What are Escrow Instructions?

Mary McMahon
Mary McMahon

Escrow instructions are detailed instructions provided to a person or firm which is acting as an escrow agent in a transaction. By law, the escrow agent cannot do anything beyond the scope of the instructions. This is done to protect all parties in the transaction, but it means that the instructions must be very precise and must account for eventualities so that escrow isn't held up because the escrow agent is unable to act. Many people rely on boilerplate forms for escrow instructions which allow people to fill in the blanks and generate a complete list of instructions.

Escrow instructions identify the parties in the deal, along with the escrow agent.
Escrow instructions identify the parties in the deal, along with the escrow agent.

Escrow instructions identify the parties in the deal, along with the escrow agent. They tell the agent what must be done to complete the deal. This includes describing the terms of the agreement, how funds should be held, when funds can be disbursed, how pro-rating should be handled if it comes up, and so forth. Escrow instructions also typically identify the time period of the escrow and provide any other information which may be relevant.

Before escrow instructions are submitted to the escrow agent, they are reviewed by the parties to the transaction so that any necessary changes can be made. If the instructions need to be altered, this is done before signing off on them, as once the instructions are signed, they go into legal effect. Since the details can get complex, people are usually encouraged to work with someone who has legal experience with the type of transaction involved to make sure that their interests are represented in the escrow instructions.

These legal documents come up most commonly in real estate transactions, in which escrow is commonly used to hold funds while the specifics of the deal is worked out. Escrow also ensures that both parties must comply with their part of the deal by having a third party hold funds and sensitive documents. The escrow agent must work with the parties in the deal to complete the deal successfully and ensure that all of the minutia are attended to.

A lawyer can write up custom escrow instructions for a specific deal, which may be done when the deal is complex or there are special needs involved. People who are not clear about the instructions should not sign the document until it has been adequately explained. If anything seems erroneous or confusing, the parties should speak up for clarification before the instructions are signed and sent to the escrow agent.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a wiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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Discussion Comments


It has been awhile since I have borrowed money for a mortgage loan, but I remember paying an escrow fee when we bought our first house.

This money that was put in escrow was also used to make sure there was enough money to pay for the property taxes.

I think it is a lot easier to have your money in an escrow account and have your property taxes paid by someone else.

If it was up to me, I think it would be too easy to forget to make that tax payment. It is also hard to come up with a big chunk of money like that, so using an escrow account can be really helpful.

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