Escrow Saves the Homebuyers | Eipl-Infra

In order to protect home buyers against delays in project deliveries and sellers against payment defaults, a third-party account known as an escrow account is introduced in the real estate sector. Funds are kept on hold in this account until the transaction is completed under predetermined conditions. In this way, RBI wants to protect the homebuyers and escrow saves the homebuyers and keeps all the transactions transparent.

1. What is an Escrow Account

Usually, two parties are involved in any transaction but in some transactions of real estate, a third party also gets involved with the goal of keeping the transaction safe and secure for both the parties. In such a condition, an escrow account is created and mostly this escrow account is a bank account. It is controlled by the bank which plays the role of a third party. It is a legal-financial arrangement where the assets are controlled by a third party in order to make sure that the funds are not misused. It grants security against scams and frauds and protects high-value assets. This type of account can hold money, securities, funds, and other assets. This is also created in real estate and plays a major role in safeguarding the funds of the projects.

As per RERA, 70% of the advance payments received from the homebuyers for a particular project have to be deposited in the escrow account. Similarly, 70% of the loans that are taken from banks for this project have to be deposited in the escrow account. The funds can only be released when the party meets all the terms and conditions set forth in a predetermined agreement. Escrow is a focused, digital payments platform. This escrow account saves the homebuyers from getting duped or from delays in deliveries of their dream homes.

2. Function of Escrow Account

Sometimes, the builder delays the construction, due to a lack of funds because he has utilised the booking funds for some other purpose, other than the construction of the project. To ensure transparency and to safeguard the funds of the homebuyers, RBI wants escrow accounts, so that both the builder and the homebuyers have precision in dealings. These escrow accounts are created in commercial banks.

A tripartite agreement is done between the three parties, the homebuyer, the seller or the developer, and the commercial bank. Then an escrow account is created with preset guidelines and regulations in the bank. The home buyers deposit 70% of the bank loan in the escrow account. Then the bank verifies and validates the receipt to both parties. It also monitors the account regularly and confirms that the builder withdraws the amount only for the said project and under the present terms and conditions.

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