ESCROW INSTRUCTIONS

Escrows exist to carry out the wishes of the parties.

When an escrow is opened, all parties to the transaction will sign escrow instructions.  If prepared properly, these instructions will spell out in detail exactly what has to happen, in what sequence, before escrow can close.  In a legal sense, escrow instructions are a contract, between the buyer, the seller and the escrow agent.

The Statute of Frauds applies to escrow instructions.  To be enforceable, escrow instructions must be written down and signed by all parties.  However, as with all contracts subject to the Statute of Frauds, there are exceptions to this rule.  For example, while it is better practice to have all of the escrow instructions in writing, this is not legally required; as long as there is enough of a writing to establish the existence of the contract, some of the contract terms need not be written down.   (As a practical matter, it is a very bad idea to proceed this way.)

As a rule, the duties of the escrow agent are defined by the escrow instructions.  An escrow agent is a dual agent, meaning that he or she has a fiduciary duty to both parties in the transaction.  This fiduciary duty, however, is narrowly defined.  The escrow agent does not have any general duty to look out for the interests of the parties.  Rather, in almost all circumstances, the duties of the escrow agent are simply to carry out the terms of the instructions.

Escrow instructions can be modified, after the escrow is opened, only by joint agreement of both parties.  One party can change the escrow instructions unilaterally, only on a matter, which does not affect the other party.  For example, if the joint escrow instructions say that the purchase price is to be disbursed to the seller, the seller acting alone may instruct the escrow agent to disburse his or her sale proceeds in whatever way he or she likes.

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