Escrow account and letter of credit difference. What is an escrow account

Escrow account (escrow account) is designed for temporary storage of funds until the payment is made. The account holder (escrow agent) does not depend on any of the parties to the transaction and cooperates with them, controlling the fulfillment of pre-agreed conditions. Only in this case he can withdraw money from the account.

Typically, escrow accounts are used to pay insurance and property taxes. First, an initial payment is made, then regular payments are made. Although in most jurisdictions insurance premiums and property taxes are paid once a year, in the case of an escrow account, it is allowed to divide the amount into 12 parts and make payments in monthly installments.

An escrow account, which is opened for the purchase of real estate on credit, represents the obligation of the new owner to pay property taxes in a timely manner. If necessary, it also serves to purchase and maintain an insurance policy. Since the interests of the mortgage lender may suffer in case of non-payment, he issues a loan subject to the opening of an escrow account.

At the time of issuing a mortgage loan, the borrower pays a down payment. In the future, a certain amount is added to regular monthly payments to repay the principal amount of the debt and. At the time the insurance premium or tax is paid, the mortgage company makes the payment from the borrower's escrow account.

The main advantage of paying insurance premiums and taxes through a specialized account is the even distribution of the financial burden on the homeowner's budget. During the year, the money in a specialized account remains intact, relieving the borrower from the headache of collecting it at the time of payment. The disadvantage of the scheme is that no interest is accrued on the frozen amount, although the owner of the property remains the technical owner until the moment of payment.

Escrow accounts are often used for construction loans. Funds are kept on them and paid as the next stage of the project is completed. The tool allows the customer to pay for the work only upon completion. The developer receives a guarantee that his services will be paid.

In fact, an escrow account can be used in all cases where there are doubts about the proper fulfillment of the terms of the agreement by each of its participants. It is opened by a third disinterested party, which enjoys the trust of all participants in the transaction.

The most popular organizational form of entrepreneurship is a limited liability company. Assistance in the quick registration of an LLC. minimum investment, more trust from customers and contractors.

Since July 1, 2014, a new tool for interaction between counterparties has appeared in the Civil Code of the Russian Federation - an escrow account agreement. Such an agreement implies the opening by a bank (escrow agent) of a special account for accounting and blocking funds received from the account holder (depositor) in order to transfer them to another person (beneficiary) if the grounds provided for in the agreement arise (). The parties can resort to this type of contract when concluding most of the transactions provided for by law, but most often it is used when buying and selling real estate. However, despite the popularity of this institution abroad, in Russia the escrow account agreement was not widely used even after its legislative settlement. We will understand the reasons for this, and also consider the features of this agreement in more detail.

What is an escrow account agreement?

If we state the wording given in the Civil Code of the Russian Federation in a more understandable language, then escrow relations can be described as tripartite relations in which the debtor, in fulfillment of his main obligation, transfers money not directly to the counterparty, but to a third party (excrow agent). The lender, which is important, can receive this money only after the circumstances specified in the contract occur. Such an agreement is usually concluded in triplicate.

OPINION

Anastasia Malyukina, Associate at Forward Legal:

"In world practice, escrow agreements are widespread. And in this case, I'm talking not only about countries such as the USA, Germany, Switzerland, England, but also about countries in the eastern direction: China and Japan. Recently, I came across a case in which the bank of Mongolia acted as an escrow agent, and it acted very successfully, ensuring the corresponding obligations.And such popularity of this mechanism, despite the fact that in most countries it is not regulated by law, is explained by the fact that the escrow account is really convenient and that it really does its job. the main function is to ensure the proper provision of obligations under the main contract, and this applies to completely different areas - it does not matter whether it is a merger or acquisition of companies, licensing relations, the purchase by a citizen of an apartment, aircraft, yacht, etc."

Thus, an escrow account agreement is a fairly universal structure that allows you to increase the confidence of the parties to the transaction that they will receive what they expected. In extreme cases, even if the transaction does not take place, the debtor will be able to recover part of the money that he planned to transfer to the creditor, but did not transfer due to the fact that he did not fulfill his obligations properly.

If earlier, when deciding to open an escrow account, the parties resorted to the norms of international law, then last year the possibility of concluding such agreements was also enshrined in Russian legislation. Speaking about this type of contract, it is worth noting several of its main features or characteristics.

