Escrow, as it will be discussed here, pertains strictly to the handling of funds in the real estate transaction. The transfer of title from Seller to Buyer and the acquisition of title insurance are separate components in the process.
Escrow is an absolutely critical aspect of the process and, in my opinion, the riskiest for all parties. Just think about it – once that cash is out of your hands and in someone else’s custody – any of the following questions come into play:
- Can that person be trusted to safeguard the money?
- What if something happens to that person on the way to the close? (sickness, accident, personal difficulties, etc)
- Where is that person holding the money?
- Who else has access to the money?
- Does that person have a clear and unequivocal understanding of when to disburse my money to the Seller or their representatives?
- Can I trust that person to follow those instructions?
- Do they have enough experience with escrow to foresee problems and difficult circumstances?
- Are they bonded or insured to make me whole, in case the funds are lost or otherwise mis-directed?
This is not a comprehensive list, but just some of the concerns you should have as you enter a real estate transaction and are in the process of deciding how to handle the monetary aspects of the deal.
A good escrow company should provide you clear instructions, documents, and a safe banking environment to hold your funds. For Mexico transactions, we recommend using an FDIC insured account in a top tier US bank.
Mexican law does not recognize “escrow” as a defined term and, therefore, the authorities in Mexico may be suspicious when seeing large dollar amounts flowing in and out of a bank account (normal for an escrow account). The account could be “flagged” and, potentially, funds could be frozen until clarified. This is to be avoided, as it could take weeks or months to resolve.
Escrow can be a relatively simple process – when the escrow company is experienced, bonded and has clear, detailed instructions describing the transaction and condition under which disbursement of funds will be made.
Avoid the “nightmare scenarios” you hear about and make good decisions when choosing your escrow service provider. Hopefully, the information contained herein will help you be a little more aware of some of the basic questions you should be asking – BEFORE making that wire transfer.
Good luck finding your piece of paradise
By: Christopher Hill
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