Escrow Agreement Template (Free Sample)
An escrow agreement is a three-party contract in which a neutral escrow agent holds money, documents or other property for two parties and releases it only when agreed conditions are met, such as joint written instructions or a final court order. Escrow is used for real estate deposits, business sale indemnity holdbacks, software source code and other deals where neither side wants to hand over value first. Below: the main types of escrow, how escrow differs from a holdback and a trust account, the clauses to include, how release disputes are handled, and a free sample escrow agreement you can copy into Word.
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Install free in WordLast checked: 23 October 2026. This page is general information about United States law and practice, not legal advice. Escrow practice, licensing of escrow agents and tax reporting vary by state and by type of transaction, and banks and escrow companies usually require their own form of agreement. Have qualified counsel review an escrow agreement before it is signed.
What is an escrow agreement?
In escrow, one party (the depositor) delivers money or property to a neutral third party (the escrow agent), who holds it for the benefit of the depositor and another party (the beneficiary) and releases it only on the conditions in the escrow agreement. Neither principal party can take the escrowed property back on its own. That is the point: it lets the parties perform a deal in stages without either side trusting the other with the money or property first.
An escrow agreement is usually a separate document from the main deal contract (the purchase agreement, license or settlement). The main contract says why money goes into escrow and who is entitled to it; the escrow agreement tells the escrow agent what to do: what it holds, how it invests it, and exactly what instructions or documents trigger a release. Escrow agents act only on those instructions and do not decide who is right in a dispute.
Types of escrow agreements
| Type | What is held | Typical release trigger | Typical escrow agent |
|---|---|---|---|
| Real estate purchase escrow | Earnest money deposit, then the purchase price, deed and loan documents | Closing conditions met (title, financing, inspections), or the deposit goes to one party if the contract ends | Title or escrow company, or a closing attorney or broker, depending on the state |
| Business sale (M&A) indemnity escrow | Part of the purchase price after closing | Balance released to the seller at the end of the claims period, after claim payments and with a reserve for timely claims still unresolved | Bank or trust company |
| Software source code escrow | Source code, build instructions and documentation | Licensor bankruptcy, ending support or another stated release event | Specialist technology escrow provider |
| Settlement or litigation escrow | Settlement payment | Signed releases, court approval or dismissal of the case | Bank, escrow company or an attorney's trust account |
| Construction escrow | Retainage or progress payments | Certified completion of work stages, lien waivers | Bank, title company or escrow company |
| Online purchase escrow | Payment for goods, domains or services | Buyer accepts delivery or the inspection period ends | Licensed online escrow service |
Escrow vs holdback vs trust account vs earnest money
- Escrow: a neutral third party holds the property under a three-party agreement and releases it only on agreed conditions.
- Holdback: the buyer simply keeps part of the price and pays it later. It is cheaper than escrow, but the seller carries the risk that the buyer cannot or will not pay.
- Attorney trust account: a lawyer holds client or third-party funds under state professional conduct rules. A lawyer can act as escrow agent, but the escrow agreement still sets the release terms.
- Earnest money deposit: a good-faith deposit under a purchase contract. It is often held in escrow, and the purchase contract (not the escrow agreement) usually decides who keeps it if the deal fails.
What to include in an escrow agreement: checklist
- Parties and roles: depositor, beneficiary and escrow agent, with full legal names and authorized signers.
- Escrow property: the amount or items deposited, when and how they are delivered, and whether further deposits are expected.
- Escrow account: where the funds are held, whether they are invested and in what (for example, an insured deposit account or a US Treasury money market fund), and who gets any interest.
- Release conditions: joint written instructions, a claim notice with an objection period, a final court order, or a fixed release date. Be precise; the agent will follow the words, not the intent.
- Claims procedure: how a party makes a claim, how long the other party has to object, and what happens to undisputed and disputed amounts.
- Disputes: that the agent may keep holding disputed funds, and may deposit them with a court in an interpleader action.
- Agent's duties and protection: the agent's express duties, any duties imposed by applicable law, whether it must review the underlying contract, reliance on signed documents, a negotiated liability standard and an indemnity. Bank forms often limit liability to gross negligence or willful misconduct, but enforceability and fiduciary duties depend on governing law and the transaction.
- Fees and expenses: setup and annual fees, and which party pays them.
- Tax reporting: who is treated as owner of any income on the escrow for tax purposes, and the tax forms (such as Form W-9) each party must provide.
