Escrow: an essential security tool when buying real estate

When buying real estate, receivership is a security device designed to protect the interests of stakeholders, in particular the buyer and the seller. In this article, we will explore the various aspects of receivership, its challenges, advantages and application methods.

1- Definition and objectives of receivership

Escrow is a legal device that consists in entrusting a sum of money to a trusted third party, called receivership, to guarantee the execution of a contractual obligation. In the context of a real estate purchase, receivership can be used for several reasons:

Guarantee the payment of the sale price

When a buyer signs a sales agreement with a seller, the seller may be asked to pay a sum of money in receivership, in order to guarantee payment of the sale price upon signing the final act of sale.

Guarantee the return of the security deposit

When a tenant pays a security deposit to a lessor, the lessor may be asked to place it in receivership. This is in order to ensure the return of the security deposit at the end of the rental.

Guarantee the execution of the work

When a seller undertakes to carry out work before the sale of a property, part of the sale price may be placed in receivership, to guarantee the execution of the work within the specified time.

2- The advantages of receivership

Escrow has several benefits for stakeholders:

Securing transactions

Escrow makes it possible to secure real estate transactions by guaranteeing the execution of contractual obligations. It avoids the risks of non-payment, fraud or litigation between the parties.

Strengthened trust

It is a guarantee of trust between the parties, which makes it possible to prove the good faith and solvency of the buyer or seller.

Protection of interests

Escrow protects the interests of stakeholders, in particular the buyer and the seller, by avoiding the risks of financial harm.

3- The procedures for applying the receivership

The receivership is set up according to specific procedures, which are defined by law and usual practices:

Choice of receiver

The receiver must be chosen in agreement with the stakeholders and must be an independent natural or legal person, who manages the sum of money and guarantees the safety of the funds.

Payment terms

The sum of money placed in receivership is generally paid by the buyer or seller to the order of the receiver, by bank check or bank transfer. The terms of payment are specified in the sales agreement or the rental contract.

Duration of sequestration

The duration of the receivership varies according to the contractual obligations to be guaranteed. It can range from a few days to several months or even years.

Methods of return

The return of the receivership is subject to the execution of contractual obligations. If all obligations are met, the receivership is returned to the party concerned. If one of the parties does not respect its commitments, the receiver can be used to compensate the injured party.

Cost of receivership

Escrow costs are generally borne by the buyer or tenant. They may vary according to the rates charged by the receiver.

4- Contractual obligations guaranteed by the receiver

Escrow guarantees the execution of several contractual obligations, such as:

• Payment of the sale price: The receivership is generally used to guarantee the payment of the sale price upon signature of the final act of sale. It ensures that the buyer has the funds necessary to buy the property.

• The return of the security deposit: The receivership is used to guarantee the return of the security deposit paid by the tenant at the end of the rental, if the tenant has respected all rental obligations.

• Execution of work: The receivership is used to guarantee the execution of the work promised by the seller before the sale of a property.

• The limits of receivership

Escrow has some limitations to take into account:

• Financial limits: The receiver cannot guarantee amounts greater than those determined in the contract. Nor can it guarantee obligations that are not mentioned in the contract.

• Risk of non-performance: Escrow is not an absolute guarantee of the performance of contractual obligations. In the event of non-performance, the injured party may initiate legal proceedings to obtain compensation.

• Additional cost: Escrow may result in additional costs for stakeholders, in particular in terms of management fees and receivership fees.

Conclusion

Escrow is an essential security tool when buying real estate, which makes it possible to guarantee the execution of contractual obligations and to secure real estate transactions. By choosing a reliable receiver and respecting the terms of application, stakeholders can avoid the risks of litigation and fraud, and guarantee the smooth running of the real estate transaction. However, it is important to take into account the limitations and additional costs associated with the use of receivers in order to make an informed choice adapted to one's needs. Ultimately, receivership is a tool that strengthens trust between stakeholders and ensures the legal and financial security of the real estate transaction.

It is therefore recommended to be accompanied by a real estate professional (notary, real estate agent, lawyer, etc.) in setting up the receivership and negotiating the contractual terms and conditions. Indeed, these professionals have the legal and technical expertise necessary to advise stakeholders and ensure the compliance of documents and procedures.

By complying with the rules and procedures in place, it makes it possible to avoid the risks of litigation, fraud and non-payment, and to ensure the trust and security of stakeholders.