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Should I Use an Escrow for my Co-owner Buyout?

Utilizing an escrow may prove to be a cost-effective way to complete a co-owner buyout as the resolution to a co-ownership dispute. The role of using an escrow company during a real estate transaction is to facilitate a smooth and secure transactions between co-owners by creating trust through the use of a neutral third-party. This trust may be lacking at the end of a co-ownership relationship, making escrows even more important.

What is Escrow?

An escrow is often defined as a neutral third party who collects money and legal instruments upon the instructions of the parties to the escrow, e.g., the buyer and seller. Upon those instructions being met, the escrow officer deems the escrow “closed,” at which point the instruments, usually the deed, is recorded. Immediately thereafter, the money is released to the seller and any liens are paid in the amount demanded and approved by the parties.

Escrow or an escrow account is defined in California Civil Code § 1057 as:

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.

In California, the courts have found that “escrow involves the deposit of documents and/or money with a third party to be delivered on the occurrence of some condition.[1]Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co. (2002) 27 Cal.4th 705, 711.

Miller and Starr explains an escrow holder’s duties as a “neutral” party whereby “neither party is entitled to compel performance by the other party without the performance or a tender of performance of its own obligations under the contract”[2]Definition of an escrow, 2 Cal. Real Est. (4th ed.) § 6:1.

What are the Duties of Escrow Companies?

Escrow holders have two separate duties. “It is elemental that the duty of an escrow holder is [1] to comply strictly with the instructions of its principal and [2] to exercise reasonable skill and ordinary diligence with respect to the employment. If the escrow holder fails to follow his instructions or acts negligently, he may be liable for any loss occasioned thereby.”[3]Diaz v. United Cal. Bank (1977) 71 Cal.App.3d 161, 166.

The duty of escrow holders was reiterated by the California Supreme Court, explaining that “[i]t is the duty of an agent to obey the instructions of his principal and exercise in his employment reasonable skill and ordinary diligence, and, if defendant violated instructions or acted negligently . . . , it would ordinarily be liable for any loss occasioned by its breach of duty.”[4]Rianda v. San Benito Title Guarantee Co. (1950) 35 Cal. 2d 170, 173.

How Can Escrow Facilitate Your Co-Ownership Transaction?

The escrow holder is a key link between parties during real property transactions, such as when a “buyer does not intend to part with the purchase money until certain that he or she receives satisfactory title that is marketable at the time the deed is recorded. If the transaction is financed or refinanced, the buyer’s lender does not intend to fund the purchase money until certain its trust deed, securing the buyer’s obligation to repay the note, can be recorded in first priority position on the property. Similarly, the seller does not intend to risk the transfer of title until he or she has received the purchase money.”[5]Miller and Starr, Definition of an escrow, 2 Cal. Real Est. (4th ed.) § 6:1.

Oftentimes, the parties to a partition are former romantic interests or siblings who have inherited a property, but are not on good terms due to the jointly owned property. They may be distrustful of one co-owner asking the other to record the deed before the other party has paid. An escrow resolves that lack of trust by ensuring that all parties have done what they need to do before either party receives the benefit of the agreement.

Talkov Law’s Partition Attorneys Can Help

If you do not trust your co-owner during a real estate transaction and need tailored advice from a real estate attorney, contact Talkov Law, California’s premier partition action law firm. With seven, full time partition lawyers, Talkov Law is the #1 partition law firm in California and has handled over 300 partition actions throughout California. For a free consultation, call (844) 4-TALKOV (825568) or reach out online today.

References

References
1 Summit Financial Holdings, Ltd. v. Continental Lawyers Title Co. (2002) 27 Cal.4th 705, 711.
2 Definition of an escrow, 2 Cal. Real Est. (4th ed.) § 6:1.
3 Diaz v. United Cal. Bank (1977) 71 Cal.App.3d 161, 166.
4 Rianda v. San Benito Title Guarantee Co. (1950) 35 Cal. 2d 170, 173.
5 Miller and Starr, Definition of an escrow, 2 Cal. Real Est. (4th ed.) § 6:1.
About Scott Talkov

Scott Talkov is a partition lawyer in California. He founded Talkov Law Corp. after more than one decade of experience with one of the region's oldest law firms, where he served as one of the firm's partners. He has been featured on ABC 7, CNN, KCBS, and KCAL-9, and in the Los Angeles Times, the Orange County Register, the San Diego Union-Tribune, the Press-Enterprise, and in Los Angeles Lawyer Magazine. Scott has been named a Super Lawyers Rising Star for 9 consecutive years. He can be reached about new matters at info@talkovlaw.com or (844) 4-TALKOV (825568). He can also be contacted directly at scott@talkovlaw.com.

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