Everything You Need To Know About Escrow Accounts
Jun 01, 2017 Legal Guidance
In the real estate sector, an Escrow account is a pretty usual term but not everyone of us is familiar with it. We explain you everything you need to know about them.
Escrow accounts are set up by the developers to park their money and use it later for the funding the ongoing projects if they fall short of money. In short, it acts as a holding tank for the funds.
When the projects are delayed, the developers often blame the shortage of funds for the same. To fund the ongoing projects, the developers use the money they have received for another project to pay the taxes and interest of the project. And this is where the escrow account comes into play.
Escrow account:
An escrow account is primarily setup to save funds for a particular project. They come with strict restrictions and have a strict limit to how much money can be withdrawn from them. These restrictions help the account holder in saving the money and using them all at once. Escrow accounts are temporary and the account expires as soon as the project is completed.
Who manages the escrow account?
The escrow account can be managed by the bank or the attorney of the account holder. There are escrow agents as well; who help in managing the account at am agreed upon commission.
How escrow issue helps in solving the issue?
When an escrow account is opened, the holder and the bank enter into an agreement. A trustee is appointed who is guided by the well defined instructions on the release of the funds. The major benefit of the escrow account is that the developer can only use the funds for the specified project. Hence, the amount deposited in the escrow account can only be used for the project mentioned in the agreement.
In India, it is not mandatory for the developers to set up an escrow account. But certain developers, who receive the private equity money or have foreign institutional investors, rely on the escrow accounts.
Can it help home buyers?
Home buyers in India suffer badly both in terms of the financial and psychological front when the projects are delayed. Escrow accounts help the builders fund the project and finish it on time, thus giving the buyers a huge relief. They also ensure that the money are used wisely and the timely delivery of a project. The strict regulations and restrictions regarding them don’t let the builders use the funds for funding other projects or paying taxes which ultimately helps both the developer and the buyer.
Escrow accounts are set up by the developers to park their money and use it later for the funding the ongoing projects if they fall short of money. In short, it acts as a holding tank for the funds.
When the projects are delayed, the developers often blame the shortage of funds for the same. To fund the ongoing projects, the developers use the money they have received for another project to pay the taxes and interest of the project. And this is where the escrow account comes into play.
Escrow account:
An escrow account is primarily setup to save funds for a particular project. They come with strict restrictions and have a strict limit to how much money can be withdrawn from them. These restrictions help the account holder in saving the money and using them all at once. Escrow accounts are temporary and the account expires as soon as the project is completed.
Who manages the escrow account?
The escrow account can be managed by the bank or the attorney of the account holder. There are escrow agents as well; who help in managing the account at am agreed upon commission.
How escrow issue helps in solving the issue?
When an escrow account is opened, the holder and the bank enter into an agreement. A trustee is appointed who is guided by the well defined instructions on the release of the funds. The major benefit of the escrow account is that the developer can only use the funds for the specified project. Hence, the amount deposited in the escrow account can only be used for the project mentioned in the agreement.
In India, it is not mandatory for the developers to set up an escrow account. But certain developers, who receive the private equity money or have foreign institutional investors, rely on the escrow accounts.
Can it help home buyers?
Home buyers in India suffer badly both in terms of the financial and psychological front when the projects are delayed. Escrow accounts help the builders fund the project and finish it on time, thus giving the buyers a huge relief. They also ensure that the money are used wisely and the timely delivery of a project. The strict regulations and restrictions regarding them don’t let the builders use the funds for funding other projects or paying taxes which ultimately helps both the developer and the buyer.
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