Buying Real Estate in Panama: ESCROW Services
The real estate market in Panama (as in the world) is changing. In our practice, we can observe an increase in the purchases and sales of properties in the country for this year.
Below we would like to inform future buyers and sellers about legal changes regarding ESCROW services in Panama.
What is an ESCROW?
An ESCROW is a custody service, where a neutral third party offers (through a binding legal contract) to hold funds or assets until the other parties fulfill certain duties and obligations. Upon completion of the transaction, the ESCROW agent releases the funds according to the instructions received previously.
In addition to delivering the funds to the seller once the closing has been completed, the ESCROW agent can pay the real estate broker's commission, attorney's fees, taxes caused by the transaction or due, unpaid utility bills, and other fees and payments required to close the transaction. Having a neutral third party holding the funds and pay all outstanding accounts at closing protects both the buyer and the seller.
The buyer does not have a bank account in Panama. Can an attorney receive the funds and hold them as an ESCROW agent until the transaction is closed?
In the past, lawyers and law firms in Panama used to provide this type of ESCROW service for real estate transactions. The lawyer received the buyer's funds in a bank account in Panama and kept them until the buyer was registered as the new owner of the property at the Public Registry.
However, in the year 2017, Law 21 was created in Panama, which "establishes the rules for the regulation and supervision of trustees and the trust business" in Panama.
In practice, this means that any individual, company, real estate broker, lawyer, or law firm that receives funds as part of an "ESCROW service" must have a trust license registered with the Superintendency of Banks of Panama.
Otherwise, at the time of receiving the funds in the bank account (especially if the funds are wired from abroad), they will be rejected by the bank and returned to their origin.
To avoid unnecessary delays in your sales transaction with the risk of losing a potential buyer or promising investment opportunity, please consult with your attorney about the available options for the legal custody of funds in Panama.