Legal Definitions - intermediate account

An intermediate account is a temporary holding place for funds, assets, or documents during a transaction or process, before they are transferred to their final recipient or destination. It serves as a transit point, ensuring that specific conditions are met, or administrative steps are completed, before the ultimate transfer occurs. This type of account is often managed by a neutral third party to provide security, oversight, and assurance to all parties involved.

Here are some examples illustrating the concept of an intermediate account:

• Real Estate Escrow: When a person buys a house, the buyer's down payment and the funds from their mortgage loan are typically placed into an escrow account managed by a title company or an escrow agent. This escrow account acts as an intermediate account. The funds are not immediately given to the seller. Instead, they are held by the neutral third party until all conditions of the sale are met, such as the seller providing a clear title, the buyer securing financing, and all necessary paperwork being signed. Once these conditions are satisfied, the funds are released from the escrow account to the seller, and the property ownership is officially transferred to the buyer.

• Corporate Acquisition Holdback: In a corporate acquisition, the acquiring company might agree to pay the selling company $100 million, but withholds $10 million of that amount for a period of 12 months after the deal closes. This $10 million is placed into a special bank account, often managed by a third-party trustee. This special account functions as an intermediate account. The funds are held temporarily to cover any potential undisclosed liabilities, breaches of warranty, or other unforeseen issues that might arise from the selling company's past operations during that 12-month period. If no such claims materialize, the remaining funds are then released from the intermediate account to the selling company's former shareholders, reaching their final destination.

• Legal Settlement Fund: Following a large class-action lawsuit, a court might approve a settlement of $50 million to be distributed among thousands of affected individuals. This $50 million is deposited into a court-appointed trust account, managed by a claims administrator. This trust account serves as an intermediate account. The funds are not immediately disbursed to the claimants. Instead, they are held in this temporary account while the complex process of identifying eligible claimants, verifying their losses, calculating individual payouts, and addressing any appeals is completed. Once all administrative tasks are finalized, the funds are then disbursed from this intermediate account to the many final recipients.