What is an Escrow Account?

C

The correct answer is C. Escrow.

In the context of real estate transactions, an escrow account is a special account that is set up by a third party (usually a title company or an attorney) to hold funds and documents related to the sale or purchase of a property. The purpose of an escrow account is to provide a safe and neutral place where all parties involved in the transaction can deposit and withdraw funds, and where important documents can be held until certain conditions are met.

One common use of an escrow account in real estate transactions is to hold money that the buyer is required to pay for taxes, insurance, or other expenses related to the property. Instead of paying these expenses directly to the government or the insurance company, the buyer sends the funds to the escrow account, where they are held until they are due. When the taxes or insurance premiums are due, the escrow account makes the payment on behalf of the buyer.

This arrangement provides benefits for both the buyer and the lender. For the buyer, it helps ensure that the funds are set aside and available when needed, so they don't have to worry about missing a payment and facing penalties or foreclosure. For the lender, it provides added assurance that the property taxes and insurance premiums will be paid, which helps protect their investment in the property.

In summary, an escrow account is an account held by a neutral third party (usually a title company or an attorney) into which a home buyer pays money for tax or insurance payments. It is a common and important tool used in real estate transactions to protect both the buyer and the lender.