Escrow is a financial arrangement involving a neutral third party who manages funds for two parties in a transaction, such as a home purchase. It ensures that property taxes, homeowners insurance, and other related payments are made on time by holding these funds in an escrow account. During mortgage processing, lenders often require an escrow account to collect monthly contributions from the borrower for these expenses, disbursing them as needed. Escrow also holds the buyer’s earnest money until the transaction closes, offering protection and enhancing transaction security for all parties involved.