Escrow

Escrow (에스크로. 안전결제/安全決濟) is the general arrangement under which a legal document or property is delivered to a third person until the occurrence of a condition. This arrangement most commonly applies to transactions concerning real or personal properties. In the United States, escrow has been used as a means of transferring real property between persons for over five hundred years.

Key words
escrow, Internet escrow, real estate transaction, licensed real estate agent, judicial scrivener

Closing of Real Property Transactions
Usually in the United States, there are two primary parties to the escrow process: the seller and the buyer. The buyer’s lender may also be a party to the transaction if there is bank loan involved. The escrow agent, one or more lawyers, is a neutral third party participant who is instrumental to the escrow process. The escrow agent acts as a depository for documents and funds and makes the necessary transfers when the transaction conditions have been met.

Non-lawyer escrow services are frequently performed by banks, title companies or private escrow service agencies, each of which is granted a special license by the individual state to provide escrow services (unless exempted by state law).

Escrow is contractual by nature and is “opened” when escrow instructions have been deposited with the escrow agent. Escrow instructions is the contract between escrow and the buyer and seller and details the duties and obligations the escrow agent has to each of the parties

Real Estate Agents and Escrow in Korea
Pursuant to Article 31 of the Act on the Business Affairs of Licensed Real Estate Agents and Report of Real Estate Transactions (공인중개사의 업무 및 부동산 거래신고에 관한 법률), real estate agents are allowed to perform escrow duties limited to the leasehold deposits associated with jeonse (전세/傳貰) and wolse (월세/月貰). Yet, with this in mind, current regulations allow real estate brokers to act in a limited trust capacity for sellers or lessors concerning the “contract deposit.”

Under the present statutory scheme, real estate brokers may deposit the contract deposit with a qualified institution, such as a bank, and advance the sum to the person who has the right to the funds, provided the amount withdrawn can be guaranteed at the end of the contract. In other words, the bank will issue a letter stating that there will be sufficient funds available when the contract is completed. This is a change from the previous scheme whereby real estate brokers were authorized to handle the entire “contract amount”.

Consequently, because the current provision is limited to “contract deposit”, it appears the real estate broker is able to act as a fiduciary and in a trust capacity in a wolse situation, but not in a jeonse situation. If so, the statute could be easily amended to include a provision similar to the Korean Real Estate Brokerage Act (which was revised and replaced with the current Act), thus allowing the real estate agent to hold funds as a fiduciary for the “contract amount” as applied to a jeonse situation, and for the “contract deposit” to reflect a wolse situation.

Escrow in e-Commerce
Generally speaking, escrow refers to money held by a third-party on behalf of transacting parties.

Internet escrow works by placing money in the control of an independent and licensed third party in order to protect both buyer and seller in a transaction. When both parties verify the transaction has been completed per terms set, the money is released. If at any point there is a dispute between the parties in the transaction, the process moves along to dispute resolution.

In case of mail order (통신판매), the proceeds are placed in the control of an escrow agent. When the item ordered by mail is delivered to the buyer without any claim involved, the proceeds may be released to the seller.

Subject to the relevant law, the escrow agent shall satisfy any of the following requirements:


 * the financial institution including a bank, or
 * the company under the Commercial Act or the juridical person under the Civil Act, which has the capital of more than one billion won and the debt/equity ratio under 200 percent, and further has arranged the consumer injury compensation insurance or something like that.

In case of pre-paid mail order, either the escrow service or consumer injury compensation insurance has been available to consumers, if they want, since April 1, 2006, except the following cases:
 * Where the proceeds are paid by a credit card;
 * Where the delivery is not necessary for the transactions including the Internet game, the Internet lecture, etc.;
 * Where the proceeds are less than 1000 thousand won per transaction; or
 * Where the goods are supplied by installment.

Other Types of Escrow
In project financing, cash flows generating from the project facilities are deposited in the escrow account, and the money may be paid to the claimants in order. In case of construction works, the money may be released when the building work is complete to a defined standard, or when defined parts of the work are complete.