What Types of Escrow Services are There?

Escrow refers to money that’s held by a third-party on behalf of transacting parties. Many different types of escrow services exist outside of buying and selling properties. Most escrow companies have experience in these various types, but knowing what you need from your escrow agent is the first step in finding the best company for you.

Software and Source Code Escrow Services

Software escrow services are often referred to as source code escrow. This is when the source code of a software is deposited with a third party escrow agent. The escrow, or the source code of the software, is requested by a party licensing software to ensure maintenance of the software. The source code is released to the licensee if the licensor files for bankruptcy or otherwise fails to maintain and update the software as promised in the software license agreement. Software service escrow is used to mitigate the risk for both the developer and the licensee.

Legal Escrow Services

Escrow is also known to be used judicially. Escrow agents hold accounts during class action lawsuits or environmental enforcement actions so that the money can be distributed in the form of a cash settlement. This way, the defendant is not responsible for the distribution of judgment funds to the individual plaintiffs or the court-determined use (such as environmental remediation or mitigation). The defendant pays the total amount of the judgment to the escrow agent, and the escrow company distributes the funds.

Real Estate Escrow Services

One of the most popular types of escrow services is real estate escrow. Sometimes real estate mortgage is referred to as mortgage escrow accounts by those who are buying or selling a property. In this case, an escrow officer or agent holds money in an account until both parties are satisfied with the transaction. The seller only receives a closing statement and other documents from the escrow account once both parties are completely satisfied and all the funds have been dispersed.

Mortgage Escrow Services

While buying a house, a bank may encourage you to open a mortgage escrow account. Some mortgage companies even require you to start one of these accounts in order to secure the loan. When you launch a mortgage escrow account, you pay a fixed monthly payment to the mortgage company, which then pays your insurance, homeowners fees, and property taxes when the amounts are due.

Mergers and Acquisitions Escrow Services

Escrow arrangements are also used as a part of mergers and acquisitions to supplement the warranties and indemnities offered by the seller. Mergers and acquisitions may also be called indemnities escrow by some companies. This usually takes place when the seller has poor credit or when the buyer is concerned about the seller’s ability to recover funds that may become due.

Death Escrow Services

Property, money and intellectual property can be held in escrow after the passing of a loved one. An escrow officer or agent holds the account and delivers it to the grantee on the condition that the grantor dies. Death escrow is valid as long as the only condition is the grantor’s death and the grantor doesn’t retain legal right to take the dead back out of escrow.

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Posted on May 18, 2023