An Escrow Account, in respect to real estate transactions is a banking arrangement in which reservation and sale deposits are placed in a special account. What makes an escrow account different is that monies can only be withdrawn after authority is given by both the seller and buyer (or their legally appointed representatives).
The purpose of an escrow account is primarily to safeguard the buyers interests in that money placed in the escrow account cannot be withdrawn without the buyer's approval. This becomes especially important if the property transaction falls through and it is necessary for the buyer to recover deposits from the seller.
Escrow accounts are also important from a seller's perspective. The seller's willingness and ability to set up an escrow account gives potential purchasers a lot more confidence to contact vendors and commence the buying process.
The way escrow accounts are set up varies from country to country but is normally along the following lines.
The seller's lawyer sets up the escrow account as a “client account” (in some countries client accounts are a legal obligation for a lawyer), the account can then receive deposits etc. from the buyer. An essential provision of the account is that the funds can only be withdrawn by two or more signatures, one of which will be the seller and the other the buyer or their representatives. This means that the seller and buyer jointly control access to the account.
In many cases the purchaser, because he is living in another country, appoints his lawyer to act for him by signing a power of attorney. In this case the buyer's lawyer will have authority to sign when funds are due for withdrawal.
