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escrow

Escrow is an arrangement in which money, property , documents , or other assets are deposited with a neutral third party, known as the escrow agent , who holds them until specified conditions in an escrow agreement are satisfied. The escrow agent releases the assets only when the parties’ agreed-upon instructions have been fulfilled.

Escrow arrangements are commonly used in real estate transactions , where the buyer’s funds are held pending inspections, title confirmation, and closing conditions, and in mergers and acquisitions , where a portion of the purchase price is held after closing to secure representations, warranties , or other obligations .

Escrow is also used in intellectual property and technology transactions, such as source-code escrows, in which a software developer deposits source code with an escrow agent, to be released to the licensee only upon triggering events, such as the developer’s insolvency or failure to provide support.

In litigation , parties may place disputed funds or settlement payments into escrow to ensure that assets are preserved and released only after the conditions of a settlement or court order are met.

[Last reviewed in November of 2025 by the Wex Definitions Team
] 

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