An escrow account is a separate account that a brokerage or title company will set up in conjunction with their client. The account is generally set up with a bank and is used to hold money that the client deposits in relation to the home sales transaction. These are usually monetary amounts dedicated to closing costs, settlement costs, and other costs related to the formal closing process. When the time comes for the amounts to be used, they will be distributed as needed.
The purpose of the escrow account is to ensure that the broker or title agent maintains financial accountability for the funds entrusted to them by the client. In other words, bank acts as a sort of neutral third party to hold the money in the escrow account in order to prevent any breaches of contract, fraud, or other issues. Escrow accounts are sometimes called by other names, such as real estate trust fund accounts.
The broker or title agent is generally entrusted with the task of opening and maintaining and escrow account for the client when needed. In doing so, the agent incurs certain responsibilities and duties in relation to the escrow account. In some cases, certain legal issues can arise in relation to the escrow account. These may include:
- Commingling funds- The broker/agent is not allowed to mix their personal funds into the escrow account, as the account should be used solely for the purpose of holding the client’s assets until the distribution of the assets
- Using funds for personal purposes- The agent cannot use the escrow account funds for their own personal use or gain
- Breach of contract- The account is to be used in a way that does not breach an escrow agreement or contract
- Fraud- Full disclosure and transparency are needed in order to prevent misrepresentation and similar issues
Lastly, escrow agents can also be held liable if they default on any of their other responsibilities, such as distributing the assets as needed according to the escrow agreement.
Violations or disputes involving an escrow account may result in specific legal remedies. In many cases, this will involve a monetary damages award to reimburse the client for any losses caused by an agent’s breach. In other cases, different remedies may apply, such as the redistribution of assets, or the re-assigning of a different agent. These may depend on various factors such as jurisdictional rules, state laws, and any terms mentioned in an escrow agreement.
Escrow accounts can sometimes be a necessary and vital part of the closing process. A real estate transaction may be delayed or cancelled if there is a problem with an escrow account. You may need to hire a real estate lawyer in your area if you need help with an escrow account. Your attorney can help you with account negotiations, setting up an account, and other tasks. Also, if there’s a dispute or conflict with the account, your attorney can help you file a lawsuit and can represent you in order to help you obtain the appropriate remedy.