How to open an escrow account in Sberbank

Escrow account: what is it and why buyers of apartments in new buildings need to know about it. Let's try to reveal the concept that banking institutions, government agencies and real estate experts appeal to.

An escrow account is one of the types of bank accounts, the distinctive feature of which is the transfer of money for safekeeping to a third party, that is, a bank, until a certain point. In this case, the bank has no interest in the money and actually guarantees that the seller will fulfill his obligations and only after that will receive the money.

What kind of deals are there?

Individuals and businesses enter into transactions regularly. It could be. For example, selling an apartment, car or shopping in a store. Any business is built on selling goods or services. Every time transactions are made, there is a counter flow of goods and money. One side gets the product it needs, the other gets money. Despite the apparent simplicity of this operation, in practice various methods are used for this.

Sometimes the goods are transferred first, and the goods are transferred later. Prepayment guarantees the seller that they will pay him fairly. However, the buyer will have to wait for delivery. In other cases, the product or service is delivered first and only then payment follows. In each of the situations described here, there is a moment when one party fulfilled its obligations, but the other did not. To wait for the transaction to end, you only need to wait a little.

However, unfortunately, there are other situations where one party complied, but the other did not want to do it. This, for example, is possible if she encountered difficulties or planned from the very beginning to evade the final settlement.

In connection with the likelihood of such an outcome, a natural question arises about how to organize calculations in order to completely eliminate the possibility of such problematic situations. Using an escrow account is one of the ways to reduce risk when making payments between counterparties.

What is an escrow account?

It is used when selling assets of various kinds: real estate, shares in a business, securities or others. Typically, its use is associated with a significant cost of the transferred objects. Such transactions can occur both between individuals and between legal entities.

Individuals and legal entities - what are their differences;

There are three parties involved in the transaction:

The seller of the assets is called the beneficiary.
The buyer is the depositor.
The bank that provides the escrow account. He is called an "escrow agent".

Before making a purchase, the corresponding amount is deposited by the buyer into a bank account. However, the seller does not yet have access to them. To use them, he must fulfill everything provided for in the contract concluded with the buyer. When the obligations are fulfilled, the bank receives information about this from the buyer and releases the entire transferred amount. After that, it is placed in the seller's account. Now the deal is completed, and the parties have honestly settled with each other.

Escrow accounts can only be provided by banking organizations. Any others do not have this right.

What are the nuances with escrow accounts when purchasing with a mortgage?

There are no fundamental nuances. The buyer can take out a mortgage in one bank and open an escrow account in another - they do not charge an additional fee for this. It’s just that the buyer will have two different banks: the escrow agent bank and the creditor bank.

However, the use of an escrow account does not take away the buyer’s right to refinance the mortgage. These two things are in no way connected and do not affect each other.

The only caveat: the creditor bank may charge a commission for transferring money to an escrow account in someone else’s bank. It is better to clarify this point before concluding a contract, for example, with a mortgage manager or by calling the hotline.

Procedure for registration and implementation

To use an escrow account, you need to take the following steps:

The buyer and seller must agree among themselves on the method of conducting the transaction.
They visit the bank and enter into a tripartite agreement with it.
The buyer deposits the required amount in advance into the account offered by the bank. Until the payment occurs. The money belongs to the buyer. If the deal breaks down for any reason, they will be returned to him.
The seller transfers the assets being sold and completes all required documents.
The buyer then notifies the bank that the conditions have been met. This is usually done by providing the documents specified in the contract.
After this, the bank transfers the money to the seller. He can do this in various ways: open access to a previously blocked account, provide the required amount in cash, or transfer funds to a specified bank account. The payment method is specified in the agreement concluded by the parties.

The transfer of assets is processed in different ways depending on their type. It is also possible that the money has been deposited, but the goods have not been transferred. In this case, the terms of the transaction are considered unfulfilled, and the money is returned to the buyer.

The bank retains the commission previously agreed upon with the parties for the provision of the service. Typically, a certain period of time is allocated for processing documents. If they were provided late, the bank usually increases the amount of commission.

