Escrow agreements are used to safeguard money or property with a neural third party while a transaction is completed. The escrow agent is the neutral party that will hold the property until a transaction is completed or fails and will act according to the terms set forth in the escrow agreement. To be more specific, the escrow agreement will detail the circumstances under which the agent will take and retain the property and whether anything will be done with it while it is stored. The agreement states how the property will be distributed, and finally, the agent’s fees, release from any liability while storing the property, and possibly an indemnification provision for any losses arising out of the storage of the property.

Typically, escrow agents require joint written instructions from the parties, because they must concurrently agree to the terms, otherwise a court order may be required, or some sort of neutral dispute resolution procedure. Sometimes, an agent will be permitted to resign if the parties cannot agree to the terms of the escrow agreement. In either case, an agent will be permitted to bring a legal action seeking declaratory relief as to the disposition of any property.

Pertaining to the purchase of real estate, the escrow deposit takes place at the simultaneous signing of the contract and escrow agreement, wherein the purchaser deposits the earnest money with the agent until the deal is closed, the property fails some part of the due diligence process and funds are returned to the buyer, or the buyer is at fault for the failure to complete due diligence on time and the funds are then remitted to the seller as a penalty.

Otherwise, the deal may fail to close through no fault of buyer or seller and the funds or a portion thereof are returned to the buyer. Problems in escrow agreement drafting occur when the terms of the storage, transfer or return of the funds are not made clear to one of the parties, or when certain expenses that the agent expects to have reimbursed, have not been explicitly listed, and the agent is permitted to deduct those expenses from the stored property, and even hold the property as security until the fees are paid.

There are also quasi-criminal escrow services that operate with relative frequency which possess the intent of creating ambiguous escrow agreements and count on the failure of the parties to retain legal counsel to review them. As a result there are various fees tacked on to the agent’s expressly stated fees, which were not clearly disclosed. Sometimes the terms of the agreement permit the agent to sell or otherwise dispose of the held property if it unclaimed for a specified period, or to pay off the hidden fees. In Texas, escrow officers are required to be licensed by the state, prior to which they must be sponsored by another agent, post bond, and undergo a criminal background investigation. The parties should be certain to investigate the license and the commercial status of any escrow company they are planning to deal with, and get the escrow agreement reviewed by a knowledgeable professional.