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Escrow Agent's Default Liability

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Occasionally, an escrow agent will default on his duty to deliver a legal document or property placed with him in escrow.  Examples of such defaults include:

  • Failing or refusing to deliver the instrument or property entrusted to him after the conditions upon which he was to deliver it have been satisfied.
  • Delivering the item to the buyer or seller before the specified conditions have been satisfied.
  • Losing the instrument or property entrusted to him.
  • Embezzling the instrument or property entrusted to him.

Who Bears The Loss Resulting From An Escrow Agent's Default?

Between the buyer and seller, the loss typically falls on the party who owns the property at the time of the default.

Buyer Bears The Loss

If an escrow agent defaults on his duty before the time when the seller is entitled to it, the loss falls on the buyer since it is still his money.

Seller Bears The Loss

If the default occurs after the time when the seller becomes entitled to the money, the loss falls on him since it is now considered his property.

What Actions Can I Take Against An Escrow Agent In Default?

If you bear the loss resulting from an escrow agent's default, then you have several options depending on the state in where you live. These include filing a lawsuit for:

  • Specific Performance: Some states will force an escrow agent to deliver the instrument placed in escrow after the performance of the specified conditions.
  • Damages: This includes the lost benefit of a sale of the property and any other resulting damages.
  • Conversion: When an escrow agent possesses an instrument in escrow for an unreasonable time after escrow has expired, his refusal to deliver may amount to a conversion, making him liable for damages. Conversion means taking an item out of the possession of another with the intention of keeping it despite the original owner's right to use/possess that item.

How Can I Protect Myself Against An Escrow Agent's Default?

The best way to protect against an escrow agent's default is to make sure you select an escrow agent you can trust. Otherwise, you should consistently check on the status of the escrow and make sure your escrow agent is doing his job.

Do I Need An Attorney If My Escrow Agent Defaults?

If your escrow agent defaults and you are responsible for the loss, an experienced real estate attorney can help you in obtaining specific performance and/or damages.  You may also wish to report the escrow agent's actions to the police for possible criminal prosecution.   

Photo of page author Ken LaMance

, LegalMatch Law Library Managing Editor and Attorney at Law

Last Modified: 03-31-2015 09:32 AM PDT

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