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 New Mexico (NM), escrow accounts are commonly used in real estate transactions to ensure that both the buyer and seller meet their obligations before the transfer of property is finalized. An escrow agent, which can be a title company, attorney, or other designated third party, holds documents or funds in trust until specific conditions are met, such as the completion of a property inspection, the buyer securing financing, or the seller making agreed-upon repairs. The escrow agent is responsible for overseeing the escrow process, including the disbursement of funds and the transfer of title to the property. New Mexico statutes and regulations govern the use of escrow accounts, including the licensing and regulation of escrow companies. These laws are designed to protect the parties involved in the transaction and ensure that the escrow agent acts in a fiduciary capacity, holding the property or funds for the benefit of the parties rather than for their own benefit. It is important to note that while the escrow agent holds the property in trust, they do not have the traditional authority of an agent to act on behalf of and bind the principal, as defined under common law.