How paying the purchase price via escrow secures your acquisition of ownership: escrow agent, client trust account, release conditions, eTHB and bank financing.
BRANDAUER Rechtsanwälte
Salzburg law firm for real estate, property and corporate law
Every matter is handled by a coordinated team of lawyers, legal staff and specialists. In property purchase matters we look at the contract, land register, escrow and tax consequences together.
Buying a property involves large amounts. Anyone transferring the purchase price wants to be sure that unencumbered ownership actually passes to them in return. This very tension is resolved by handling through an escrow agent: you do not pay the seller directly but pay a neutral party that releases the money only once your acquisition of ownership is secured.
This post explains how paying the purchase price via escrow works. The focus is on the escrow agent and the escrow mandate, the client trust account, the release conditions and the additional safeguard through the electronic trust facility of the bar association. We also show how bank financing fits into the escrow.
From a lawyer perspective escrow handling is the core of a secure purchase settlement. A direct payment without escrow shifts the risk to the buyer and should remain the exception. Anyone who knows the conditions can judge whether their own settlement is really secured.
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Usually a lawyer or notary acts as escrow agent, holding the purchase price on a client trust account and releasing it only once the conditions are met.
If you pay the purchase price directly to the seller before the encumbrances are deleted and your registration is secured, you bear the full risk. In the worst case the money is gone and the ownership is not unencumbered. Have the settlement handled through an escrow agent. Our checklist on the purchase price and escrow offers guidance.
Escrow handling protects both sides and costs little compared to the purchase price.
If the purchase price runs through an escrow agent and the release conditions are tied to priority ranking, discharge of encumbrances and registration, your payment is well secured. Also check whether a registration in the electronic trust facility of the bar association is made and whether the tax clearance certificate or self-assessment is taken into account.
A short review of the escrow conditions confirms that nothing essential is missing.
Unclear release conditions or a missing safeguard through the electronic trust facility weaken your protection. Demand that the escrow agent release only once the priority ranking is secured, the discharge of encumbrances is proven and your registration is secured. Add the registration in the eTHB as an additional safeguard.
Have the escrow mandate reviewed before payment and the conditions adjusted.
The escrow agent is a neutral person who stands between buyer and seller. In practice this is usually a lawyer or a notary who handles the contract settlement. They do not act for one side but must safeguard the interests of both parties and observe the agreed conditions precisely. More on this in the glossary on the escrow agent.
The basis of their activity is the escrow mandate. In it buyer and seller set out in writing which amount the escrow agent holds, under which conditions they release it and to whom the money flows in the respective case. The escrow mandate is therefore the heart of the settlement, because it binds the duties of the escrow agent.
A deeper treatment of the connections is on our focus page on escrow and the purchase price. How the maturity of the purchase price ties into the settlement is explained in the glossary on purchase price maturity.
You transfer the purchase price not to the seller private account but to an escrow account kept as a client trust account. A client trust account is a separate account that the escrow agent keeps for third-party money and that is separated from their own assets. This way the purchase price remains protected until release.
The escrow agent releases the purchase price only once the agreed release conditions are met. Typical ones are: the notation of priority ranking for the intended sale is secured, the discharge of encumbrances is proven, the registration of your ownership is secured and the tax clearance certificate or the self-assessment of the tax is available. Only once these points are ticked off does the money flow to the seller.
These conditions ensure that you and the seller are secured step by step. Read more on the deletion of encumbrances in the post on the discharge of encumbrances in the contract and in the glossary on the discharge of encumbrances.
If a lawyer handles the escrow, they can register it in the electronic trust facility of the bar association, eTHB for short. The escrow account is registered with the bar association and monitored. This creates an additional safeguard beyond the individual escrow agent.
For you as a buyer, the registration in the eTHB means that the use of funds is controlled and that in case of damage a special protection can apply. It is a quality feature of a clean settlement and should be addressed in the escrow mandate if a lawyer conducts the escrow.
How the priority ranking protects your acquisition is explored in the glossary on the priority ranking notation. How the declaration of consent and registration interact is covered in the post on the declaration of consent and registration.
These points decide whether your payment is really secured. Check each one before you transfer.
| Point | Recommended | Possible risk |
|---|---|---|
| Escrow agent Lawyer or notary | A neutral party safeguards the interests of both sides | Payment directly to the seller without a neutral party |
| Escrow account Separate client trust account | Purchase price separated from the escrow agent assets | Transfer to a private account of the seller |
| Release Clear release conditions | Release only once registration and unencumbered status are secured | Release before proof of discharge of encumbrances |
| eTHB Registration with the bar association | Additional control of the use of funds | No registration of the escrow |
| Financing Bank pays into the escrow | Bank payment coordinated against a mortgage | Bank payment without coordination with the settlement |
The exact release conditions depend on the individual case. With bank financing the bank requirements have to be coordinated with the escrow conditions.
Caution with direct payment: If the purchase price is paid directly to the seller without escrow, before the encumbrances are deleted and your registration is secured, you bear the full risk. Have the settlement reviewed before payment. Booking an initial consultation (72 euro) can quickly bring clarity.
If you finance the purchase through a bank, the bank usually also pays the loan amount into the escrow. In return the bank requires a mortgage on the property as security. Escrow agent and bank coordinate the release so that the bank mortgage and your ownership are entered together in the land register. This way the financing fits cleanly into the settlement.
A direct payment without escrow, by contrast, is risky. If you transfer the purchase price before the seller encumbrances are deleted and your registration is secured, it can happen that the money is gone and you do not receive unencumbered ownership. The escrow prevents exactly this scenario, because it links payment and securing of ownership.
How to review the contract as a whole is covered in the post on how to review the property purchase contract before signing. A first risk assessment is provided by the purchase contract risk check.
In practice a lawyer or a notary usually conducts the escrow. The escrow agent is a neutral party that holds the purchase price on a client trust account and releases it only once the agreed conditions are met. They safeguard the interests of both sides and are bound by the escrow mandate.
The escrow agent releases only once the release conditions are met. Typical ones are a secured notation of priority ranking, proof of the discharge of encumbrances, the secured registration of your ownership as well as the tax clearance certificate or the self-assessment of the tax. This way you do not pay before your unencumbered acquisition of ownership is secured.
If a lawyer conducts the escrow, they can register it in the electronic trust facility of the bar association. The escrow account is registered there and monitored. For you this means an additional control of the use of funds and a special protection beyond the individual escrow agent.
Our focus page on handling the purchase price through an escrow agent.
How the deletion of encumbrances is tied to the purchase price payment.
Which points you should check before signing.
The checklist on the most important points of escrow handling.
When buying property, the contract and the land register decide. Call us directly or send an email, callback within one business day.
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BRANDAUER Rechtsanwälte GmbH Giselakai 51 5020 Salzburg
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+43 662 6280000