Help Me Understand the Escrow Process at Escrow.com

[tvanslooten]

I've been thinking more and more about this whole Escrow.com thing and the fact that only the domain is covered during the transaction and it has my head spinning. I'm having a hard time understanding how Escrow.com covering "only the domain" is an issue. Let me explain my confusion by using this example:

Let's say I'm a seller of a website (let's say a blog) for $10,000 and the buyer and I agree to use Escrow.com for the transaction. The buyer funds the escrow account for $10,000. I then start the domain name transfer as well as transferring the site itself (i.e. all the files and databases related to the website). During the "inspection period" the buyer either claims they didn't get anything or they say they want out of the deal because they have changed their mind. Or maybe they claim they didn't get what they expected in the deal. Either way, I have already transferred the domain and everything pertaining to the site to the buyer. They buyer has everything in their possession at this point as they have full control and ownership of the domain and the site.

What would happen in this scenario as per your understanding of how Escrow.com operates? My understanding is that I would still get all the money held in escrow because Escrow.com would see that the domain has been transferred. Is that correct? If so, I don't understand how Escrow.com "only covering the domain" is an issue. And I guess in general, I'm not understanding how only the domain can be covered when you're selling a website since a domain and a website are generally the same thing. I.E. If I sell you my blog, you will automatically get all the content on the blog once I transfer the domain to you since the content is on the domain. When I sell a website, the first thing I'm going to do is transfer the domain and once that step has been satisfied as per Escrow.com, I should be fully covered regardless of anything else I transfer to the buyer. Help me understand this!!

Thanks,

Travis

[hooperman]

What would happen in this scenario as per your understanding of how Escrow.com operates? My understanding is that I would still get all the money held in escrow because Escrow.com would see that the domain has been transferred. Is that correct? If so, I don't understand how Escrow.com "only covering the domain" is an issue.

It's not an issue for the seller. The seller could transfer the domain only and retain the content and as long as the buyer has control of the domain, the transaction is complete as far as escrow.com is concerned.

And I guess in general, I'm not understanding how only the domain can be covered when you're selling a website since a domain and a website are generally the same thing. I.E. If I sell you my blog, you will automatically get all the content on the blog once I transfer the domain to you since the content is on the domain.

The content isn't on the domain, it's on your web host's servers. When you transfer only the domain, the content will still appear on the site only if the domain servers point to the old hosting account. But if that's so, the new owner doesn't yet control the content. Again, safe for the seller but not the buyer.

I get the impression that although escrow.com seems safer for the seller, the buyer can still put a spanner in the works. I recently bought a domain using escrow.com and put domain privacy on it as soon as I had control of it. Escrow.com had to contact me personally to confirm that I did indeed have the domain as they couldn't tell. I'm interested to know how far they would have investigated if I'd said I didn't have the domain.

[tvanslooten]

Thanks for the explanation but my head is still spinning on this

I understand what you're saying - that it's more of an issue for the buyer.

What's still confusing me is that Clinton said the following on the Flippa blog:

If you’re selling a site that has a lot of valuable assets such as content, scripts, subscribers, databases etc., etc., if you used escrow.com it’s easy for the buyer to pay the money into escrow, get all your content and scripts etc., then withdraw from the transaction and get a refund from escrow.com. In essence, he gets all your stuff for free (except the domain)! escrow.com’s terms will ensure you get the domain back but you’ve given away your most valuable stuff.

Couldn't this happen regardless of what Escrow service you use? It would be easy for the buyer to say they didn't get all the "valuable assets" because how could any Escrow service prove it otherwise? Confirming the transfer of a domain is easy for an escrow service as they can simply check the WHOIS - but how would they be able to confirm the transfer of content, scripts, subscribers, etc.?

It seems to me that Escrow.com would be as safe as an escrow service can be given the nature of websites (i.e. virtual property) so this whole issue of only the domain being covered seems moot.

It's been a while since I've used Escrow.com for the transfer of a website, but can't you define exactly what will be transferred as well as the precise terms of the escrow process? If so, then wouldn't everything be covered? For example, as a buyer couldn't you stipulate that the money will only be released after ALL assets are delivered (i.e. content, scripts, etc.). And likewise, couldn't the seller stipulate that the buyer cannot withdraw after all assets have been delivered?

And not to complicate this even more, Clinton also mentioned that Escrow.com wouldn't be good for non-US citizens. Why is that? Is he saying that even though someone outside the U.S. can use Escrow.com, they wouldn't be covered if the transaction went bad?

Travis

[Clinton]

...but can't you define exactly what will be transferred as well as the precise terms of the escrow process?

No, you can't. Period. Really.

Couldn't this happen regardless of what Escrow service you use?

Good point. Software escrows exist, of course, for escrowing assets that are substantially code, but there's no safety like that provided by a lawyer who recognises the agreement between buyer and seller as being the basis of the transaction.