Documents for opening an account

To open an account you need not only to sign an agreement, but also to provide the necessary documents. The contents of the kit may vary from bank to bank, but in most cases the following must be provided:

Application for opening an escrow account.
A legal entity must provide copies of the founding agreement and the charter of the enterprise. They must be notarized.
They need to provide documents that give the person who carries out the registration the appropriate authority.
A document may be required that confirms the financial condition of the company.
An individual entrepreneur must bring his certificate and passport. Accounting statements and a certificate may also be required. That there are no tax arrears.
An individual must provide only a passport for registration. Sometimes you may need information about income received over a certain period of time.

Sometimes the bank insists on filling out a form on a special form when registering.

Procedure for opening an escrow account at VTB

Opening a deposit is quite simple. The depositor will need to present a passport and the original of the DDU agreement. You can contact a bank branch in person or through a representative acting on the basis of a notarized power of attorney. To open an escrow account with VTB , the buyer and the developer’s representative:

When drawing up a DDU agreement, the parties indicate that they will make payments using an escrow account.
Sign the DDU agreement in 2 original copies.
It is registered in Rosreestr.
Contact VTB with this agreement and passport.
An account is opened, after which the depositor deposits the required amount.
The bank blocks this money until the construction company fulfills its obligations under the contract.
As soon as the house is put into operation, these obligations are considered fulfilled. Then the developer’s representative presents the appropriate permit, as well as a certificate of ownership of the DDU object and receives the full amount.

To replenish the account, the buyer of an apartment in a new building can deposit funds in any convenient way:

in cash through a bank cash desk;
transfer through a VTB branch;
transfer from another bank account (a commission is charged, funds may take up to 1-5 business days).

It is important to understand that the escrow account must be replenished within the period stipulated by the agreement (usually 5-10 business days). To make the deposit, the buyer has the right to use his own money and borrowed funds (mortgage loan).

Advantages and disadvantages

Using escrow provides the following advantages:

The parties independently decide what will be proof of the transaction for the bank. To do this, the contract specifies a set of documents that must be applied. For example, when selling an apartment, this may be an act of acceptance of transfer or an extract from the Unified Register of Property Rights. Of course, in this case it would be wise to choose the second option.
When using this method, both parties receive protection from fraud. Payment will only occur if both parties fully fulfill their obligations.
Each party may refuse to complete the transaction without completing it.
The use of escrow in shared construction allows you to effectively protect the rights of shareholders. The use of this method of calculation is provided for by federal law.
Even if subjects have arrears in alimony and fines, bailiffs cannot seize money from this account.

However, there are significant disadvantages when using escrow:

Not all banks have the right to provide such services.
The deposited amount is blocked for some time.
The money transferred to this account does not bring profit to either party. The bank does not charge interest on them.
Using the escrow service is not free. To open an account you usually need to pay a commission of 0.7-1.0%.

Despite the existing disadvantages, this method is actively used in various types of transactions.

Which banks work with escrow?

The list of banks that have the right to work with escrow accounts is updated every month. Therefore, it is better to check on the Central Bank website before opening an account.

The list of banks that have the right to work with escrow accounts can be downloaded on the Central Bank website in the Information on credit institutions section

As of July 1, 2020, there are 94 banks on the list, the usual ones - Sberbank, Rosbank, Rosselkhozbank, Alfa Bank - and not so much: China Construction Bank, Toyota Bank, Roscosmosbank.

How effective is the use of escrow?

Of course, an escrow account does not provide a complete guarantee that a transaction will be completed, but its use significantly reduces possible risks. This method has much in common with the use of a safe deposit box for payments or the use of a letter of credit. However, there are important features that make settlements using escrow more profitable:

There is no need to use a suitcase of cash to, for example, buy an apartment. When bank cash is used, you will need to not only transport it yourself, but also check the authenticity of the banknotes.
Money deposited into an escrow account is covered by the deposit insurance system. If the bank encounters serious problems during the transaction, the parties will not suffer and will receive their money in full.
If a letter of credit is used to secure a transaction, the payer has the opportunity to withdraw the money at any time. This becomes impossible only after a payment has been made from this account. The payer has the same rights when using a safe deposit box. In both cases, if necessary, bailiffs can recover this money.
For real estate purchase transactions, deposits not exceeding 10 million rubles are compensated, which in most cases is sufficient. There are time restrictions on payments. If they are exceeded, only 1.4 million rubles will be compensated. When using letters of credit, this limit is much smaller - it is equal to 1.4 million rubles in any situation. Money placed in a safe deposit box will not be insured at all.