The escrow account agreement involves not only the escrow agent (bank) and the depositor, that is, the owner of the account, but also the beneficiary - the one to whom the funds are intended. And, accordingly, the beneficiary has a real opportunity to influence the terms of the relevant agreement on an equal footing with the rest.

The funds transferred to the escrow account are segregated. That is, they are transferred to a special account, accounted for by the bank, blocked and by common law neither the depositor, although he is the owner of the account, nor the beneficiary, although these funds are intended for him, have the right to dispose of them until the circumstances specified in the agreement (). In the event of such circumstances, the bank is obliged to pay the amount due to the beneficiary into his hands or transfer it to the specified account within the period established by the agreement, and in its absence, within 10 days from the date of the obligation ().

The parties retain the ability to control what happens on the escrow account - both the beneficiary and the depositor can at any time ask the bank to provide them with up-to-date information on the account ().

The structure of the escrow account agreement is quite flexible. As the director of the Legal Directorate of Rosbank emphasizes, today the scale of demand for this type of agreement does not allow banks to make a standard product. Moreover, she is convinced that even if escrow becomes a really popular tool, the approach to concluding a contract will still remain flexible and will correspond to the nature of the transaction and the needs of the parties. Thus, the depositor and the beneficiary can influence the list of grounds upon the occurrence of which the latter can receive the funds intended for him in the account. Taking into account the specific relations that have developed between the parties, taking into account the specifics of a particular underlying obligation, they can determine suitable conditions. Moreover, Anastasia Malyukina adds that the depositor and the beneficiary can provide in the agreement a condition obliging the escrow agent to check the occurrence of the relevant grounds and to check the documents provided by the parties not formally, but more thoroughly - this, according to the expert, is the main difference between the account agreement escrow from a letter of credit.

OUR REFERENCE

A letter of credit is a monetary obligation accepted by the bank on behalf of the payer. Allows you to make payments in favor of the recipient of funds under a letter of credit, as well as pay, accept or discount a bill of exchange, or transfer the authority to carry out these operations to another bank ().

However, it should be noted that in domestic legislation the design of the escrow account agreement is a truncated version of the agreement that has become widespread in world practice. In Russian law, this institution is characterized by:

a limited list of property that can be transferred to an escrow account - only cash can act in this role (whereas any property can be transferred to an escrow agent abroad);
a limited list of escrow agents - today only credit institutions can perform this function (abroad, lawyers, insurance agents and any other person trusted by the parties to the transaction can act as escrow agents). If desired, the parties can use a notary by using another similar institution - depositing funds on a notary's deposit (), however, this tool does not provide the same opportunities that the escrow account agreement provides.

OPINION

Polina Lebedeva, Director of the Legal Directorate of Rosbank:

“It seems to me that the status of an escrow agent as a credit organization will remain for a long time, since in this way, in particular, counteraction to the legalization of proceeds from crime will be ensured, precisely because of the special specifics and rigidity of banking regulation in this area.

At the same time, we see in our practice that there is a request from the business side for escrow account agreements. I can also note that the use of escrow accounts is also mentioned at the level of regulations governing various aspects of settlements - in particular, for real estate purchase and sale transactions, where the possibility of using an escrow account is directly determined for the period until the registration of the transfer of ownership and completion of settlements between the parties [sub. 4.45.3 p. 4 sect. 4 ch. Part II of the Appendix to the Regulation of the Bank of Russia "" dated July 16, 2012 No. 385-P. - Red.]. Moreover, the amount of compensation for deposits on escrow accounts used in real estate purchase and sale transactions is much higher than for ordinary accounts [, Federal Law of December 23, 2003 No. 177-FZ "". - Red.]".

Giving an assessment of the provisions on the escrow account agreement in Russian legislation, Anastasia Malyukina believes that it has prospects for development: "In my opinion, although there is no established practice for more than a year of its existence, this institution has a good future, and I do not I exclude that in the near future the legislator nevertheless decides to expand the scope of its application, and perhaps we will live to see the moment when, in our country, in Russian law, such specific constructions will be implemented, such as, for example, an excrow of the software source code, which is applied in licensing relations abroad".

Some features of using an escrow account agreement

Having decided to apply to this institution when making a deal, the parties may face a number of nuances. Let's consider some of them.