On the issue of escrow.com being not suitable for those outside of the US - it's based on the fact that escrow.com is registered in California under the Californian Financial Commissioner and the California Financial Code. This is draconian in its protection of California residents - and protection is a good thing - but it goes overboard in protecting their interests. Should an escrow.com transaction go bad it has to resolved within the State rules and that is hugely discriminatory against non-Californians. I covered the California issue in more detail here. I produce a quote from that page:

1. If you use your local escrow to do business with anyone resident in California and there is ever a dispute, you're in serious trouble: Your problem is not with that person anymore, it's with the Commissioner. He automatically appropriates the mantle of attorney.... and your opponent can submit papers to the Commissioner and consider them served on you. And it's not obligatory on the Commissioner to forward those papers to you.....

3. 3. Dispute? All your opponent living in California needs to do is pay the Commissioner $2 to start the ball rolling; it's even tax-deductable for him (17010). And he sits back and laughs.

There are various other issues. A lot of gambling activity is legal in the UK but not in the US. UK directors of big name gambling websites who are completely legal in the UK are considered criminals in the US (because some US citizens illegally access these UK gambling sites). They have to avoid flying to the US for fear they'll be arrested and prosecuted as some have. Putting a site through escrow.com which is legal in your home country but not legal in the US - from pharma to casino to adult (danger: age of consent varies from country to country) - risks you losing the site.

The absence of a credible escrow service for websites is something that has bothered me for a while and I've been speaking with a few people about it over the last year or two. It's not easy or cheap to setup an escrow company and setting one up just to handle websites may not be viable at current volumes of business. But...

A director of Global Media Law who is connected to many top notch IP attorneys is signed up here (Katya) and will be joining the debate soon with the intention of exploring the opportunity of setting up an alternative escrow system designed from ground up specifically for websites. Over the last few months she and I have exchanged several emails on this matter. I'm sure she'll get a warm welcome at experienced-people and I'm hoping everyone will assist with their own views and suggestions on whether a solution can be created and how best it would serve their needs.

[hooperman]

Thanks for the explanation Clinton.

A director of Global Media Law who is connected to many top notch IP attorneys is signed up here (Katya) and will be joining the debate soon with the intention of exploring the opportunity of setting up an alternative escrow system designed from ground up specifically for websites.

Now that will be interesting.

[Clinton]

I'm hoping it will be. She's very busy so we'll need to be a bit patient. But once the discussion starts it may be useful if I provide here some extracts from our email conversations. Shouldn't be a problem, but I'll run that by her first.

[katinkers]

Hi. I'm curious--have any of you ever used the "services" section of escrow.com to do a website transfer?

[Clinton]

For years the escrow.com fanboys all pointed to escrow.com's domain service as the best solution for websites. Now, after all the noise I've been making, they seem to have moved over to recommending escrow.com's Services option! So I gave it a shot.

Apart from minor differences, it's the same as the escrow.com General Merchandise option. Yes, you have stages (up to a maximum of 10 stages and an inspection period extended from 10 days to 30) and you can describe what should happen at each stage. The description for each stage is limited to 256 characters and therefore highly limited (secret: despite what escrow.com say about 256 characters, I've found that it'll take pages and pages so you can include a very detailed description of what constitutes delivery ).

The same problems exist though. First, I get the impression that you don't get the same domain name protection with this option that you get with the Domain option. Second, and the most important, the terms of the contract between buyer and seller are determined by escrow.com. So, for example, the seller can provide the database, scripts etc., in stages 1 and 2 and the buyer can reject the transaction with no risk to himself. He gets a full refund of the money and also retains what could be the most valuable part of the transaction.

Gotta rush now, have to go somewhere, but have a look at the escrow terms and you'll see that though they call it Services, it's nowhere near suited to website transactions. Have a look also at the details in the terms about how the buyer can return goods and the seller can reject those goods if he's not satisfied and you'll see what nonsense that is in relation to the kinds of transactions we're talking about and the intangible assets being traded.

<added>PS: There's a bug in the stage 2 of 3 when using the Services option. Make sure you type in each unit/intallment price correctly. If you go back to correct it, it will seem corrected but the original wrong price will carry through to the transaction.

[katinkers]

Clinton, great information. Thank you!

[Clinton]

escrowdns.com has something interesting:

As soon as we secure the buyer's payment we have the seller push the domain name into an EscrowDNS holding account, we then work with the buyer to get the domain name transferred to them. By doing this, we close the loophole left by other escrow services where the buyer could receive the domain name from the seller and not accept the domain name. If the buyer were to change the whois contact information back to the seller and if they claimed to not receive the domain name, there would be nothing that the escrow company could do. We now also offer a "Private domain name escrow service" which will protect your identity in a domain name transaction. This service is available for both the buyer and/or seller