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How to Minimize Escrow Account Fraud

Many investors/borrowers think when they put their funds into an escrow account, the funds will be safe and secure. However, the article below proves otherwise.  This Palm Beach real estate developer along with his lawyer swindled $50 million from Chinese and Iranian investors for the EB-5 program.  While the funds were put into escrow they were inappropriately transferred to other accounts for personal use.

While funds need to be put into escrow, one of the best ways to mitigate risk (from the investors' side) is to have a contract that discloses all of the third parties the funds from escrow will be transferred into after they have been deposited and vetted beforehand by the investors.  The funds should ONLY be transferred to those third parties. 

If the third parties need to be kept confidential prior to the deposit of escrow funds, after the escrow funds are received, the sponsor/principal should disclose via contractual notification who the third parties are that will receive the funds.  The escrow company should be instructed to not release the funds until the investors receive the contractual notification and it is signed and returned to the escrow company.  A due diligence period can be included in this if need be.   I know it sounds like a lot of work but in this day and age, sadly more precautions need to take place.  I have read of three EB-5 scams in the last 6 months that are similar to this where the funds were misappropriated.


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