Many people buying or refinancing a home do not know the details relating to escrow. They simply go through the process, sign the documents, and never realize how escrow really works. That is, until something goes wrong.
Escrow is a relationship between multiple parties in which property or title to property is deposited with a neutral third party (usually an escrow agent) by party A (usually a seller) to be conveyed to party B (usually a buyer) upon the occurrence of certain conditions. In the home buying process, escrow opens when the buyer and seller sign a purchase agreement and the buyer puts down a deposit. The seller orders title insurance and a title search to make sure they can obtain clear title. A preliminary title report points out any liens, easements or claims against the property that the seller needs to resolve before the property can be transferred. Escrow closes and the deal is complete when the escrow agent records a new deed in the buyer’s name, the seller gets paid for the home, and all other funds are disbursed. Escrow protects all parties involved by making sure that no funds or properties change hands until all conditions in the agreement have been satisfied.
Typically, a company specializing in escrow and title insurance services acts as escrow agent. Examples of well-known companies providing escrow services in Arizona include First American Title Insurance Company, Pioneer Title Agency, Security Title Agency, Stewart Title, Old Republic, Lawyer’s Title, Fidelity, and many others. The legal relationship between an escrow agent and the parties to an escrow is primarily contractual. Customarily, the parties to the escrow provide the agent with a set of joint written instructions. Once the instructions are signed and deposited, the escrow agent can be subject to liability for failing to follow those joint instructions. What if the financials are calculated incorrectly, resulting in a transfer of money unauthorized by the instructions? What if funds are disbursed before a lien is cleared? These are examples of situations where escrow liability may arise.
Both escrow agents and consumers should be aware of the ramifications in such situations. For more, watch for next week’s blog post, which will discuss the scope of potential liability of the escrow agent. For questions on this or other topics, do not hesitate to contact us.