What does the term "escrow" refer to in the mortgage context?

In the mortgage context, "escrow" refers to a process in which a neutral third party holds funds or documents on behalf of the buyer and seller until certain conditions are met, completing a real estate transaction. This mechanism ensures that both parties fulfill their obligations before the transfer of ownership is finalized. For instance, in the home-buying process, funds for the purchase are often held in escrow until all conditions of the sale, such as inspections and repairs, are satisfied. Once these conditions are met, the escrow agent disburses the funds to the seller and transfers the necessary documents to the buyer.

The other options do not accurately define escrow. Mortgage insurance serves to protect lenders against possible defaults but is not related to the holding of funds or documents. The legal process for property seizure typically refers to foreclosure proceedings, which also do not involve the escrow process. Closing costs encompass various fees involved in the transaction, but they are not synonymous with the escrow process itself.