The general grounds for amending the agreement apply to the escrow account agreement. This means that it can be changed:

at the initiative of the parties ();
By the tribunal's decision ();
due to a significant change in circumstances ().

Expiration is the main reason for terminating the escrow account agreement (). As a rule, this period is indicated in the text of the contract itself. But other circumstances may also serve as grounds for closing an escrow account () - for example, recognizing an individual as incapable, partially incapacitated or missing, as well as liquidating a legal entity, etc.

As a general rule, when closing an escrow account, if there are no grounds for transferring money to the beneficiary or otherwise provided by the agreement, the balance of funds is transferred or issued to the depositor ().

The moment of bankruptcy (insolvency) of a credit institution that is an escrow agent directly affects who exactly, the depositor or beneficiary, should enter the register of creditors. If the circumstances under which the funds should be debited from the account have not yet occurred, then in the register, according to the senior partner of the Forward Legal Law Office Alexey Karpenko, the account holder (depositor) must get up. If such circumstances have already occurred, then - the beneficiary.

Will escrow become more expensive than a letter of credit?

Experts do not exclude that the cost of services for maintaining an escrow account may indeed be higher than the cost of a letter of credit, since banks are subject to more requirements under an escrow agreement. But with equal probability, the price may be lower if we take into account the deposit guarantee system that the escrow account provides to the parties. At the moment, the average cost of opening an escrow account is 2.5 thousand rubles, and making changes to the contract and making a payment on account of its execution can cost from 500 rubles. up to 2.5 thousand rubles. In this case, as a rule, the bank receives remuneration not from the funds that are on the escrow account ().

At the same time, Anastasia Malyukina is convinced that the rates, first of all, will depend on how complex relations are settled within the framework of each specific contract. "When I was just starting to study this topic, I saw that only a few banks decided to provide such a service. With all due respect to the banking system, I was puzzled, because when we say that the choice of an escrow agent is limited, this creates certain risks in the implementation no matter how much you and I would like to use an escrow account, we need a third agent, an escrow agent, and if he is not ready to provide us with the appropriate service, if he is afraid of something or is not sure how much the law allows him to apply certain or other mechanisms, then he will not enter into these relations. Therefore, I think that now the issue of tariffs is a matter of policy that banks will choose," she says.

Polina Lebedeva also excludes the possibility of establishing an exact tariff, since the escrow account agreement is not a mass standardized product. "This contract is being drawn up for a specific request so far. Of course, this circumstance already requires much more labor costs on the part of banks and higher transaction costs for maintaining this product. Therefore, it may turn out that such tailor-made clothes will actually cost more than a suit, sewn at the factory. But again, this is a matter of the market and practice," the expert believes.

At the same time, the director for legal and corporate work of CJSC Rusatom Overseas Konstantin Kryazhevsky, focusing on international practice, is of the opinion that the cost of maintaining an escrow account in any case will not be prohibitive.

Among banking services, in addition to the letter of credit, there are others with similar functions. Escrow accounts are one such financial instrument. They appeared in Russia relatively recently, only in 2012. Let's see what are the differences between escrow and letter of credit.

The concept and features of application in Russia

An escrow account is a financial instrument designed to reduce risks in commercial transactions, such as the sale and purchase of real estate. The account itself is conditional. It takes into account documents confirming ownership, money, but up to a certain point. This moment is precisely indicated in the contract for opening an escrow.

This financial instrument came to Russia in 2012, when the legislation for the first time used a new type of agreement intended for the conditional storage of property, as well as a special type of accounts for accounting for such transactions.

In the world financial practice, escrow accounts are opened by banks, financial companies, escrow agents, etc. They are very similar in their functional purpose to such banking instruments as a letter of credit, collection, guarantee, bill of exchange, safe deposit box.

Most often, escrow accounts are used to reduce the risk in trading operations, when counterparties do not know each other well and the level of trust between them is low. For example, in the US, a similar financial instrument accompanies real estate purchase and sale transactions.

There are usually three parties involved in the transaction: the buyer, the seller, and the escrow agent. The task of the latter is to exercise control over the fact that the transaction takes place in full compliance with the contractual terms. And only after the conclusion of the contract, verification of documents by the escrow agent, the seller is paid money. Thus, escrow acts as an additional guarantee that the parties will fulfill all the terms of the transaction.

