What is an Escrow Contract? [] INMTEC Legal Services

Published October 20th, 2021

In San Miguel de Allende and throughout Mexico, we have witnessed enormous development and growth in recent years due to the large number of tourists who visit our country and fall in love with it and our culture (living cost and quality of life are often motivators as well). This has caused sales to rise phenomenally year on year.

When a sale takes place, both the buying party and the selling party seek the security and tranquility as well as the stability, security, and transparency that will be provided by their professional “closing team” that includes agents, attorneys, the Notario, and the fiduciary company handling the “escrow.”

How can the parties in a sale be protected? By using the legal instrument called “escrow,” an instrument that originated in the United States. An escrow contract is useful when two or more parties require an impartial third party to protect an asset, be it money or otherwise. This third party will be responsible for keeping the asset in their custody until each and every one of the obligations agreed in the main contract that gave rise to the need for the escrow are fulfilled.

Although this article focuses mainly on sales, this does not imply that the escrow is exclusive to this use; it can be used in other commercial transactions.

Some of the advantages of using an escrow contract are the following:

1. The initial deposit of the operation goes directly to an escrow account, that is, the third party, providing the same level of security for the parties on the management of such asset.
2. It gives certainty of safe payments since the asset is not released by the escrow until the fulfillment of everything agreed by the parties in their main contract.
3. It is a flexible commercial legal figure, that is, it is not exclusive to the sale.
4. There is fiscal transparency.
5. Escrow creates an even stronger sense of responsibility and commitment between the parties because by leaving the asset in the hands of a third party, they must comply with the agreement if they want to receive it.
6. It works as collateral by allocating an asset (in most cases money) for the fulfillment of an obligation.
7. Provides neutrality by having a third party who does not have a direct interest.
8. The escrow complies with what is only agreed upon between both parties.
9. Build trust between the parties.

Such advantages make it clear why the use of this contract around the world has become increasingly popular, being a very useful tool accompanied by the correct advice.