An escrow agent is a person or institution that holds money that is used in a transaction. Escrow agents are needed in a variety of deals, including real estate purchases, acquisitions, and other transactions. Since the escrow agent holds money to which multiple parties have an interest, they owe numerous responsibilities to the parties involved in the transaction. If these individuals or institutions do not satisfy the duties of an escrow agent, they can be held liable for breaches of their responsibilities.
Follow the Escrow Agreement
One of the most important duties of an escrow agent is to follow the escrow agreement establishing the escrow relationship. Many transactions that involve an escrow agent involve a written contract discussing all of the obligations of the parties and the escrow agent. This may include where a deposit will be placed, in what type of account a deposit will be placed, and other tasks that the escrow agent must do in order to fulfill responsibilities.
It is important that the escrow agent comply with an escrow agreement because the parties agreed to deposit money with the escrow agent so long as such terms were satisfied. If the escrow agent does not comply with the escrow agreement, they may be held civilly liable. As a result, an escrow agent should consult with an experienced attorney if they have any question about how they can best satisfy the obligation in an escrow agreement.
Keep Escrow Funds if a Dispute Arises
Another one of the critical duties of an escrow agent is to maintain the funds if a dispute over the money arises. It is not uncommon for disagreements to arise regarding money deposited in escrow. Sometimes, one party will accuse the other party of breaching a promise made during a transaction so that the escrow money should be paid to one party of another. In other situations, a party may want to cancel a transaction altogether and seek a refund of the money held in escrow.
It is important that the escrow agent not take a side in a dispute regarding money held in escrow. As a result, an escrow agent will often need to maintain the money held in escrow until the parties can resolve their dispute. If the escrow agent gives the money held in escrow to one party or another, the wrong party may receive the funds and this can lead to liability in the future. As such, it is safer for escrow agents to maintain escrow funds if there is a dispute between the parties to a transaction.
Properly Handle Escrow Funds
In order to satisfy the duties of an escrow agent, it is important that the escrow funds be properly maintained. Depending on certain laws and the escrow agreement itself, this often requires that the escrow money be deposited in an interest-bearing account. In addition, the escrow agent may need to deposit the funds at a certain type of financial institution, such as an FDIC-insured bank.
It is also important that the escrow agent not mix the money to be held in escrow with the escrow agent’s own money. This can make it more difficult for the escrow agent to keep proper records regarding the escrow funds, and the escrow agent should be prepared to furnish detailed records of the escrow money to any party to the escrow agreement if they request it. In addition, commingling escrow funds with money that privately belongs to the escrow agent can create an appearance of impropriety about the maintenance of the escrow money. It also goes without saying that the escrow agent cannot steal the escrow money, and the escrow funds must be available to be conveyed to either of the parties in compliance with the escrow agreement. If the escrow agent steals escrow funds, not only may the escrow agent be held civilly liable to the parties, but they may also face criminal penalties as well.
Impleader
Impleading parties into a litigation may be necessary to fulfill the duties of an escrow agent. Impleader is when an escrow agent deposits money with a court and then requires the parties to resolve their dispute over escrow funds through the judicial process. Impleader allows an escrow agent to absolve itself of its responsibilities because it enables a court to determine which party is entitled to funds and provides the money to the court so that the court can convey the money to the appropriate party.
There are some drawbacks to impleader actions. It might be expensive to begin an impleader action, since attorneys need to draft legal papers and pay for court costs and other fees in order to start the impleader process. Moreover, impleader actions can force the parties to an escrow agreement to spend money since they need to purse their claims in litigation. However, if parties cannot resolve their dispute by themselves, an impleader action can help an escrow agent seek guidance about what should be done with disputed funds.
The Rothman Law Firm has experience acting as an escrow agent in certain transactions and advising parties who may act as escrow agents themselves. If you are looking for an experienced New York and New Jersey attorney to handle your escrow agreement or other legal issue, please feel free to contact The Rothman Law Firm to request a free consultation.