An Explainer: Escrow Account
The word has its origination in old French term 'escroue', meaning a contract written on a parchment. Today, the word escrow stands for a written agreement kept with a third party and returned after the terms and conditions of a deal are fulfilled. In the world of banking, when two parties engage a third party as the guardian or trustee of a bank account to complete a transaction, it is known as an escrow account. The funds involved in the transaction are kept in this account and are released after the trustee's consent to either party only after they fulfill all the preset terms and conditions. Unlike other accounts, an escrow account is a temporary arrangement and exists till the transaction is complete.
In real estate, developers of under-construction properties operate by opening escrow accounts to assure home buyers that their investment is safe and is being used for the project.
While there was a lot of anticipation that India's Real Estate (Regulation & Development) Act, 2016, will mandate developers to open and escrow account to ensure developer use the funds accumulated for a particular project for that project only, the soon-to-be-enforced law only speaks of a separate account.