Escrow account for building forward sale:
Escrow account refers to an account that is opened in a bank under the name of a certain construction project or company. The main goal of opening such account is to organize housing forward sale market and to decrease the corresponding risks to housing buyers. In fact, one of the most important applications of escrow account is to establish an appropriate mechanism to decrease the risk of fraud and ethical jeopardies between the forward buyer and forward seller through jointing a third party trusted by the two sides. Actually, escrow account is a financial means that is created by a third party (bank) to provide certain services for customers.
Opening an escrow account:
An escrow account will be opened in the name of the forward seller by paying of maximum amount of IRR 1,000,000.00. Any forward seller is authorized to open only one escrow account. for each project escrow account is opened for forward sale of the units of a project. In case over one forward seller jointly embark on forward sale of the residential units of a project, a joint escrow account will be opened in the names of sellers. After opening the said account, payment to the corresponding account by any natural or legal entity including the forward seller, his legal lawyer and forward buyers is forbidden and only the bank is authorized to pay to the said account.
Documents for opening the escrow account:
In order to open an escrow account, it is necessary to submit the following documents by the forward seller to the bank:
A-Certified copy of the title deed of land, lease contract with right of building construction or an official contract of partnership or investment of the forward seller with the land owner or lessee in such a manner that certain building unit of the project with right of sale will be assigned to him, each that is mandatory;
B-A deed introducing the project: The corresponding deed introducing the project should encompass the following items:
1-General introduction of the project and providing the approved structural and architectural drawings, conforming to building permit issued;
2-Units under course of forward sale and numbering metod of the said units on the entire map of project block(s);
C-Certified copies of all forward sale contracts with forward buyers of the project in case they have been concluded prior to opening the escrow account;
D-Certified copy of building permit of project issued by the permit issuance authority at the venue for execution of project;
E-Certified copy of building foundation completion certificate confirmed by the supervising engineer of the project;
F-Signature attestation of project coordinating supervisor issued by notaries public in case the supervising engineer of project is a natural entity;
G-Other documents based on criteria for opening a bank account
Per any of forward sale contracts, an account should be opened at the bank in the name of the forward buyer to fulfill his obligations stipulated in forward sale contract. Forward buyers may pay all cash payments for obligations of forward sale contract to the buyer’s account belonging to themselves. For each project, only one account in the name of buyer is authorized. Each account is opened for payment of sums of forward sale contract concerning one project (Payment of other amounts except for obligations of the aforesaid plan, to the said account is forbidden).
In case there is more than one forward buyer and they have jointly embarked on forward purchase of one or several unit/s of the project, the buyer’s account will be jointly opened in the name of forward buyers.
Remarks: At time of opening the account, the certified copy of the forward sale contract concluded with the forward seller and forward buyer will be submitted to the bank as evidence for money transfer from the account of the forward buyer to that of the forward seller in case of confirmation by the supervising engineer together with other documents for account opening. Both accounts of the forward seller and forward buyer are of short-term ordinary type.
Contract for opening an escrow account:
Simultaneous with opening the escrow account, the forward seller and the bank would conclude a contract for opening an escrow account. Limits of duties and powers of the forward seller, the bank and term of transaction shall be according to the contents of the aforesaid contract.
Maximum validity period of the contract for opening an escrow account is given as issuance date of project accomplishment certificate or delivery of last unit each occurs later.
In case of transfer of partial or whole rights and obligations of the forward seller with respect to one or several unit/s, the contract for opening an escrow account will be concluded with the transferee and the previous contract may be treated as the case may require.
In case there is more than one forward seller who have jointly embarked on forward sale of the units of a project, responsibility for fulfillment of obligations created by virtue of this instruction and contract for opening an escrow account before the bank shall be according to the proportional share of each from any of the entire contracts.
Payment of sum of money to the seller:
All payments will be made to the forward seller through the bank and transfer of money from the buyer’s account to the escrow account. Transfer of money will be exclusively made in the following three forms:
- As ordered by judicial authorities or according to the order issued by the board of arbitrators (of which members will be appointed in the future), transfer of sum of money will be made according to the verdict of the board of arbitration only after receiving written agreement of the two sides to the order issued. Otherwise, the evidence for action of the bank will be the order issued by the judicial authorities.
- At the written request of the forward buyer from the bank;
- At the written request of the forward seller and according to the conditions of request to be stipulated hereunder;
Request by the forward seller:
During the validity period of contract for opening an escrow account, the forward seller may request the bank to pay the sum of money. In this case the forward seller shall draw up the report on progress of project to submission date of report indicating the executive stages accomplished and submit the same to the bank. The certified copy of the said report from the project supervising engineer will be submitted to the permit issuance authority certifying the termination of executive stages indicated in the progress report. The bank shall consider the progress report and calculate the payable amount of each contract to the forward seller and transfer the sums of money from the accounts of the buyers to the escrow account within maximum one week as of date of receipt of report on progress.
Note 1- Evidence for action by the bank for calculation of payable amount to the forward seller is the condition of measures taken for the corresponding unit subject of the same contract; unless the said unit is at stages prior to “interior and exterior finishing touch”. In this case, condition of measures taken for the entire block covers the corresponding unit as well.
Note 2- At the request of the bank, the forward seller shall draw up the progress report in such a manner that it is possible to physically separate the blocks, floors and units.
Note 3- Receipt of report of progress, calculation of payable amount and payment of sum of money to the forward seller shall be registered by the bank and informed to the forward seller within one week as of transfer date of sum of money to the escrow account.
Note 4- Sums of money transferred from the buyers’ accounts to the escrow account is limited to the total balance of accounts of the buyers and no responsibility is assumed by the bank for failure to suffice the account balance of the buyers.
Temporary freeze of an escrow account
During the validity period of contract of opening the escrow account, the bank is authorized to temporarily block the said account due to the following reasons:
A-According to the order rendered by judicial authorities or permit issuance authorities indicating stopping or demolition of project; in this case, until final judgment is rendered by the judicial authorities, the bank shall avoid carrying out the contents of Article 14.
B-In case of violation of the seller concerning fulfilling the contents of the contract for opening the escrow account; in this case, the contents of the aforesaid contract shall be applicable.
C-In case of receipt of a written declaration of cancellation by all forward buyer; in this case the bank shall avoid carrying out the contents of Article 14 until final judgment is issued by the judicial authorities.
Report to the forward seller and forward buyers:
During validity period of contract for opening the escrow account and at the written request of the seller, the bank will submit a report on turnover of escrow account and all cash payments of all forward buyers to the forward seller.
Note: Collection of commission for services provided by the bank shall be borne by the forward seller according to the current criteria of the bank. Moreover, the bank may submit a statement of each forward buyer to him as the case may require after payment and withdrawal of any amount in the account of forward buyer. Payment of commission fee thereof will be borne by the forward buyer.
Closing the escrow account:
The escrow account will be closed in one of the following forms and balance of the said account will be paid to the forward seller or it will be treated according to the judicial order or board of arbitration or the contents of contract for opening an escrow account.
A-In case of submission of the certified copy of project accomplishment certificate by the forward seller to the bank and delivery of all units to the buyers;
B-According to final judgment issued by judicial authorities or board of trustees for cancellation of all forward sale contracts;
C-In case of cancellation of all liable contracts and submission of evidentiary notarial documents by the forward seller or buyers;
D-In case of cancellation of contract for opening an escrow account;
Note: The bank shall inform termination of case and closing the escrow account to the provincial general department of road and urban development on an official basis.