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UNDERSTANDING ESCROW ACCOUNT UNDER RERA


 

What is an ESCROW ACCOUNT and why is Real Estate Regulatory Authority (RERA) mandating 70% funds collected be deposited in an escrow account by a real estate developer?

An escrow account is a designated bank account where funds are held by a neutral third party, typically a bank or a financial institution, on behalf of two parties involved in a transaction. The purpose of an escrow account is to safeguard the funds and ensure that they are used for their intended purpose.

The Real Estate Regulatory Authority (RERA) mandates that real estate developers deposit a certain percentage of the funds collected from homebuyers into an escrow account. The requirement varies between states, but it is commonly set at 70% of the funds collected. Here's why RERA mandates the use of an escrow account and the benefits it offers:

1.    Protection of Homebuyers: The primary objective of RERA is to protect the interests of homebuyers. By mandating the deposit of funds into an escrow account, RERA ensures that the funds collected from homebuyers are safeguarded and not misused by developers for purposes other than the project's construction and completion.

2.    Transparency and Accountability: The use of an escrow account promotes transparency and accountability in the real estate sector. It allows for better monitoring of funds and ensures that the money is utilized appropriately for the project's development, construction, and infrastructure.

3.    Project Completion: Requiring developers to deposit a significant portion of the funds in an escrow account helps ensure that there are sufficient financial resources available for the timely completion of the project. This reduces the risk of developers diverting funds to other projects, resulting in delays or non-completion.

4.    Risk Mitigation: The escrow account acts as a safeguard for homebuyers against financial risks associated with real estate projects. In case of any issues or delays in project execution, the funds in the escrow account can be utilized to compensate the affected homebuyers or facilitate the completion of the project.

5.    Audit and Regulatory Oversight: The funds held in an escrow account are subject to regulatory oversight and audit. This helps in monitoring the financial aspects of the project, ensuring compliance with RERA regulations, and preventing any fraudulent activities.

Overall, the requirement of depositing a significant portion of funds in an escrow account by real estate developers serves to protect the interests of homebuyers, promote transparency, and facilitate the timely completion of real estate projects. The specific percentage and guidelines for the use of the escrow account may vary between different states' RERA regulations.

ADV LEENA KAULGEKAR

 


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