What is an Escrow Agent?

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Written By SmarterrMoney.org

The latest in personal finance to help you make smarter money choices. 

DEFINITION: The escrow agent is responsible for ensuring all financial obligations are fulfilled and that any money or securities in an escrow account are managed and dispersed properly.

In the case of municipalities…

The escrow agent, typically a commercial bank, is responsible for holding and managing the securities (e.g., SLGS or TSY) in the refunding escrow account up to and including the date when the refunded bonds are redeemed. 

The escrow agent can make no payment to an investor unless the issuer verifies the payment. On the date the securities are given to the escrow agent, they are also given written instructions on what to do with both the securities and the interest on the securities.

EXAMPLE:Escrow agents act in the interest of both parties to ensure the completion of a financial transaction, such as a sale or refunding, by ensuring the authenticity of verified funds, earnest money, and other legal paperwork. 
Because escrow agents must be neutral parties, they can’t benefit or suffer consequences from the sale or lack thereof — this is also known as lacking a vested interest. 
That said, a majority of escrow agents do hold advanced law degrees. While individuals with the proper credentials can fill the role of an escrow agent, it’s not unusual for the role to go to a 3rd party title company.

Whether individual or company, an escrow agent adheres to predefined rules both on a case-by-case basis and by rules established by varying forms of government.  

What’s important here?

The most important part of an escrow agent’s job is due diligence to solidify the likelihood of the closing process, prevent financial fraud, and guarantee the overall financial transaction. Finding an escrow agent relies primarily on mandates, referrals, and research. While many escrow agents are real estate focused, municipalities commonly use escrow agents for bond refundings and other sizable monetary transactions.