- Security procedures: who may give instructions and how the agent confirms them, including a call-back to a known phone number before any wire.
- Resignation and removal of the agent, and how a successor is appointed.
- Termination: the agreement ends when all property has been released.
- Governing law, notices, counterparts and electronic signatures.
How escrow release disputes are handled
Most escrow agreements are written so the agent never has to decide a dispute. Release usually needs either joint written instructions signed by both principal parties, or a final, non-appealable court order (or arbitration award). If one party sends a claim and the other objects in time, the disputed amount stays in escrow until the parties agree or a court rules, and only the undisputed part is released.
If there are competing claims to the funds, the agent may be able to bring an interpleader action, subject to the court's jurisdiction and procedural requirements. It asks the court to accept the funds, decide who is entitled to them and discharge the agent from further responsibility for holding and distributing them. Discharge depends on the court's order and does not automatically eliminate liability for the agent's own earlier misconduct. Agreements commonly let the agent recover its legal costs for this from the escrow or the parties. For the parties, this means the release clause and the claims procedure in the agreement matter more than anything else on the page.
Licensing, deposit insurance and wire fraud
- Escrow agent licensing: some states license escrow businesses. For example, California's Escrow Law requires most companies that act as escrow agents to hold a license from the state Department of Financial Protection and Innovation, with exemptions for some regulated businesses, such as banks, title insurers and lawyers licensed in California who actually represent a principal in the real estate or personal property transaction and are not operating an escrow business. Check the rules in the state where the agent operates before using an unlicensed agent.
- Deposit insurance: Eligible deposits at an FDIC-insured bank are insured up to $250,000 per depositor, per insured bank, per ownership category. Pass-through coverage for escrow accounts depends on actual ownership of the funds, bank records showing the custodial relationship, and records identifying the owners and their interests. An owner's covered escrow deposit is combined with that owner's other deposits at the same bank in the same ownership category. Money market funds, including US Treasury money market funds, and other securities are not FDIC-insured deposits.
- Wire fraud: real estate and business closings are a common target for fake wiring instructions sent by email. Agree that changed payment instructions are never accepted by email alone, and that the agent will confirm every wire by calling a person at a phone number already on file.
Software source code escrow
A software customer that depends on a vendor's product can ask for its source code to be put in escrow, so the customer can maintain the software if the vendor goes out of business or stops supporting it. These agreements are usually signed with a specialist provider and add terms that a money escrow does not need: what the deposit must contain (source code, build tools, documentation, and keys or credentials if needed), how often it is updated, whether the provider verifies that the code builds, the release events, and the license the customer receives on release, which is usually limited to maintaining and supporting its own use.
In a US bankruptcy, section 365(n) of the Bankruptcy Code lets a licensee of intellectual property elect to keep its rights under a license, including rights under an agreement supplementary to it such as a source code escrow agreement, even if the bankrupt licensor rejects the license. The definition of intellectual property in the Code does not include trademarks, so a source code escrow should be tied to a license of the software itself.
Free escrow agreement template (sample text)
Copy the text below into Word and fill in the brackets. It is an original, general US sample of a cash escrow agreement for a business transaction, such as a deposit or an indemnity escrow under a purchase agreement, with release by joint instructions, a claim and objection procedure, or a final order. It is a starting point, not a finished agreement: it is not tailored to any state or industry, it is not a real estate closing escrow or a source code escrow, and banks and escrow companies usually require their own form. Have qualified counsel review it before use.
Sample: escrow agreement (fill-in template)
ESCROW AGREEMENT
This Escrow Agreement (this "Agreement") is made as of [date] (the "Effective Date") among [Party A legal name], a [State] [entity type] ("Party A"), [Party B legal name], a [State] [entity type] ("Party B" and, with Party A, the "Parties"), and [Escrow Agent legal name], a [State] [entity type] ("Escrow Agent"). Party A and Party B have entered into a [purchase agreement / other agreement] dated [date] (the "Underlying Agreement"), which requires the escrow set up by this Agreement.
1. Appointment. The Parties appoint Escrow Agent to act as escrow agent under this Agreement, and Escrow Agent accepts the appointment. Escrow Agent is not a party to, and has no duties under, the Underlying Agreement, and it is not required to read or interpret it.
2. Deposit. On or before [date], [Party A] will deposit $[amount] with Escrow Agent by wire transfer (with any investment earnings on it, the "Escrow Funds"). Escrow Agent will confirm receipt to both Parties in writing. Escrow Agent will hold the Escrow Funds in a separate account in the name of Escrow Agent as escrow agent, and will not commingle them with its own funds.
