow agent holds the document or property in trust for the benefit of another person and not for the benefit of the escrow agent. Although the person or entity that holds the property in trust under the terms of an escrow is often referred to as an escrow agent, they are not an agent with authority to act on behalf of and bind or obligate a certain person (a principal) as an agent is traditionally empowered to do under a state’s common law (court opinions or case law).

In Minnesota, an escrow or escrow account is used as a financial arrangement where a third party holds and regulates the payment of funds required for two parties involved in a given transaction. It helps make transactions more secure by keeping the payment in a secure escrow account which is only released when all of the terms of an agreement are fulfilled as overseen by the escrow company. Escrow is commonly used in real estate transactions to hold the buyer's earnest money, in mortgage lending to hold funds for property taxes and insurance, and in the sale of a business or high-value goods. The escrow agent is responsible for holding and properly disbursing the funds or property according to the escrow agreement. Minnesota statutes and federal law regulate escrow services to ensure they operate fairly and legally, protecting all parties involved in the transaction. The escrow agent does not have the traditional authority of an agent to act on behalf of the parties but is bound by the terms of the escrow agreement to act as a neutral third party.