A third party’s holding of cash, securities, assets, or instruments in order to guarantee the fulfillment of a contract or agreement. A party, obliged to perform, has to deposit assets with an escrow/ escrow agent (the trusted third party) until the terms and conditions of a contract with another party have been met. The third party receives and disburses the deposited assets for the primary transacting parties in accordance with the escrow agreement.
In other words, the “neutral” third party governs payments between the two parties involved and only releases the funds upon fulfillment of a condition or more as set out in a direct contract between these two parties.
Escrow accounts are used in multiple contexts including mergers and acquisition, contracting, service provision, etc.
An escrow is also known as a tri-party.
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