Role of escrow accounts

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Escrow is a form of contract which entails the activation and maintaining of a trust account,
designed to collect funds between accounts and serve specific purposes, defined in a contract.
The system was created in the United States in the the twentieth century.

Escrow account is used in conjunction with various types of commercial transactions, mainly for
remote transactions. And these may involve running of construction projects, purchase of
companies, technological lines, etc. It is also often applied in the purchase of tradable, but
individually manufactured goods.

One use relates to the protection of transaction funds in the primary real estate market. Through
the escrow account, a financial institution may lend funds to buyers and also manage them on
their behalf, ensuring timely payment of housing units.

And in this way the buyer's funds are protected against potential loss, if the developer goes
bankrupt. Escrow is also commonly used online on sites that are involved in crowd sourcing
activities or freelance marketplaces.

A trustee is a natural or legal person who oversees an escrow fund in terms of a trust decree,
ensuring that funds are handled in a prescribed manner to avoid any compromising actions by
the parties involved.

The first step to establishing an escrow account concerns choosing a common trustee. The
trustee (middleman) must be a person of good standing and trustworthy, accepted by both
parties. After the conclusion of the contract the buyer sends the funds to the trust account. Or in
the case of deferred transactions related to the purchase of such property, relevant
contributions in accordance with the agreed timetable are disbursed.

The fee for use of the escrow amounts to about three percent of the transaction. The trustee
shall inform the seller of the freezing of funds before fulfilling its obligations. Money is paid to the
seller in installments in accordance with the progress of implementation of the agreement upon
confirmation of compliance by the buyer of the goods or services ordered.

The purpose of escrow is to increase the certainty of transactions between the contractors by
guaranteeing that the prescribed conditions have been met prior to releasing payment.
Otherwise, the bank returns the deposit.

Benefits of service include financial protection for buyer and seller. Maximum level of security
with relatively inexpensive, effective international payments, compatible with existing
commercial practices as well as rapid implementation of the transaction.

Escrow is also recognized in the judicial context, escrow funds are usually employed for
dispensing funds from a cash settlement. Thus the defendant is not in charge of dispersion of
judgment funds to the plaintiffs or other uses which may include mitigation. The defendant
remits the entire sum of the settlement) to the court appointed escrow fund, and in turn the fund
dispenses the money.

				
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posted:11/20/2012
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