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The Peculiarities of the services of escrow agents

An Escrow is a contractual arrangement which allows contracting parties to use the services of an independent trusted third party “Escrow Agent”, who is appointed in order hold as security the consideration agreed between the parties within a transaction. Such consideration is kept in a special designed account “Escrow Account” up until the implementation of the purchasing and selling of goods, products, or services according to the agreed terms and conditions of the agreement.

The main parties engaged in an Escrow agreement are, the "depositor", the "Escrow Agent" and the "beneficiary". The common procedure followed is that the depositor trusts property or money with an Escrow Agent who holds the Escrow deposit until it may be released to the beneficiary upon completion of an agreed action, or upon performance a condition stated within the contractual agreement between the depositor and the beneficiary.

For instance, one of the most common scenarios is where it involves the deposit made for the purchase or sale of property where the contract may state within it that the buyer's deposit is paid to the buyers or seller’s lawyer which in turn is held in escrow. In such an event the buyer is the depositor and the seller is the beneficiary. The lawyer is the Escrow Agent, who undertakes to safeguard the deposit amount received in a special bank account until the contract has been performed. Where the purchase proceeds as planned, the Escrow Agent shall release the payment to the seller upon completion of the contractual arrangement. If cancelation of the contract is agreed between the parties, the Escrow shall return the money to the buyer, according to the terms of the agreement.

Escrow Agreements Requirements:

Escrow agreement should contain provisions which set forth:

  • the names and addresses of the depositor, the Escrow Agent and the beneficiary;
  • the amount of the Escrow deposit;
  • the details of the bank where Escrow money will be deposited;
  • if the Escrow Agent is required to use an account which will bear interest then details of how distribution of interest earned on the deposit will be distributed;
  • the conditions that must occur or be performed before the Escrow Agent can release the Escrow fund;
  • time frames of the performance of these conditions;
  • the details of those who will be paid by the Escrow fund;
  • the duties of the Escrow Agent where event the conditions of the Escrow agreement are not met.

It is however recommended that all parties shall keep a copy of the agreement and that the Escrow Agent shall provide periodic status reports in relation with the balance of the Escrow account.

The Escrow Agent and its duties:

The Escrow Agent act as a fiduciary who has duties to all the parties who have interest in the Escrow property. The Escrow Agent’s duty is to protect the amount in Escrow which has to be deposited in a specific bank account which shall be other than the Escrow Agent’s personal and business accounts.

The Escrow Agent has also a duty to provide the parties with a receipt for the Escrow property, a copy of the Escrow agreement and keep complete, accurate and updated records.

It is a legal duty to strictly comply with the terms and conditions of the Escrow agreement. Escrow property cannot be delivered to anyone, except in accordance with the provisions in the Escrow agreement and only upon completion of the agreements term and conditions.

An Escrow Agent is entitled to be paid for administering an Escrow account or property, fees and reimbursement of expenses for such Escrow services should be clearly set out in the Escrow agreement. The Escrow Agent cannot have any claims on the Escrow deposit for services rendered, unless the Escrow agreement provides for such fees etc. In general the Escrow Agent is a custodian of the Escrow property that has to be paid out according to what the Escrow agreement states.

Unless the Escrow agreement provides otherwise where interest is earned on an Escrow deposit, such shall be paid in accordance with the Escrow agreement or to the party which deposit has generated such interest.

Documents required for preparing an Escrow agreement

  • Notarized and Apostilled true copies of Corporate Documents.
  • Bank reference letters.
  • Passport copies of the persons authorized to sign the Escrow agreement.

Why using Escrow Services?

It eliminates any possible risks to any sort of transaction at which an Escrow Agent is required, by ensuring that specific instructions and conditions are carried out prior to an exchange. Most commonly Escrow Services may be used where parties which want to enter into a commercial transaction and not only have no knowledge or even trust about the methods or practices of doing business. As a result the Escrow Agent by providing its services plays a significant role in securing both sides.