Escrow account - a banking tool of the XXI century
An escrow account, also called a conditional account, is widely used in international trade transactions. The birthplace of this tool is considered to be the United States, most transactions related to the purchase and sale of real estate are carried out using an exrow account. Its purpose is a secure settlement between the buyer and seller. The participants are three parties. The buyer deposits a certain amount to the account, which is paid to the seller only if the conditions specified in the agreement are met. The Bank, as an independent intermediary, monitors compliance with these conditions and transfers money to the seller's account only after receiving supporting documents.
If the terms of the agreement are not fulfilled or the agreement expires, the Bank closes the account and returns the full amount to the buyer.
Letter of credit or escrow account-what to choose?
An escrow account is often confused with a letter of credit, and they do have a lot in common. But there are key differences between these two banking instruments: an escrow account can only be Closed with the participation of three parties, unlike a letter of credit, which can be withdrawn by the buyer or the Bank itself. An escrow account gives more guarantees to the buyer and reduces the risk of fraud. The opening of a letter of credit is regulated by the legal framework, which sets out clear rules for its use. An escrow account is more flexible and in many cases more convenient. in the case of opening an escrow account, the Bank is responsible for fulfilling the terms of the agreement, while in the case of opening a letter of credit, the Bank is only a money intermediary.
Escrow account-guarantee of a safe transaction
The main scope of an escrow account is real estate transactions. Starting from July 1, 2019, you can only purchase real estate with shared-equity construction in Russia using this banking tool. The buyer opens a Bank account, enters into an equity agreement, and deposits a certain amount to the account. The developer receives this money only after putting the property into operation and registering the buyer's ownership rights.
The purchase and sale transaction is subject to mandatory insurance of money, the insurance period expires 3 days after the transfer of ownership.
For shared-equity construction, the developer can only receive funds from an escrow account. If the construction was stopped for some reason, the shareholders will receive their funds in full. When changing the developer, the buyer can wait for the appointment of a new developer and get their property.
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