Recently, we’ve been talking a lot about escrow. We’ve covered what escrow is and why escrows are entered into. To finish up our blog series on escrow, here we’re going to talk about some important details to remember when you’re dealing with escrow.
Here are some important details to keep in mind when dealing with escrow agreements:
The identity of the parties to the escrow agreement, particularly who is being benefited by the agreement and which party is obligated under the escrow agreement to resolve the matters for which funds are being escrowed.
What constitutes an appropriate resolution? An escrow agreement needs to be specific as to what has to happen in order for the escrow requirements to be met.
Alternative resolution. In the event that the party whose funds are being escrowed and that party who is responsible for cleaning up title or resolving the matter that’s the subject of the escrow fails to do so, there needs to be authority for the title company or the escrowee to resolve that on its own by utilizing the funds on deposit.
Provisions for how to disburse remaining escrow funds, to the extent they exceed the ultimate cost of the escrow obligation(s).
It is in no one’s best interests for an escrow to go on indefinitely. There needs to be a termination date set, with instructions to the escrowee on what to do if the termination date is reached and not all escrow agreement obligations have been met.
It’s up to the parties together with the escrowee to negotiate how the escrow arrangement is going to work, and to make sure all obligations and contingencies are addressed appropriately.