In Russia, escrow accounts are used in a similar way. They are suitable for both domestic companies and non-residents who conduct trading operations on the territory of the Russian Federation. With their help, you can:

Ensure that the terms of the contract are met.
Guarantee the safe storage of funds that act as payment under the contract.

Usually the money is kept in a bank that acts as an escrow agent and is not an interested party in the transaction.

Most often, this financial instrument is used to ensure the performance of such operations as:

purchase and sale of real estate, incl. between the developer and the shareholder;
trade transactions between counterparties, the subject of which are goods, services, intellectual property rights;
purchase of securities.

There are three parties involved in a trading operation:

depositor – buyer of goods or services;
the beneficiary is the seller of the property;
escrow agent - a bank that monitors the fulfillment of the terms of the contract, is responsible for the safety of funds and documents. And after checking the transaction for all the terms of the contract, it pays the money to the seller and gives the assets to the buyer.

Differences from a letter of credit, advantages and disadvantages

What is the difference between an escrow and a letter of credit, because these two instruments are very similar in their functional purpose - they are designed to reduce the risk in commercial transactions. But still there is a significant difference between them, and it is as follows:

Unlike a letter of credit, escrow accounts are closed only with the personal presence of all participants in the transaction. The letter of credit can be revoked at any time by the buyer, and revocable - by the bank itself without prior notice to the parties. In international practice, revocable letters of credit have been prohibited since 2007.
The letter of credit form of payment is strictly regulated by law, and the contract using escrow accounts is more flexible. In the latter, the parties can specify only those conditions that they need to complete the transaction. But what is necessary for a letter of credit is strictly spelled out in the legislative acts of the Central Bank. In other words, a package of documents, a set of conditions for escrow accounts is formed by the parties, and for letter of credit forms of payment, it is provided for by law.
With a letter of credit, the responsibility for fulfilling the terms of the transaction lies entirely with the buyer and seller, for escrow accounts - with the bank. This means that the payment of money in a letter of credit form of payment is carried out in the presence of all the documents provided for by the contract, regardless of their content and compliance with contractual conditions. And when using escrow accounts, the bank is obliged to fully control and verify the execution of the transaction from the very beginning to its completion.

A significant advantage of escrow accounts compared to letters of credit is their more flexible nature and ease of execution. On the other hand, this form of calculation also has disadvantages:

To date, only 21 banks have the right to open escrow accounts. A letter of credit refers to standard banking products, which is present in the line of financial services of each bank.
The depositor's money on escrow accounts in case of bankruptcy of a financial institution is insured by the Agency only up to 10 million rubles.
Escrow accounts are poorly protected from fraudulent schemes involving bank employees. The letter of credit in this case has a more significant level of protection. But in contrast to the above, I would like to note that the selection of banks that have the right to open such accounts is carried out by the Central Bank after a thorough check, and this largely eliminates such risks.

It should also be noted that this financial service is developing rapidly in Russia. So, according to bankers' forecasts, by the end of 2019, about 30% of all mortgage transactions will be carried out using escrow accounts. And by the way, a large contribution to the expansion of the functionality of this banking instrument is made by judicial practice, which is formed in the course of relations between developers and property buyers.

Offers of Russian banks

To date, it is possible to insure the risks of a mortgage transaction and open accounts in 21 Russian banks. We are talking about Sberbank, Gazprombank, VTB, Rosselkhozbank, Sovcombank and others.

In Genbank, for individuals, other tariffs apply:

opening an account will cost 1,250-2,500 rubles (depending on the bank branch);
fulfillment of the terms of the transaction - 1,250-2,500 rubles;
change of conditions - 1,000 rubles.

For comparison, here are the conditions for servicing escrow accounts from Pervouralskbank:

opening - 1,000 rubles;
change of conditions - 500 rubles;
cash withdrawal to the beneficiary in the amount of more than 3 million rubles - 0.05%, but not more than 3,000 rubles.

As can be seen from the above, banks usually charge a fee for opening an escrow account, as well as when concluding additional agreements. The name of the remaining commissions is of an individual nature and depends on the agent bank.

It should be noted that most financial institutions open escrow accounts free of charge as a comprehensive service that accompanies mortgage lending. It is worth noting that it is also used quite often.

