What is escrow and how does it work?

Escrow transaction legislation is constantly expanding and new tools are being added to protect the interests of the parties conducting such transactions. Both legal entities and individuals have the opportunity to use escrow when drawing up any contracts. The meaning of this construction is the enforcement of the terms of the contract by the parties. How? A third independent escrow agent is connected to the transaction. So that it will be the guarantor of fulfillment of obligations and performance of all settlements.

Escrow is a special type of contractual relationship, a new stage in shaping the security of obligations of the parties and guaranteeing results. This construction is not a kind of bank account agreement, nor is it a settlement. This is a specific tool containing elements of several contracts at once. It takes into account the norms of storage, and forms of payment, widely accepted in most countries — for example, a collection of payment or letter of credit.

Modern legislation takes into account all the shortcomings of modern transactions involving an escrow agent, providing for possible conflicts that had to be encountered earlier.

According to the law, the escrow agreement in general is defined as: the depositor transfers certain property to the escrow agent for depositing, pledging to transfer it eventually to the person in whose favor this deposit is made (to the beneficiary); the role of the escrow agent is to ensure the safety of the property during the transaction and transfer it to the beneficiary when both parties fulfill the terms of the agreement (beneficiary and depositor).

This scheme is borrowed from Anglo-Saxon law, where it is widely used, meaning that three parties are involved in the transaction, and the third party is the guarantor of the conditions that keeps financial assets or property rights in its account until all the transaction procedures are completed. When all conditions are fulfilled, the financial assets or rights are transferred to the beneficiary.

Like any financial and legal mechanism, an escrow agreement has both pros and cons, so it is important to know how it works if a practical need arises. And in modern conditions, escrow is becoming increasingly popular.

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