In a typical real estate purchase and sale transaction, a third party usually assists the parties perform the terms of the agreement. This third party is known as escrow. The next couple of blogs will discuss the role and function of an escrow agent. This first blog defines escrow and the scope of its agency, and the second will discuss escrow’s duties and liabilities.
The California Civil Code defines escrow by the following: “[a] grant may be deposited by the grantor with a third person, to be delivered on performance of a condition, and, on delivery by the depositary, it will take effect. While in the possession of the third person, and subject to condition, it is called an escrow.” (Cal. Civ. Code § 1057.) The term “grant” in this definition includes deeds that transfer or encumber an interest in real property. (Cal. Civ. Code § 1053.) In a purchase and sale agreement for real property, the transacting parties deposit into escrow, inter alia, the applicable deed and purchase funds, which escrow subsequently delivers to the appropriate side once all conditions are satisfied. (See Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co. (2002) 27 Cal. 4th 705, 711–714.) The lifespan of escrow usually begins with the initial deposit and instructions, and ends/closes when the conditions are satisfied.
By law, when the parties hire an escrow agent to perform their instructions, escrow enters into an agency relationship with the transacting parties. (Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co. (2002) 27 Cal. 4th 705, 711.) Based thereon, ordinary principles of agency apply. (Rianda v. San Benito Title Guarantee Co. (1950) 35 Cal. 2d 170, 173.) However, escrow holders differ from your ordinary agents. An escrow agent’s scope of agency is limited because of the conflicting interests of the transacting parties. (Blackburn v. McCoy (1934) 1 Cal. App. 2d 648, 654-55.) This generally means that unlike the broad general duties that an ordinary real estate agent owes his or her client, escrow agent’s duties are limited to “the instructions given by” the buyer or seller. (Id; Romo v. Stewart Title of California (1995) 35 Cal. App. 4th 1609, 1618 n.9.) Thus, by its very nature escrow is a dual agent. (Vournas v. Fidelity Nat. Title Ins. Co. (1999) 73 Cal. App. 4th 668, 674.) Despite its role as a limited agent, escrow is still considered a fiduciary and is required to strictly comply with the parties’ instructions. (Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co. (2002) 27 Cal. 4th 705, 711.)
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By Randy Aguirre, esq.