In real estate transactions, the escrow account is becoming more and more relevant, due to the security that it provides both to the seller and the buyer in the receipt of the payment to be made for the acquisition of a property.
An escrow account is where funds are held in trust while two or more parties complete a transaction. This means that a trusted third party will secure the funds in a trust account.
Escrow reduces the risk of fraud by acting as a trusted third party that collects, holds, and only releases funds when both buyers and sellers are satisfied. In less complex terms, it is an impartial entity.
The use of escrow in Mexico was “imported” from the US as a safe and efficient way to transfer funds between a buyer and a seller. In recent years, its use has become more prevalent in real estate agencies, as its benefits have been seen, among which are:
– Insure the property
– Set a price before reaching the purchase, sale, or rental contract.
– Avoid fraud due to lack of documentation of the final beneficiary.
– Transactions are usually more efficient, since it disperses the amounts in a timely manner.
– Its use motivates both the buyer and the seller to move efficiently through the closing process.
Although this legal figure is not found in Mexico’s Civil or Commercial Codes, its operation, in accordance with articles 78 of the Commerce Code, and 1832 of the Federal Civil Code, as well as their similarities on each state’s codes, is juridically valid and legal, since both parts expressly give their consent to the escrow agent to protect the deposit and agree on its future, depending on each operation’s particular case. Consequently, it is necessary to make sure of the terms and conditions under which each figure operates specifically with the escrow agent. In addition, IDs for each party and a copy of the purchase-sale agreement are required, since the escrow’s reliability and legality rests there.
If you have any questions about the use of the escrow account and you are close to marketing your property, or are planning to acquire one, do not hesitate to contact SILMÉXICO, we advise you with your real estate transactions and we take care of the entire process with our expert legal and sales team.
Dolores Perez Islas(CEO of SILMÉXICO)
Jessica Hernández(Real Estate Advisor)