Escrow is a regulated process of transferring property and money using a neutral third party, commonly used in real estate transactions. Online escrow services have been established for remote transactions, but caution is advised due to fraudulent operators. Escrow can also be used for non-tangible assets such as intellectual property.
Escrow is a way to transfer or exchange property and/or money using a neutral third party. In many jurisdictions, escrow agents are a separate profession with their own training and licensure requirements. In other jurisdictions, such as Canada, these functions may be performed by lawyers. In either case, the process is covered by significant regulation and protection through the use of licenses and/or bonds.
The escrow process is most commonly associated with real estate transactions. When a house or property changes hands, the seller of the property transfers title to the property to the escrow agent. Similarly, the buyer wires funds or has a wire transfer of the mortgage proceeds to the broker. When all conditions of the purchase agreement are met, the agent assigns title to the buyer 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 one another. With large purchases, the potential for fraud is significant. To address this issue, online escrow services have been established to provide a trusted third-party means of completing a sale. In response, fraudulent operators have increased their own level of sophistication and established illegitimate services, so it is vital that anyone using such a service proceed with caution.
The trust can also be used to exchange non-tangible assets. In the sale of intellectual property, such as software or industrial designs, a balance must be struck between the amount of detail disclosed by the seller while at the same time confirming the legitimacy of the prospective buyer. With each side opening their position to one escrow agency rather than the other, everyone remains protected. The Software Escrow can also be used to save source code in case a licensee has a problem that the licensor cannot or cannot fix. If such a situation occurs, the agent can release the source code to the licensee, allowing him to fix the problem himself.
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