Escrow Account

Explore what an escrow account is in Canadian real estate, how it protects both parties, and when it's used to hold deposits or other funds.

Escrow Account

May 22, 2025


What is an Escrow Account?

An escrow account is a third-party account used to hold funds—such as deposits or property taxes—until specific conditions of a real estate transaction are met.

Why Escrow Accounts Matter in Real Estate

In Canadian real estate, escrow accounts are most commonly used to:
- Hold the buyer’s deposit until closing
- Collect and disburse property taxes or insurance premiums (typically for U.S. mortgages but occasionally used in Canada)
- Secure funds during disputes or conditional agreements

These accounts are managed by neutral third parties like lawyers, notaries, or trust companies. This ensures fairness and legal compliance, protecting both buyers and sellers during the transaction.

For example, the buyer’s deposit is held in trust and only released once all conditions are fulfilled and the deal is finalized.

While not always referred to as 'escrow' in Canadian terminology, the function of holding and safeguarding funds remains the same. These accounts prevent either party from misusing funds or breaching the terms of sale.

Understanding escrow accounts gives buyers and sellers peace of mind and legal protection throughout the closing process.

Example of an Escrow Account in Action

A buyer submits a $25,000 deposit, which is held in a lawyer’s escrow account until the transaction closes two months later.

Key Takeaways

  • Holds funds until contract conditions are met.
  • Managed by neutral third parties.
  • Protects both buyer and seller.
  • Ensures secure transfer of funds during closing.
  • Especially important for large deposits or disputes.

Related Terms

Additional Terms

Recourse Loan

A recourse loan is a type of loan where the lender can pursue the borrower’s personal assets, beyond the collateral, in the event of default.. more

Pari Passu

A pari passu clause is a contractual provision ensuring that multiple creditors share equally in repayment priority from the borrower’s assets.. more

Non-Recourse Loan

A non-recourse loan is a type of loan where the lender’s only remedy in case of default is to seize the collateral property; the borrower is not. more

Net Operating Income

Net operating income (NOI) is the total income generated by a property after operating expenses are deducted but before taxes and financing costs.. more

Mechanic's Lien

A mechanic’s lien is a legal claim by a contractor, subcontractor, or supplier for unpaid work or materials provided for a property.. more

Lis Pendens

Lis pendens is a legal notice filed in the land registry indicating that a property is subject to ongoing litigation that may affect its title.. more

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