State Duma of the Russian Federation calls to take out the fraudulent scheme of using escrow accounts

Members of the State Duma Committee on Construction and Housing and Public Utilities drew attention to the problem. The MPs called on the Prosecutor General's Office and the Ministry of Construction to develop measures to combat the identified abuse. It lies in the fact that some unscrupulous developers sell apartments to their affiliates at a reduced price using escrow accounts, and take the rest of the funds in cash. Thus, the sum on the account remains less than it should be, and in a situation of bankruptcy of the developer, equity holders will not receive their money.

The deputies propose to establish the mandatory check of developers carried out by prosecutor's office in a situation where he sells more than 10% of the apartments at a price which is more than 20% lower than the market price.

Experts note that the use of such schemes does take place, but not all of them are fraudulent. In a similar way, some developers are just trying to protect their business, Izvestia reports. It is also noted that situations may arise due to the need to make settlements in the construction process in cash, while the funds of equity holders are “frozen” in escrow accounts.

The proposal to ban the sale of 10% of apartments to one legal entity may lead to the creation of a number of companies by unscrupulous developers. At the same time, conscientious investors will have to create additional subsidiaries in order to acquire a number of properties.