Investor Dictionary: Escrow, What it is and How it Works

When we talk about real estate matters, many terms come to mind that are frequently used in the industry. Certain words create confusion and need to be clarified quickly for anyone unfamiliar with their meaning. Foreign investors typically follow a purchase process that allows them to acquire properties in Mexico in a complex but safe way: the ESCROW.

What Is Escrow and Why Is It Used?

Escrow is a term widely used in investments because of its safe and reliable nature. Many people may ask what escrow is and how it works.

Broadly speaking, escrow is a mechanism used in a sale to ensure that payment reaches the seller and that the product reaches the buyer. It functions as a guarantee for both parties throughout the transaction.

How an Escrow Account Works

An escrow account operates similarly to a trust. This account is opened through a financial entity. The main difference with a trust lies in the ownership of the assets.

In a trust, the assets are transferred to the trustee, and the trust entity manages them. In an escrow account, ownership of the account is maintained by the original holder; however, that holder cannot make movements in the account. The settlor controls the account and it is created for a specific purpose.

You could say it is a bank trust where there is no transfer of assets, but the financial institution handles the account (without the original owner losing ownership) and finally delivers the funds to the beneficiary according to the specifications placed in the escrow contract.

Why Investors Choose Escrow

This type of account is easy to implement and represents a guarantee when transactions take place, not only financial but also commercial. Escrow accounts are widely used, efficient, and meet the objective for which they were created flawlessly.

In Summary

Today, escrow is one of the most widely used purchase mechanisms for foreign real estate investors in Mexico, and most financial entities have a dedicated department for these operations. For investors seeking security and clarity in cross-border transactions, escrow remains a tested standard.