US Escrow vs. Mexico Escrow

The Same Word yet Two Countries Apart

 

 

Transaction security is essential to a healthy real estate market. However, many new buyers are surprised to learn processes that they take for granted in the United States are either optional or don’t have an exact equivalent in Mexico. This column will explain the key differences pertaining to the term escrow since it means something quite different here than in the US.

In the United States escrow normally refers to the complete process of closing a transaction and securely handling money, for which the escrow company receives a fee. These companies tend to be title insurance companies that also offer a title insurance policy and provide all closing services. (See table below)

In Mexico escrow refers exclusively to the secure handling of money by a third party, usually a title company or notario público (Mexican notary) for a fee of around $550. The remaining closing services are commonly handled separately, for a separate fee, by an independent closing company, the developer, a lawyer, the notary, or a loan company.

 

ESCROW

US

Mexico

Common meaning

Funds management

 

Closing services and administrative oversight of paperwork

 

Ordering of title insurance

 

Order inspection reports

 

Estimate closing costs

 

Interface with lender requirements

Funds management only

 

Administered by

Title insurance companies

Title insurance companies

 

Mexican notaries

 

      Escrow means different things in the USA vis-à-vis Mexico.

When purchasing property one of the most important considerations for both a buyer and seller is whether, and under what conditions, the transaction funds will be safely held and distributed by an independent party. In an international transaction, this issue is even more important and often complicated, as either the purchaser or the seller may not be familiar with, or comfortable, having funds deposited in a foreign jurisdiction or with an unfamiliar attorney or bank. Utilizing escrow services from established title insurance companies helps provide a fair level of security to all parties in the real estate transaction.

According to an independent closing services company that I questioned on the subject, “The holding of funds (escrow) by a neutral third party … is one of the safest ways of conducting a real estate transaction in Mexico.  One of the many benefits is that the buyer, the seller and the escrow company must sign the escrow instructions which explicitly state the terms for the money to be held in escrow.  In addition, in order for any funds to be released from the account, both the buyer and the seller must sign the distribution instructions so that all parties are aware of where, when, how much and to whom the money is going.”

I have personally observed that some agents tell their clients that “escrow doesn’t exist,” or that “escrow is not legal in Mexico.” My sincere hope is that this opinion is expressed simply due to a lack of knowledge about the purpose of escrow in Mexico, and not a desire to receive commissions sooner and easier. An unscrupulous agent may rally against escrow in order to hide commissions that exceed the customary fee, or to gain quicker access to buyer deposits. Buyers should be exceptionally cautious about an agent that advises against the use of escrow with a trusted, third-party company that is not involved otherwise in the transaction.

I strongly encourage buyers to use escrow for real estate transactions in Mexico whenever feasible. They should not underestimate the value of their own peace-of-mind. Have a knowledgeable real estate agent or title services agent guide you on the method of negotiating balanced escrow terms that are fair to both parties.

 

 

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