If you’re thinking about buying a home in Mexico, you’re likely to hear the term “escrow” or “depósito en garantía”. Let’s discuss what an escrow account in Mexico is, how it works, and how it can help you.
What is an escrow?
An escrow is a legal arrangement in which a third party holds a guarantee until a specific condition is met.
Who manages the escrow account in Mexico?
Escrow services provide a neutral third party that holds the funds according to the instructions of all the parties to an agreement. Neither party may access the funds until all of the obligations of the parties are satisfied. Mexican lawyers, Notaries, and real estate agents cannot legally hold funds “In Trust.”
In Mexico, the use of an Escrow company is not customarily. Instead, the bank is who holds the funds in an escrow account.
To secure your deposit or payment, you may use an Escrow Service that is insured and held in a Canadian or American bank in a segregated account. MexLaw is a law firm authorized to provide Escrow Services in Mexico and elsewhere in North America.
The company works for both the buyer and the seller in the real estate transaction. Hence, the fee for its services is usually divided equally between the two parties.
Types of Escrow Accounts
In the real estate market, we often use an escrow for two reasons:
- To protect the buyer’s bona fide deposit so that the correct party receives the money according to the conditions of the sale.
- To withhold a landlord’s funds for tax and insurance expenses.
Due to these two different purposes, there are two types of escrow accounts. One is used during the home buying process, while the other is used during the life of the loan.
Escrow for buying a home in Mexico
Usually, when you buy a home in México, your purchase agreement includes a bona fide deposit (also known as an “escrow”). This deposit shows that your intentions of buying a home are real. If the contract is not fulfilled due to the buyer’s fault, the seller usually keeps the money. If the home purchase is successful, the deposit will be applied to the buyer’s down payment.
An escrow account in Mexico has the purpose of holding the deposit to protect both the buyer and the seller. The bona fide deposit will remain in this account until the transaction is closed. If the transaction is successful, the money will be used for the down payment.
Sometimes the funds remain in the escrow after the house sale is complete. This is called “escrow retention.” There are many reasons why an escrow may be necessary. Maybe you agreed that the seller could stay in the house for another month. You can also find some damage to the property during the last tour. If you’re building a new home, the money can stay in the escrow until you approve all the jobs. The escrow agent or company will release the funds to the corresponding party when the conditions are met.
For home buyers
An escrow account is critical to protecting your deposit during the sale of a home. For example, suppose you have a contract of sale, but the deal is canceled because of a problem detected in the house’s inspection. If you delivered your deposit directly to the seller, there is a chance that the seller will not return the deposit to you. However, since a third party holds the deposit, you can be sure that they will return it to you according to the agreement.
Benefits of an Escrow Account in Mexico
The most significant benefit of an escrow account is that you’ll be protected during a real estate transaction, regardless of whether you’re the buyer or seller. It can also protect you as a homeowner, as it will make sure you have the money to pay property taxes and home insurance when the bills arrive. You’ll discover other essential benefits for buyers, homeowners, and even lenders.
Escrow is an important part of buying a home. It protects the buyer and seller during the home sale and offers a convenient way to pay taxes and insurance. Contact one of our Top Mexico Real Estate representatives and book a tour of our properties.
