An escrow is a type of transaction in which one person transfers title to property to another person to be held in trust for a stated period of time. The person holding the property will then deliver it to another party after the set period of time or when a specified event occurs. The transaction is executed according to an “escrow agreement”, which is a document (basically a contract) stating the terms and conditions for the exchange.

The person transferring the property is known as the grantor or depositor, while the party holding the property is known as the escrow agent or depositary. The party that finally receives the property from the agent is known as the grantee. Escrow arrangements are most commonly associated with the transfer of real estate. The property is referred to as “escrow property” and is said to be held in escrow during the time that the depositary is holding it.

Who May Be Held Liable in a Breach of an Escrow Agreement?

In the majority of escrow cases, it is the depositary that incurs liability for a breach, usually due to their own misconduct. A depositary holding property in escrow for the parties owes a duty of care to both the grantor and the grantee. Failure to abide by the terms of the escrow agreement may result in a lawsuit. The depositary must abide by the following duties:

  • The duty to follow the instructions stated in the escrow agreement;
  • The duty to use good faith and exercise reasonable skill when handling the property
  • The duty to deliver the title at the specified time or when the conditions for transfer are met

So, for example, if the escrow agent’s default causes the property to be transferred before the set time, they may be held liable under breach of contract laws. Another common example of a breach is where the escrow agent completely fails to the deliver the title and attempts to sell it to another party.

However, both the grantor and the grantee may also be held liable for a breach of an escrow agreement. For example, if the grantor illegally tampers with the property before handing it over to the escrow agent, they may have breached some terms in the agreement. Or, if the grantee wrongfully coerces the agent to hand over the title too early, they also can be found liable for the breach. 

What Are the Legal Consequences of a Breach of an Escrow Agreement?

The consequences for breach of an escrow agreement are similar to those in any breach of contract case. The aggrieved party may be able to sue and recover any losses caused by the breach. Also, part of the remedy may involve requiring the property to be delivered accordingly. 

The question as to which party is able to recover depends on which parties were liable for the breach. For example, if the grantee cooperated with the escrow agent and caused the property to be delivered too early, only the grantor will be able to recover in a lawsuit. Or, if the grantor interfered with the property after the escrow agent received it, it is the grantee who would be able to recover losses.   

Thus, each case involving breach of an escrow agreement will be unique, since there are several different parties involved in the transaction.  

Should I Contact a Lawyer?

As you may be able to tell, escrow arrangements can be very complex, since they involve at least three parties, each with different interests in the transaction. If you need assistance with a lawsuit for breach of an escrow agreement, you may wish to contact a real estate lawyer in your area. Your attorney will be able to help you file a claim so that you can recover your losses. Also, an attorney may be needed for assistance with drafting and finalizing the escrow agreement itself.