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Escrow services streamline a platform for an escrow account, a third-party account where funds are kept before they are transferred to the ultimate party, these accounts are a financial instrument in which an asset or escrow money is held by a third party on behalf of other parties that are in the process of completing a transaction.
An Escrow is a legal arrangement consisting of a small and short trust arrangement whereby which assets (e.g. money, shares, title deeds) are delivered to an independent third party, also known as the “escrow agent”, who holds them in trust, till the contractual condition is completed. When the conditions under the escrow agreement are satisfied and the escrow agent releases the assets to the assigned recipient. The services can be utilized in a wide variety of areas.
The essential elements for an escrow are two-fold: i) a binding contract / agreement between the buyer and seller, and; ii) a conditional delivery to a neutral third party of something of value, which is the consideration of the original contract.
RIZWAN & ASSOCIATES - LLP | ESCROW SERVICES - PAKISTAN
ESCROW AGENT
The escrow agent or the escrow holder is the depositary, being impartial and neutral, in possession of the money, documents, property, or other things of value to be held till the completion of a specified event. The holder is lawfully engaged in the business of receiving escrows for deposit in behalf or for the delivery to the designated principals. He acts as the fiduciary of the principals to the escrow and being a fiduciary must exercise good faith, loyalty and reasonable care towards the performance of his duties and execution of the instructions given by the principals. Therefore, the Escrow holder can be referred as a dual agent; i.e., an agent and a fiduciary.
It is pertinent here to mention that the escrow holder does not act as a mediator between the principals and does not participate in the controversies. Similarly, he is also prohibited from offering any legal advice. He is to remain neutral, not favoring either principal as the holder is in fact an agent for both principals.
Since, escrows are privileged and confidential in nature therefore, the holder is also not bound to give out information concerning the escrow, without the consent of the principals. An escrow agent can be attorneys, banks and lenders, independent escrow companies and title companies.
PRINCIPLES OF ESCROW
Generally, the principals of an escrow include the buyer and the seller and under some instance it could be the lenders of the purchase money as well. Not all parties to a contract are principals of an escrow. Only those persons who are performing and executing the instructions and are making the conditional deliveries in connection to the escrow agreement can be referred as principals to the escrow.
ESCROW AGREEMENT / INSTRUCTIONS
The escrow agreement or the instructions is the foundation of an escrow service. The conditional delivery of an instrument of conveyance or encumbrance, money/funds, or other things of value, and the authorization of the delivery of these instruments is through and by the Escrow Agreement and the Escrow Instructions provided therein. These instructions can either be bilateral or unilateral, where bilateral agreements are executed by and binding on both principals, whereas the unilateral instructions provide separate instructions for each principal.
These instructions should clearly state the intentions of the principals, the mutuality of the parties, the duties of the escrow holder and that he must not perform discretionary authority, and that the principals are responsible for performing the escrow agreement.
These instructions implement and supplement the original agreement/contract and both are interpreted together. However, if the escrow instructions contain terms which are conflicted with the original contract, the original contract will stand. When the escrow instructions are properly drawn and executed, they become an enforceable contract. When each term of the escrow instruction is performed, the escrow is said to be “completed” or “perfected”.
ESCROW ACCOUNTS
The escrow account contains the funds held by the escrow holder, from where these funds are collected and disbursed pursuant to the Escrow Agreement. Such funds are paid by the principals of the escrow and the agent thereby makes timely disbursement of the funds. Opening an escrow account is a voluntary agreement and provides protection to the investment money.
Such escrow accounts offer two types of payment methods, firstly periodic payments and closing escrow payments. The periodic payment method makes monthly disbursement of the funds whereas the closing escrow payments is a one-time payment made at closing at the discharge of the original contract between the principals.