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 North Carolina, an escrow or escrow account functions as a third-party holding system for funds, documents, or property during a transaction, such as the sale or financing of real estate. The escrow agent is responsible for holding the assets in trust until specific conditions are met, such as the completion of contractual obligations by the parties involved in the transaction. Once the conditions are satisfied, the escrow agent releases the assets to the appropriate party, be it the buyer or lender. North Carolina law regulates escrow accounts, particularly in real estate transactions, to ensure they are managed properly and the interests of all parties are protected. The North Carolina Real Estate Commission provides guidelines for the handling of earnest money and other trust monies by real estate brokers, who often act as escrow agents. Additionally, state statutes and federal laws, such as the Real Estate Settlement Procedures Act (RESPA), impose requirements on lenders to establish escrow accounts for certain loans to ensure the payment of property taxes and insurance. It's important to note that while escrow agents hold assets in trust, they do not have the same authority as traditional agents to act on behalf of the principals involved in the transaction.