How is money protected in escrow accounts with an attorney?

How is money protected in escrow accounts with an attorney?

Many people are anxious about placing funds in an escrow account maintained by an attorney because they do not know how money is actually protected and are embarrassed to ask. Therefore, we have prepared a short article in order to explain everything clearly.

Czech lawyers must perform a number of duties that are assigned to them. These obligations arise both from the Law of Advocacy (Act No. 85/1996 Coll.) and from other legislative acts. Specifically, a lawyer's escrow service is governed by a resolution of the Board of the Czech Bar Association (www.cak.cz). This level of customer protection involves numerous security controls, namely:

• The lawyer is obliged to keep funds in a separate account that is designated as an escrow account. A special agreement acknowledges that these accounts serve a storage / deposit function, and explicitly states that they are not funds of the lawyer. These funds are registered with the bank in the name of the buyer; therefore, they are also insured. From the bank’s perspective, customers having such a regime are regarded as if these funds were kept in their name by the bank.
• Each escrow account is registered in the electronic ledger of the Board of the Czech Bar Association. Records are marked with the document index and the participant's name. In case something happens to an attorney, the Board of the Czech Bar Association can always find this escrow account and appoint another attorney to deal with the escrow account.
• Each lawyer must be insured against professional misconduct to the value of 5 000 000 CZK. A lawyer's insurance contract can be concluded collectively through the Board of the Czech Bar Association or individually. However, the minimum limit of liability insurance is set, by law, at 5 000 000 CZK. Thus, the guarantee and security of funds from the attorney is ensured by rigorous standards. However, professional failure of individuals is possible.

— How do participants get information? When I send money to the lawyer, will I get a message that all the money has arrived as well as information about what is happening to the funds?

Escrow accounts operate transparently. Participants are required to indicate their email addresses in contracts or via a shipping address. Reports on all movements on the escrow account (e.g. statement of the purchase price investment and/ or statement of its payment) are sent to both participants using their stated contact details. Clients are notified by email and are usually informed within 48 hours of any movements on their escrow account.

For your own peace of mind, should you intend making a purchase of real estate or arranging another significant financial transaction, we strongly advise that you find a good lawyer and use his/her services to open an escrow account.

Doctor of law Sergey Zaripov, LL.M.

Member of The Czech Bar Association
Law firm Zaripov & Partners