What are impounds in the context of real estate?

Impounds refer to funds that are collected and held in an escrow account by a lender. These funds are specifically designated for property-related expenses, such as property taxes and homeowners insurance. When a borrower makes their monthly mortgage payment, a portion of that payment is allocated to the impound account. This ensures that there are sufficient funds available to pay for these essential costs when they come due, preventing lapses in coverage or unpaid taxes which could lead to foreclosure or other financial complications.

In real estate transactions, having an impound account can be beneficial for both borrowers and lenders. It provides borrowers with convenience, as they don't have to worry about making large lump-sum payments for these expenses separately, and it gives lenders assurance that these critical payments will be made on time, protecting their investment in the property.

The other answer choices describe different aspects of real estate that do not relate to the definition of impounds, which solidifies why the first choice is the correct one.