Since 2018, amendments have come into effect that will allow the efficient use of escrow accounts. This tool was launched in 2014, but the legal uncertainty of some issues negatively affected its use. The adopted amendments have eliminated the existing conflicts, which will significantly reduce the risks when concluding a transaction.

From June next year, Russia restarts the mechanism for concluding transactions using escrow accounts. Appropriate amendments were made to the Civil Code and laws on enforcement proceedings and bankruptcy. It has been possible to use this mechanism since 2014, however, legal conflicts prevented its effective application.

Escrow account is most often used in the implementation of trade transactions (primarily transactions related to real estate). When using this account, a third party takes part in the transaction - an escrow agent, which acts as a guarantor of the fulfillment of obligations by the participants in the trading operation. Money is transferred to the seller only after all necessary documents have been completed and ownership has been transferred.

As a result, the parties to the transaction significantly reduce their risks, which is the main advantage of an escrow account. Despite the obvious benefits, the previous version of the law did not clearly define the most significant issue - who owns the money deposited into the account. In addition, other issues that hindered the use of escrow accounts remained unresolved.

Useful amendments

The amendments, effective from next year, determined the legal status of the following issues:

Money placed in escrow accounts is not taken into account when determining the bankruptcy estate if the intermediary is declared bankrupt. As a result, the parties to the transaction are protected from the financial difficulties of the escrow agent.
The purpose of these accounts is fixed at the legislative level. You can transfer money or securities to an escrow account, which will be transferred to the second party only after all the conditions specified in the agreement are met.
Only banks can open these accounts (in world practice, law firms and specialized organizations also have this right). The maximum limit of funds on this account is 10 million rubles.
Previously, an escrow account was only allowed in a non-cash form. After the innovations, barter agreements will be added, which are used to exchange various assets.
It is clearly defined who owns the funds in the account. Until the date defined as the settlement date, the money belongs to the person who deposited it. After that, the money is owned by the party in whose favor the escrow account was opened. The ownership of securities and other assets will be determined similarly.

Experts note an issue that is not described in the adopted amendments. Despite the possibility of opening an escrow account and depositing assets into it since 2018, the obligation to use the services of independent appraisers is not fixed in the legislative field. As a result, situations may arise where the real value of an asset does not match the amount fixed in the contract. The practice of using appraisers is mandatory in the US and Europe, where the mechanism of escrow accounts is actively used.

In addition to protecting the interests of the parties to the trading operation, the Central Bank is interested in using escrow accounts. With this method of calculation, large acquisitions will become more transparent, which will facilitate the tasks of financial monitoring.

New monitoring options

Escrow accounts make the transaction more transparent, representatives of the Central Bank are sure. Previously, trading operations for large amounts remained out of sight of the regulatory authorities, which led to various abuses. Including such transactions were carried out for the purpose of cashing out funds. The use of escrow accounts will minimize such transactions. This position is shared by Rosfinmonitoring.

In addition, the Central Bank strictly regulates the actions of banks when working with escrow accounts. In January-June 2017, the regulator issued licenses to only three financial institutions: Gazprombank, Sberbank and Rosselkhozbank. Other banks have yet to fulfill all the requirements of the Central Bank to work with this tool.

Experts positively evaluate the adopted amendments and look forward to more active use of escrow accounts next year. This mechanism will become especially popular in trading operations that provide for additional conditions (including the principle of deferred payment). However, the exchange of securities using an escrow account does not look so attractive.

Analysts emphasize that such operations will be closely studied by the Central Bank. The regulator will carefully check these transactions for compliance with applicable law, which can significantly delay the implementation of the terms of the contract. As a result, the exchange of securities will be carried out using other mechanisms.

The Russians now have the opportunity to open a new type of account in banks - an escrow account, which is very popular in the West. But in Russia, he somehow did not take root. However, things may change soon.

An escrow account can be used, for example, for settlements in real estate transactions. The scheme is simple: the buyer and the seller agree on the transaction and all the conditions under which it will be considered completed.

Then an escrow account is opened in the bank, where the buyer deposits the amount agreed with the seller, equal to the value of the property that he is going to purchase. All parties can check the status of this account at any time, but the seller will be able to withdraw funds only after signing all the documents, the list of which is negotiated in advance. The escrow agent (bank) ensures that all agreements are met.