Using escrow reduces the likelihood of problems with settlements.

Use in various fields of activity

The use of this method of payment is permissible in almost any purchase and sale transaction. Typically, escrow accounts are used where fairly large payment amounts are involved. However, there are areas of human life where the use of this method of calculation is especially widespread.

Features of use in shared construction

It is known that an apartment can be bought much cheaper in cases where the deal is finalized during the construction of the house. As you know, a construction company is in dire need of funds at this time, and future residents are interested in reducing the cost of housing.

In this area, situations sometimes occur when money is deposited, but construction cannot be completed. Sometimes the cause may be fraud, but it also happens that the construction company was simply unable to complete the construction due to financial or other reasons.

In such a situation, investors find themselves in a difficult situation. They may lose significant amounts of money with which they planned to buy a home. The state tries to provide assistance in such cases, but it cannot cover everyone who needs it.

Since 2020, Law No. FZ-175 of July 1, 2018 has been in force in the Russian Federation, which establishes the mandatory use of escrow accounts when depositing money by shareholders. In this case, their funds are protected, and the construction company will not be able to take the money until it provides housing.

When drawing up such agreements, the following requirements must be met:

The agreement can be signed with a bank that is on the relevant list of the regulator.
The construction company pays a commission to the bank for providing the service.
The company will receive the money only when it provides the keys to the apartment. Moreover, if there are complaints about the quality of its repair, this will not cancel the transfer of funds.
The bank with which the transaction was concluded partially controls the activities of the construction company. For example, if he takes out a loan to build a house, he will not be able to use it for unrelated purposes.
The use of escrow relieves the company from other types of liability. For example, they do not contribute to the compensation fund and do not pay for insurance.
In shared construction, you cannot use a safe deposit box or letter of credit to ensure transaction security.

If construction is not completed on time, the shareholder will not be able to complain.

Benefits of opening an escrow account

Due to the fact that the developer will not receive the money ahead of time, the shareholder can be sure that he will either become the owner of the apartment (under the terms of the share participation agreement) or will definitely return the entire amount (for example, if the construction company is declared bankrupt).

Therefore, using an escrow account gives the buyer several tangible advantages:

Security - the developer will not be able to use the funds until the house is put into operation. The guarantor of this condition is VTB Bank itself, since it is the bank that blocks the entire amount until certain circumstances occur.
Funds are insured in all escrow accounts for a total of up to 10 million rubles. This means that even in extreme circumstances (revocation of the license of VTB Bank), the money will be returned to the depositor within the specified amount.
For its part, the bank opens a deposit and maintains it free of charge. This means that tariffs for the VTB escrow account . The service is provided without commission, which distinguishes the bank from many other credit institutions.

Attention! The bank does not charge a fee for maintaining any escrow account, so which particular developer the contract was concluded with and whether it has VTB accreditation does not matter. The only requirement is that the DDU agreement must be drawn up in accordance with Federal Law No. 214.

The main areas where it is customary to use escrow

Such transactions are most widely used in the following situations:

In shared construction to ensure the rights of shareholders in the event that construction is not completed.
When selling real estate. This method of securing transactions is actively used in transactions between individuals, between legal entities, or between both.
When registering the sale of securities: shares, bonds or others.
If the entire business or a share in it is being sold. Using escrow allows the buyer to feel secure until the necessary paperwork is completed.
If during legal proceedings the parties decide to sign a settlement agreement.
This registration method is often used in transactions for the sale of various types of intellectual property.

Escrow transactions may also be used in other cases. As a rule, this happens in situations where significant amounts are paid out.

Conclusion

Using an escrow account is convenient where it is important to be sure that the counterparty will not let you down. This method of completing a transaction significantly reduces the risks during the transaction. Escrow is convenient to use for both individuals and legal entities. When registering, it is especially important to pay close attention to the drafting of the contract.

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