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What is Escrow?

Escrow is defined as an impartial, neutral holding place for documents and funds that are used to complete the transfer of real property.

California Civil Code Section 1057 provides this description of an escrow: A grant may be deposited by the grantor with a third person, to be delivered on the performance of a condition, and, on delivery by the depositary, it will take effect. While in the possession of the third person, and subject to condition, it is called an escrow.”

And, in Section 17003 of the Financial Code: “Escrow means any transaction wherein one person, for the purpose of effecting the sale, transfer, encumbering or leasing of real or personal property to another person, delivers any written instrument, money, evidence of title to real or personal property, or other thing of value to a third person to be held by such third person until the happening of a specified event or the performance of a prescribed condition, when it is then to be delivered by such third person to a grantee, grantor, promisee, promisor, obligee, obligor, bailee, bailor, or any agent or employee of any of the latter.”

The two essential requirements for a valid sale escrow are a binding contract between buyer and seller and the conditional delivery of transfer instruments to a third party. The binding contract can appear in any legal form, including a deposit receipt, agreement of sale, exchange agreement, option or mutual escrow instructions of the buyer and the seller.