Origins of Escrow

The beginnings of our modern term for “escrow” date as far back as the Middle Ages of the eleventh and twelfth centuries when the Middle English term “escrowl” was in use denoting a “scroll” as translated into Modern English. 

Originating during the same period, and carrying the same modern translation, are the Anglo-Norman term “escrowe” and the Old-French term “escroue.” All three terms for “scroll” imply a checklist, not at all unlike the modern day escrow instructions.

The usage for escrows in modern America goes back to the Great Depression of the 1930’s.  The impact of the Depression on homeowners made it difficult to save money for the annual payment of property taxes, and as a consequence many homeowners were losing their homes.

The forerunners of modern day mortgage escrow accounts were started as many lenders agreed to collect 1/12th of the annual property taxes as part of the monthly mortgage payment.  Many homeowners were able to save their homes by having the “forced savings” escrow account, thus spreading the larger tax burden into smaller payments over a twelve month period.

In 1934 the Federal Housing Administration (FHA) made escrow accounts mandatory for loans it insured.  In due course this became the standard procedure for every real estate transaction.

Today, escrow accounts are structured so most lenders will collect both taxes and any necessary insurance by requiring a small monthly escrow payment along with the mortgage payment. Lenders are then responsible for paying required tax and insurance bills when they come due, thus protecting homeowners from lapsed insurance or past due taxes.

The US Department of Housing and Urban Development (HUD) regulates escrow accounts through the Real Estate Settlement Procedures Act (RESPA) of 1974. Through RESPA lenders must meet certain requirements for handling your escrow fund.

Anyone wishing to become an escrow officer in the state of California must have five years of escrow experience.  In addition they must undergo investigation, post bond, have assets that comply with state escrow laws and carry insurance to fulfill the role of Trusted Third Party and be awarded a license to practice Escrow or obtain an Escrow Agent or Escrow Officer certification.

Kevin Hartmann