Escrow account

Escrow Account - An escrow account (also known as a notary escrow account) is a trust account held by a notary at a bank in the notary’s name but for the benefit of the contracting parties. In real estate transactions, it serves to ensure secure settlement of the purchase price: The buyer pays the purchase price into the escrow account, and the notary releases the amount to the seller only once all contractual conditions for the transfer of ownership have been met.

How It Works in Real Estate Transactions

The use of an escrow account follows a clearly defined process: After the purchase agreement has been notarized, the buyer pays the purchase price into the notary’s escrow account. The notary verifies that all conditions for release have been met-in particular, the registration of the priority notice of conveyance, the seller’s authorizations to cancel existing land charges, and the submission of the tax clearance certificate from the tax office. Only when all conditions are met does the notary release the purchase price to the seller.

In current practice, the escrow account is used less frequently for standard transactions. Most notaries handle the purchase price via a notice of maturity (also known as direct payment): The notary notifies the buyer in writing when all conditions have been met and the purchase price can be paid directly to the seller. The escrow account is primarily used when the transaction involves special security requirements-such as multiple creditors, complicated encumbrance releases, or international parties.

Difference between escrow account and direct payment

Feature	Escrow account	Direct payment (notice of maturity)
Purchase price goes to	Notary escrow account	Directly to seller
Additional fee	Yes (0.5 times the GNotKG fee)	No
Level of security	Maximum	High (with proper processing)
Typical use	Complex transactions	Standard transactions
Duration	May be longer (escrow phase)	Often faster

Costs and Alternatives

For holding the purchase price in an escrow account, the notary charges an administration fee amounting to 0.5 times the full fee under the GNotKG (Appendix 1, No. 25300). For a purchase price of 400,000 euros, this fee amounts to approximately 400 to 500 euros. Bank fees for the escrow account itself are added to this.

Direct payment via a notice of due date does not incur an additional administration fee and is therefore the more cost-effective option. It nevertheless offers a high degree of security, as the notary carefully verifies the due date before issuing the notice. Direct payment is also the standard procedure for buyers purchasing with bank financing: The bank transfers the amount directly to the seller after the notary has confirmed the due date.

When is an escrow account advisable?

In practice, an escrow account is recommended in the following situations:

• Multiple creditors of the seller: When the purchase price must be distributed among several banks, each of which issues release authorizations upon payment
• International buyer: When the buyer is transferring funds from abroad and direct settlement is difficult
• Seller at risk of insolvency: If there is suspicion that the seller would not forward the full purchase price to unsecured creditors
• Construction projects: For real estate development projects with a complex payment schedule linked to construction progress

Legal framework of the escrow account

The escrow account is regulated by the Federal Notary Code (BNotO) and the corresponding administrative regulations. Notaries are obligated to manage escrow accounts with due care and to act solely within the scope of the fiduciary mandate. The account must be treated as a special fund-in the event of the notary’s insolvency, it is not included in the notary’s estate and is therefore secure for the contracting parties.

The Chamber of Notaries monitors the proper management of escrow accounts. Violations can have professional disciplinary consequences for the notary, including revocation of their appointment.

Practical Tip for Nuremberg and the Metropolitan Region

We recommend discussing the choice between an escrow account and direct payment with the notary in advance of the notary appointment. For straightforward transactions in the Nuremberg metropolitan area, direct payment is the standard and saves costs. In more complex cases-such as when the seller must settle multiple bank liabilities, when foreign banks are involved, or when the seller is in insolvency proceedings-the escrow account offers additional security for all parties involved.

For foreclosures handled through the Nuremberg Local Court, an escrow account is not required-the purchase price is transferred directly to the court.

Frequently Asked Questions

Is an escrow account mandatory when buying real estate?

No, an escrow account is not mandatory. Most real estate transactions in Germany today are handled via direct payment following the notary’s notice of due date. The escrow account is only used when special circumstances require it or when one of the contracting parties expressly insists on the additional security.

Is my money safe in the escrow account?

Yes, the escrow account is subject to special protective regulations. It is held in the notary’s name but is held in trust as a separate fund and does not form part of the notary’s estate in the event of their insolvency. Additionally, notaries are personally liable for the proper administration of escrow accounts and are covered by professional liability insurance that covers damages resulting from improper trust administration.

How long is the purchase price held in the escrow account?

The holding period depends on the speed of settlement-typically two to six weeks between receipt of the purchase price and release to the seller. The notary releases the funds as soon as all contractual requirements are met, in particular the registration of the priority notice of conveyance and the submission of all necessary approvals and certificates.

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