Escrow or an escrow account—also known as an impound account or a reserve account—is a legal document that transfers possession or ownership of a legal document or property to a third party who is not a party to the underlying transaction that the escrow is intended to secure.

For example, escrow or an escrow account may be used to secure a transaction for the sale of real property (a warranty deed held in escrow) or for a loan to purchase real property (a deed of trust transferring ownership to the escrow).

Escrow or an escrow account might also refer to a bank or other account that holds money or other property (earnest money) while the parties to the underlying transaction are in the process of completing the transaction and fulfilling their contractual obligations.

An escrow agreement requires the escrow or escrow agent (a person or entity) to hold a document or property in trust for a specified amount of time or until the occurrence of a certain condition (full payment) or until both parties to the underlying transaction have fulfilled their contractual obligations—at which time the escrow agent is to hand over the document or the property to the grantee (buyer of real property) or the mortgagee (lender for purchase of real property), for example.

An escrow is like a trust account in that the escrow agent holds the document or property in trust for the benefit of another person and not for the benefit of the escrow agent. Although the person or entity that holds the property in trust under the terms of an escrow is often referred to as an escrow agent, they are not an agent with authority to act on behalf of and bind or obligate a certain person (a principal) as an agent is traditionally empowered to do under a state’s common law (court opinions or case law).

In Rhode Island, an escrow or escrow account functions as a third-party holding system designed to secure transactions, particularly in real estate. It involves an escrow agent holding onto a legal document or property until certain conditions of a transaction are met. For instance, in the sale of real property, an escrow account may hold the warranty deed, or in the case of a loan for purchasing real property, it may hold a deed of trust. The escrow agent is responsible for safeguarding the assets or documents until both parties fulfill their contractual obligations, such as full payment. Once the conditions are satisfied, the escrow agent releases the document or property to the appropriate party, like the buyer or lender. It's important to note that while the escrow agent holds the assets in trust, they do not have the traditional authority of an agent to act on behalf of the parties involved. The use of escrow accounts in Rhode Island is regulated to ensure that they are managed properly and that the interests of all parties are protected.