An escrow agent is a trusted and neutral third party in a real estate transaction. It is an entity (such as a title company) or a person (such as a lawyer) who has fiduciary duties when property is transferred from a seller to a buyer. Usually, the escrow agent receives the purchase and sale agreement, and makes sure that all of its terms are met. The buyer deposits a certain sum with the escrow agent, and this validates the transaction before the parties meet the remainder of the terms. The Boston real estate lawyers at Pulgini & Norton can advise people buying or selling a home on the role of an escrow agent in the process.The Role of an Escrow Agent
Often, property, funds, and title to a piece of real estate are held in escrow until both the buyer and the seller meet all of the conditions specified in a real estate purchase and sale agreement. An escrow agent has substantial fiduciary duties to the parties to an escrow agreement when it accepts funds and deposits them into an account. The fiduciary duty exists as long as the funds are not disbursed and remain in the account.
As a buyer or seller, you may wonder what the scope of these fiduciary duties is. Courts have held that at a minimum, an escrow agent is not permitted to self-deal. An escrow agent cannot take on an adverse interest in escrow funds that are held on behalf of the parties. It cannot put its personal interests in conflict with any obligations to the beneficiaries of the agreement. It is not permitted to take on a personal interest that is adverse to its fiduciary obligation.
For example, an escrow agent cannot collect money from escrowed funds of a debt owed by one of the parties to the escrow agent. In one case, a listing broker represented a seller in selling a Massachusetts residence. The buyer posted a deposit, which was held by the listing broker as an escrow agent. However, the buyer had also used the listing broker in another transaction and for that deal owed a huge sum in fees. When the buyer lost its financing, it defaulted and forfeited the deposit. The listing broker took an assignment of the buyer's right to escrow funds and then threatened the client with litigation if he would not release the assigned escrow funds to the broker. The court ruled that as an escrow agent, the broker had a fiduciary duty to refrain from engaging in self-dealing by trying to collect a debt against the escrow deposit, and it breached that duty.
The particular facts and circumstances may define the extent of the escrow agent's duties to the parties. Usually, there is a three-sided duty of loyalty to the seller, buyer, and lender. This means that the escrow agent is required to communicate material facts to the parties throughout the course of the transaction and not favor one party over another. The agent must also exercise a high degree of care to conserve the money that has been entrusted to it and only pay the parties that are supposed to receive the funds.Consult an Experienced Boston Lawyer for a Real Estate Matter
At Pulgini & Norton, our Boston real estate attorneys can help you determine whether to use an escrow agent and advise you on all of the aspects of a real estate transaction, whether you are a buyer, seller, or lender. Our firm also advises and represents people in Weymouth, New Bedford, Brookline, and other cities in Massachusetts. Call us at 781-843-2200 or contact us via our online form to set up a free consultation with a property transaction attorney.