Escrow is a way of transferring or exchanging property and/or money using a neutral third party. In many jurisdictions, escrow agents constitute a distinct profession with its own training and accreditation requirements. In other jurisdictions, such as Canada, escrow functions may be performed by attorneys. In either case, the escrow process is covered by significant regulation and protection through the use of licensing and/or bonding. Escrow is most commonly associated with real estate transactions. When a home or property changes hands, the seller of the property transfers the property title to the escrow agent.

Similarly, the buyer either transfers funds or has a bank transfer mortgage proceeds to the escrow agent. When all conditions of the purchase agreement are met, the escrow agent assigns the property title to the purchaser and distributes the funds to the seller. With the Internet age, escrow services have gone digital. Many online businesses allow geographically remote buyers and sellers to purchase goods and services from each other. With large purchases, the potential for fraud is significant. To deal with this issue, online escrow services have been established to provide a reliable third-party means of completing a sale. In response, fraudulent operators have increased their own level of sophistication and established illegitimate escrow services; it is vital that anyone using such a service proceed with caution!

Reasons for Avoiding Escrows: The least important reason borrowers may want to avoid escrow is to capture the interest earnings on the account for themselves. The amounts involved are small. The more important reason is to establish control over the payments. Lenders require escrow to assure that the payments will be made, and borrowers may want to avoid escrow for the same reason. Lenders occasionally screw up, and when this happens it can be a nightmare for the borrower. Some lenders allow you to pay your own property taxes and home insurance premiums, especially if your loan-to-value ratio is below 80 percent. But don't be surprised if the lender boosts your interest rate to compensate for the additional risk they're assuming. Once an escrow requirement is in place, it can be difficult to persuade a lender to cancel it. If your loan is sold, as is common, and there is nothing in the lending agreement that provides for cancellation of the escrow requirement, you'll have to live with the decision of your new mortgage servicer.