3. Investment. Escrow Agent will [hold the Escrow Funds uninvested in a non-interest-bearing deposit account at an FDIC-insured bank] [invest the Escrow Funds in [describe permitted investment] as jointly directed in writing by the Parties]. Subject to Section 8, Escrow Agent does not guarantee investment returns and is not liable solely because a permitted investment made in accordance with this Agreement loses value.
4. Release of Escrow Funds. Escrow Agent will release Escrow Funds only: (a) as stated in joint written instructions signed by both Parties ("Joint Instructions"); (b) as stated in a final, non-appealable order of a court of competent jurisdiction or a final arbitration award, delivered to Escrow Agent with a certificate of the delivering Party's counsel that it is final (a "Final Order"); or (c) as stated in Sections 5 and 6.
5. Claims. Before [5:00 p.m. [time zone] on [release date]] (the "Release Date"), [Party A] may submit a written notice (a "Claim Notice") stating in reasonable detail the amount claimed and the basis for the claim under the Underlying Agreement. The Claim Notice must be received by both Escrow Agent and [Party B] before the Release Date. [Party A] must provide Escrow Agent with written evidence of [Party B]'s receipt. [Party B] may object to all or part of the claim by delivering a written objection to both Escrow Agent and [Party A] within [20] business days after the later of Escrow Agent's and [Party B]'s receipt of the Claim Notice. Escrow Agent will not pay a claim for failure to object until it has evidence of [Party B]'s receipt and the full objection period has expired. After that period, Escrow Agent will pay the amount not timely objected to, up to the available Escrow Funds, to [Party A], and will hold any disputed amount until it receives Joint Instructions or a Final Order about it.
6. Release Date. Within [5] business days after the Release Date, Escrow Agent will pay to [Party B] the Escrow Funds then held, less the amounts still outstanding under timely Claim Notices, including claims whose objection periods have not expired. The reserve will not exceed the Escrow Funds then held and will exclude amounts already paid or resolved. Escrow Agent will administer the reserve under Sections 4 and 5. After the Release Date, within [5] business days after a claim is resolved under those sections, Escrow Agent will release to [Party B] any retained balance no longer needed for the remaining timely claims, unless Joint Instructions or a Final Order direct otherwise.
7. Disputes and Interpleader. If Escrow Agent receives conflicting instructions or reasonably cannot determine its duties under this Agreement, it may continue to hold the affected Escrow Funds pending Joint Instructions or a Final Order. Subject to applicable jurisdictional and procedural requirements, Escrow Agent may bring an interpleader action or seek other appropriate court directions and request permission to deposit the affected funds with a court of competent jurisdiction. Escrow Agent must comply with any required notice and court authorization before making the deposit. Any discharge from further duties or liability is limited to the relief granted by the court and does not by itself extinguish liability for Escrow Agent's earlier conduct. Escrow Agent will continue to administer any funds not affected by the dispute or court proceeding under this Agreement.
8. Escrow Agent's Duties and Liability. Escrow Agent's contractual duties are limited to those expressly stated in this Agreement and are ministerial. This Agreement does not exclude any fiduciary or other duty that cannot lawfully be excluded. Subject to Section 12, Escrow Agent may rely on a written notice, instruction or signature it believes in good faith to be genuine, and may consult counsel. To the extent permitted by applicable law, Escrow Agent is not liable for an action taken or omitted in good faith in performing this Agreement, except for its own gross negligence or willful misconduct. To the extent permitted by applicable law, Escrow Agent is not liable for indirect, special or consequential damages, except to the extent caused by its gross negligence or willful misconduct. No provision of this Agreement excludes liability that applicable law does not permit to be excluded.
9. Indemnity. To the extent permitted by applicable law, the Parties, jointly and severally, will indemnify Escrow Agent against losses, claims, costs and expenses (including reasonable legal fees) arising out of its service under this Agreement, except to the extent caused by its gross negligence, willful misconduct or other conduct for which liability cannot lawfully be excluded under Section 8. As between the Parties, each will bear half of any indemnity payment, unless a Final Order allocates it to one Party because of that Party's breach. This Section survives the termination of this Agreement and the resignation or removal of Escrow Agent.
10. Fees. The Parties will pay Escrow Agent the fees in Schedule A and its reasonable out-of-pocket expenses, [each paying half / paid by [Party]]. Escrow Agent may not deduct its fees from the Escrow Funds unless they are unpaid for more than [30] days after they are due.
