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ESCROW SERVICES
Recently I have had a number of inquiries concerning the actual funds transfer in the sale
of commercial ships. There are no set rules and the terms are generally set by the parties
to the transaction. There are generally five ways for the escrow to be set up:
1. NORWEGIAN SALES FORM- The Norwegian Sales Form provides that a joint
bank account be set up to hold the funds deposited by the Buyer to assure his ability and
willingness to complete the transaction. These funds may be designated as "earnest
money", purchase deposit, escrow funds or buyers security. Regardless of the name, the
deposit is designed to assure the Seller that the Buyer will complete the transaction if the
vessel meets all of the terms of the offer to purchase.
2. ESCROW SERVICES - Most banks and real estate escrow service will hold the
deposit under an escrow agreement. The value of such a service is that the funds and
fidelity of the escrow service is insured by a fidelity bond or other security supervised by
the state. The principal problem that occurs is that these facilities are not familiar with
maritime transactions and are many time uncomfortable with handling a situation inwhich
they do not have experience. The bank and escrow service will charge for this service.
The amount may range from a few hundred dollars to several thousand dollars.
3. ATTORNEY TRUST ACCOUNTS - All attorneys maintain a "Trust Account".
This is an account, generally monitored by the State, in which they deposit and disperse
funds held for their clients. This is a very common way for the funds to be held and
verified to the Seller.
4. BROKER TRUST ACCOUNT - Most brokers maintain trust accounts in which
deposit may be placed, held and dispersed as required. Most states do not require that
these accounts be insured or that the broker have a fidelity bond. The states of California
and Florida do require fidelity bonds, however, these are usually relatively low limits.
5. DEPOSIT WITH SELLER - You may make a deposit directly with the Seller.
The biggest problem arises if you have a dispute over the terms or conditions of the sale.
The Seller may unilaterally refuse to refund the deposit and you will be required to hire an
attorney and file suit. However, this type of deposit arrangement is routinely used in the
transaction process.
Regardless of how the deposit is made, the purchase agreement needs to make explicitly
clear the terms and conditions on which the sale is predicated. There needs to be an exact
standard the vessel must meet, whether classification standards, personal inspection or
otherwise before the deposit is committed and not subject to be refunded. There must be
an exact date by which the parties will accomplish certain things and there must be an
acceptance date by which the Buyer accepts the vessel.
When the acceptance date is reached, the buyer then pledges his deposit as a guarantee of
his willingness to complete the deal. Ordinarily, it is at that point, at which, the Seller
removes the vessel from the market, starts refusing charters or other work and begins
making the vessel ready for the sale to the Buyer. This depends upon how the Buyer in-
tends to use and the exact nature of the transaction. I have a variety of forms in my book,
“SHIP ACQUISITION & SALE".
A bank, attorney, or escrow service will require explicit escrow instructions which are
signed by the Buyer and Seller, and will follow those instructions solely. The most
important point to remember is to have the agreement in writing.
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