The term ‘Escrow’ originally refers to a formal instrument or deposit of a document but nowadays, it is used to describe money deposits. So, it means that anything having value in money can be transacted against escrow, like deed, bond, stock, written instrument, etc.

So, if you are getting into any transaction and planning to pay escrow, then you should sign an escrow agreement in order to clear everything right from the beginning.

What Is an Escrow Agreement?

This type of agreement is created to define understanding and arrangements between parties, when one agrees to deposit an asset to a third party (an escrow agent) who acts as an intermediary in the agreement.

The asset will then be transferred to the second party under certain conditions. Basically, the escrow agreement highlights the terms and rules to be followed by both parties because they both are responsible for their successful execution.

An escrow contract is normally required for real estate transactions and includes personal details of the contracting parties with escrow clauses along with the escrow agent involved in the transaction.

The party who is going to make a deposit (either as an asset of funds) is referred to as a depositor. This deposit is handed over to the escrow agent who will, later on, transfer them to the beneficiary once the conditions are fulfilled.

Escrow agreements usually involve a number of financial transactions, especially when dollar amounts are involved in online sales or real estate.

Who Uses an Escrow Agreement?

When it comes to exploring the usability of escrow agreement formats, business deals emerge as the first beneficiary, where one party has to be cured about the fulfillment of obligations by the other party.

For instance, sellers must get the surety of being paid by the buyers and this is where escrow agreement comes in. The agreement is created when the buyer agrees to send escrow along with details of when and how the remaining disbursement will be made.

Here, attorneys will be the escrow agents who are bound by certain terms of the agreement as well. In the stocks/securities industry, an escrow agreement to hold funds is needed to deal in stocks.

They are used against initial public offerings or when stock option plans are granted. The reason why escrows are needed for stocks is that they enable owners to hold the instruments for a minimum time period until they get the chance to trade them freely.

For a real estate deal, an escrow agreement template involves the following as escrow agents:

  • Notaries
  • Attorneys
  • Title agents

They are responsible to hold the deed until the buyer performs due diligence like inspection in order to be sure about what they are getting. This agreement is useful to ascertain that both parties are capable of bringing their deal to an end.

What Is Included in the Escrow Agreement?

When two parties agree to transact, they have to mutually decide some terms and conditions, which they both have to follow until the agreement will come to an end. Typically, the escrow instructions template comprises of the following parties:

  • Depositor
  • Beneficiary
  • Escrow agent

The agent is responsible to take over the asset or funds from the depositor and keeps in custody until the seller meets all conditions mentioned in the agreement. Other than that, the escrow agreement explains the following information for the three parties:

  • Details of depositor, beneficiary and escrow agent
  • Important expressions/clauses in the agreement
  • Amount of escrow funds along with date, time and place
  • Conditions to be met to release the escrow
  • Agent’s acceptable use of funds/assets
  • Agent’s liabilities and obligations
  • Agent’s fees and expenses
  • Venue and jurisdiction, if there is a breach of terms

When the parties are unsuccessful to meet the conditions and the case is brought to the court, the parties have to try their level best to complete the performance criterion because without this, the court will not instruct to release the deposit.

Though, they can give a certain time period for their performance. The parties will then have to adhere to the time or else, the rights of the first party will be forfeited for the property in escrow.

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Conclusion

With all these details about escrow agreements, it would be quite easy for you to figure out how you will have to proceed with the terms and conditions.

However, in case of any confusion or doubt about any escrow clause, CocoSign is 24/7 ready to assist you. It’s just a matter of a few minutes and one of our experts will be at your service.

Disclaimer

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