11. Tax Matters. For tax purposes, [Party A] will be treated as the owner of the Escrow Funds and will report any income earned on them until they are paid out, except as applicable law requires otherwise. Each Party will give Escrow Agent a completed IRS Form W-9 or applicable Form W-8 before the deposit. Escrow Agent may withhold any tax it is required by law to withhold.
12. Instructions and Security Procedures. Notices and instructions given by a Party under this Agreement must be in writing and signed by that Party's authorized representative listed in Schedule A. This requirement does not require any additional consent or instruction for a release authorized by a Final Order or by Sections 5 and 6. Before sending any wire to a Party, Escrow Agent will verify that Party's payment details by calling its authorized representative at the number already listed in Schedule A, not a number supplied in the payment instructions. This call verifies payment details, not entitlement to the release. Escrow Agent will not act on a change to payment details received by email alone. Transfers to a successor escrow agent or a court under Sections 7 and 13 require independent verification of the recipient's payment details using contact information obtained independently of the transfer request.
13. Resignation and Removal. Escrow Agent may resign on [30] days' written notice to the Parties, and the Parties may jointly remove Escrow Agent on [10] days' written notice. The Parties will jointly appoint a successor escrow agent. Until the remaining Escrow Funds have been transferred to a successor that has accepted the appointment in writing, or deposited with a court as permitted under Section 7, Escrow Agent will continue to perform its duties under this Agreement, including the applicable investment, claims and release procedures. If no successor has accepted the appointment within [30] days after the notice of resignation or removal, Escrow Agent may petition a court of competent jurisdiction to appoint a successor or seek permission to deposit the Escrow Funds under Section 7. Escrow Agent will transfer the remaining Escrow Funds and relevant account records to the accepting successor. Resignation or removal becomes effective upon that transfer, or upon a court-authorized deposit and discharge to the extent ordered by the court.
14. Termination. This Agreement ends when all Escrow Funds have been paid out in accordance with it. Sections 8 and 9 survive termination.
15. General. (a) Governing law. This Agreement is governed by the laws of the State of [State], without regard to its conflict of laws rules, and the parties submit to the jurisdiction of the state and federal courts located in [county, State]. (b) Notices. Notices must be in writing and delivered to the addresses in Schedule A, and are effective on receipt. (c) Amendment. This Agreement may be amended only in a writing signed by all three parties. (d) Assignment. No party may assign this Agreement without the written consent of the others. (e) Conflict. As between the Parties, the Underlying Agreement controls their rights to the Escrow Funds; as to Escrow Agent's duties, this Agreement controls. (f) Counterparts and electronic signatures. This Agreement may be signed in counterparts and by electronic signature, each of which is an original.
Schedule A. Escrow amount: $[amount]. Release Date: [date]. Escrow Agent fees: setup $[amount]; annual $[amount]. Authorized representatives and call-back numbers: [Party A: name, title, phone] / [Party B: name, title, phone]. Wire details for payments to each Party: [bank, account name, account number, routing number]. Notice addresses: [Party A] / [Party B] / [Escrow Agent].
[PARTY A LEGAL NAME] By: ______________________________ Name: [__________] Title: [__________] Date: [______]
[PARTY B LEGAL NAME] By: ______________________________ Name: [__________] Title: [__________] Date: [______]
[ESCROW AGENT LEGAL NAME] By: ______________________________ Name: [__________] Title: [__________] Date: [______]
Not legal advice. This sample is not tailored to any state, industry or transaction. Real estate closings, source code escrows and consumer transactions need different terms, some states require escrow agents to be licensed, and tax reporting for escrow income depends on the deal. Have qualified counsel and a tax adviser review the agreement before use.
Common mistakes in escrow agreements
- Vague release conditions. "When the work is complete" forces the agent to judge. Tie release to a signed instruction, a certificate or a date.
- Release terms that conflict with the main contract. If the purchase agreement and the escrow agreement give different claim deadlines, each side will rely on the one it prefers.
- No claim and objection procedure. Without one, a single claim notice can freeze the whole escrow indefinitely.
- Silence on interest and tax. If the agreement does not say who owns the earnings and who reports them, the agent may not be able to open the account.
- No call-back procedure. Email-only payment instructions are the easiest way to lose escrowed funds to fraud.
- Forgetting the agent's form. Banks and escrow companies often insist on their own agreement; negotiate the release terms early so they fit it.