As Oleg Ivanov, vice president of the Association of Regional Banks of Russia, notes, escrow accounts are used everywhere in the world, especially in international trade, when it is necessary to pay for goods that are still on the way and have not reached the buyer. But in Russia, due to legislative peculiarities, their use is still limited to the real estate sector. However, even here the tool has not yet found popularity.

"Our people are used to the fact that in such a case one cannot do without a safe deposit box - the parties counted the money, checked it, put it in a safe, and then took it away," he recalls. Escrow - almost the same, only in a non-cash version. It would seem that it is profitable, because going to the bank and back with a large amount can go sideways. But there is a problem that realtors also talk about: for a certain category of our citizens, such accounts are too transparent, and not all and not always burn with desire to “shine” the real amount of the transaction and, in which case, explain where the money comes from. In addition, buyers have tax consequences, and this is not always pleasant.

As a result, now in our country there are not even exact statistics on the number of open escrow accounts. "The Central Bank does not collect such information, because there is most likely nothing to collect yet," Ivanov complains. "Besides, there are many unresolved legal issues, and therefore banks are in no hurry to experiment."

10 million rubles are insured by the state on an escrow account. For ordinary deposits, this amount does not exceed 1.4 million rubles

For his part, the head of the analytical center "Real Estate Market Indicators IRN.RU" Oleg Repchenko names another important problem. The lion's share of real estate transactions today belongs to the secondary market, which, in turn, has many alternative transactions.

"Here, the chain involves not three parties (seller, buyer, bank), but several - five or more," he says. "And it often happens that the seller of the second apartment cannot deposit money until he sells the first one." So the whole hard-established chain collapses. This situation is unacceptable for opening escrow accounts.

By the way, escrow accounts that citizens open when making transactions with residential real estate are included in the deposit insurance system. Moreover, the amount to be insured reaches 10 million rubles, and not 1.4 million, as with ordinary deposits.

Amendments to the law on shared construction, which are under consideration in the State Duma and have already passed the first reading in February this year, can add popularity to escrow accounts. They oblige to keep funds of equity holders in escrow accounts. Developers this money will be available only after the fulfillment of all obligations. But experts still doubt that the draft law, when considered in the second reading, will be adopted without any changes.

On the one hand, if these amendments are adopted, equity holders will be protected. On the other hand, the interest of developers who need funds "here and now" will be lost. Oleg Ivanov believes. Therefore, they can lobby for some amendments to the existing bill.

Experts, meanwhile, note another problem, due to which escrow accounts have not yet become widespread in our country. "In the mass consciousness of our citizens, cash still plays a huge role," notes Oleg Ivanov. Yes, and business to progressive technologies is distrustful. In addition, there is an old proven method - a letter of credit. Here, however, four parties are involved: the buyer and the seller, and two banks representing their interests. The scheme is similar, although the escrow account is a more flexible tool, the conditions of which the parties can change as they like. Naturally, having previously agreed on this.

According to Alexei Matyukhov, CEO of BMS Law Firm, the limiting factor is the presence of restrictions that apply in Russia. For example, only money can be deposited into an escrow account with us, and only banks can be escrow agents. In international practice, the list of property is much wider, up to intellectual property, and an agent can be, among other things, a lawyer or a notary who is trusted by both parties.

New securities

Russian Railways plans to issue bonds at a discount

Russian Railways is considering the possibility of placing bonds. "We will probably offer new financial mechanisms. We are now paying coupons on bonds, or maybe we will offer not coupon income, but issue discount bonds," Oleg Belozerov, head of the company, told reporters.

But for now, this issue is under discussion. What decision will be made - we will find out in a month, Belozerov made it clear. According to him, the company plans to decide in the near future whether it will issue discount bonds or place traditional bonds with coupon income.

“Now our colleagues are working on it. We need to understand how much and which of the mechanisms will give us lower costs,” the head of Russian Railways explained.

Discount bonds, we recall, are placed with a "margin" at face value. The difference between the placement and redemption prices is the investor's income. Today, there are 15 issues of exchange-traded bonds of Russian Railways in circulation for more than 312 billion rubles. There are also 13 classic bond issues for almost 190 billion.