In conjunction with a closing, a title agent may be asked to hold funds for
the benefit of the parties pending repairs to the property or installation
of equipment, etc. (this Bulletin does not cover security escrow agreements
for the benefit of the underwriter, such as for a lien that will expire shortly
after closing). From time to time we examine escrow agreements because lawsuits
have been filed against the agent for enforcement of damages. Our intent with
this bulletin is to help agents avoid such lawsuits. Stewart Title Guaranty
Company by issuing this Bulletin assumes no responsibility for the proper preparation
of an Escrow Agreement. This is strictly intended to assist agents in performing
Holding escrowed funds is not a part of the title insurance policy and should
be done carefully to avoid liability to the agent and underwriter. Stewart
Title Guaranty Company should never be mentioned in an escrow agreement as
a party without written underwriting approval.
Escrow agreements are often incomplete, failing to address the rights and
responsibilities of the agents, or how the parties to the agreement are to
dispose of the escrowed funds once the agreement expires. Accordingly, Stewart
Title Guaranty Company suggests the following escrow agreement checklist be
a guide in helping you:
Escrow Agreement Checklist
Date - the agreement should be dated, presumably the same date as the
Seller - the seller should be identified exactly as shown in the closing
Buyer - the buyer should be identified exactly as shown in the closing
Lender - should not be mentioned unless the lender is a party to the
escrow agreement. In that case, the lender should be identified exactly as
it appears in the closing transaction.
Title agent - must be identified and sign as a party to the escrow agreement
as the agent is holding the funds, and has obligations and rights.
Legal Description - should be inserted exactly as it appears in the closing
Street Address - may be shown but the legal description is more important.
Subject Matter - the agreement should describe the conditions to be performed
or the shortcoming that creates the need for the escrow agreement.
State the exact dollar amount to hold in escrow.
State if the funds are to be invested, who decides upon the investment, and
who gets the earnings, if any, from the investment.
Duration - the escrow agreement should have a fixed completion or expiration
Right to Interplead Funds - the escrow agreement should state that in
case a disagreement arises between the parties, or the agreement expires without
the conditions for disbursement having been met, the agent has the right to
deposit the escrowed funds into the court registry and deduct the agent's
legal fees and court filing fees, in so doing retain part of the escrowed funds.
Conditions for releasing escrow.- When it is documented that all of the conditions
for releasing the escrow funds have been satisfied and the written agreement
of all parties have been received. In NO event should the escrow agent determine
if the parties to the agreement have performed. The escrow agreement should
provide that the escrow funds are to be disbursed solely upon the escrow agent's
receipt of documents stating that the conditions for the release have been
satisfied. This is strictly a ministerial function.
The parties should indemnity the escrow agent for any actions that it takes
in good faith pursuant to its performance under the escrow agreement.
There is a sample escrow agreement format available through the references
section at the end of this bulletin for your guidance.