How to draft or review an escrow agreement in Word with LexDraft
LexDraft is a Word add-in from Microsoft AppSource. It opens as a side panel in Word 365 (Windows and Mac), Word 2021 and Word on the web, so the escrow agreement stays in the document you are already editing.
Describe the escrow
Open LexDraft in Word and describe the escrow in plain English: the parties and the escrow agent, the amount, the underlying deal, the release conditions and dates, who pays the fees, and the governing law. LexDraft asks a few clarifying questions, then writes a first draft into your document as editable Word text.
Review it against the governing law
To review an escrow agreement you drafted, or one an escrow agent sent you, pick the governing state and run a review. LexDraft has four built-in playbooks (NDA, SaaS MSA, DPA and services agreement) and no dedicated escrow playbook, so an escrow agreement runs as a general review. Findings are graded Critical, High, Medium or Low, and LexDraft flags standard terms that are missing.
Check and accept the redlines
Run the defined-term and cross-reference checks, which are rule-based and run without AI. Accept or reject each proposed redline; accepted changes land as native Word tracked changes. Nothing changes in your document until you accept a redline.
For a quick read of a single clause, such as the escrow agent's indemnity or a limitation of liability, paste it into the free clause risk checker.
What LexDraft does not do: it does not give legal advice, act as an escrow agent, hold or move money, check whether an escrow agent is licensed, or give tax advice. You check every output before the agreement is signed.
Frequently Asked Questions About Escrow Agreements
What is an escrow agreement?
An escrow agreement is a contract among two parties to a deal and a neutral escrow agent. One party deposits money, documents or other property with the escrow agent, who holds it and releases it only when the conditions in the agreement are met, such as joint written instructions from both parties, a claim procedure that runs its course, or a final court order.
Who can act as an escrow agent?
Common escrow agents are banks and trust companies, title and escrow companies, attorneys and specialist online or technology escrow providers. Some states license escrow businesses. For example, California requires most escrow companies to be licensed by its Department of Financial Protection and Innovation, with exemptions for some regulated businesses such as banks, title insurers and lawyers licensed in California who actually represent a principal in the real estate or personal property transaction and are not operating an escrow business.
Who pays the escrow fees?
Whoever the parties agree. In business deals the buyer and seller often split the escrow agent's fees, and in real estate the split often follows local custom or the purchase contract. The escrow agreement should state the fees and who pays them, and whether the agent may deduct unpaid fees from the escrowed funds.
Is money held in escrow FDIC insured?
Eligible deposits at an FDIC-insured bank are insured up to $250,000 per depositor, per insured bank, per ownership category. Pass-through coverage for escrow accounts depends on actual ownership of the funds, bank records showing the custodial relationship, and records identifying the owners and their interests. An owner's covered escrow deposit is combined with that owner's other deposits at the same bank in the same ownership category. Money market funds, including US Treasury money market funds, and other securities are not FDIC-insured deposits.
What happens if the parties disagree about releasing escrow funds?
Under most escrow agreements the escrow agent keeps holding the disputed amount until it receives joint written instructions or a final court order or arbitration award. If it receives conflicting instructions, the agent can usually deposit the funds with a court in an interpleader action and let the court decide who is entitled to them.
What is the difference between escrow and a holdback?
With escrow, a neutral third party holds the money and releases it under the escrow agreement. With a holdback, the buyer simply keeps part of the price and pays it later under the purchase agreement. A holdback avoids escrow fees, but the seller takes the risk that the buyer does not pay.
Can an escrow agreement be cancelled?
Usually only as the agreement allows, typically by joint written instructions from both principal parties or when all the escrowed property has been released. One party cannot normally cancel an escrow or take back the deposit on its own, which is what makes escrow useful.
What is a software source code escrow agreement?
It is an agreement under which a software vendor deposits its source code, build instructions and documentation with a specialist escrow provider, to be released to the customer on stated events such as the vendor's bankruptcy or the end of support. In a US bankruptcy, section 365(n) of the Bankruptcy Code can protect the customer's license rights and related escrow rights if the vendor rejects the license.
Draft and review an escrow agreement in Word
Describe the escrow, get a first draft in your document, then review it with tracked-change redlines. You stay in Word, and you decide what changes.
Install LexDraft for WordThis page is general information, not legal advice. LexDraft does not give legal advice; have qualified counsel check every escrow agreement against the law that governs it. Spotted something out of date? Email support@lexdraft.ai and we will fix it.