Legal Definitions - impound account

An impound account is a type of account that holds accumulated funds for the payment of periodic debts against real property, such as taxes or insurance. It is also known as an escrow or reserve account. The lender holds the funds and makes the payments on behalf of the borrower.

For example, if a homeowner has a mortgage, the lender may require an impound account to ensure that property taxes and insurance premiums are paid on time. The borrower makes monthly payments to the lender, which includes an amount for taxes and insurance. The lender then holds these funds in the impound account and makes the payments when they are due.

Another example is in the construction industry, where a contractor may require an impound account to ensure that subcontractors and suppliers are paid on time. The owner of the project may deposit funds into the account, and the contractor uses the funds to pay the subcontractors and suppliers.