An escrow agreement is a written agreement between two parties that involves a neutral third party (escrow agent). A buyer and seller can use an escrow agreement to facilitate the purchase and sale of a property. In such a transaction, the buyer is the depositor, and the seller is the beneficiary.
The depositor entrusts money or a specific asset with the escrow agent, who will hold the depositor’s asset until the beneficiary performs or meets the conditions of the agreement. An escrow deposit proves to the seller that the buyer has every intention to buy the property. The buyer must make timely payments, home inspections and secure financing within the agreed-upon time.
The seller must also be able to provide the necessary documentation to the buyer. Furthermore, the home inspection may reveal material defects. A title inspection may expose a lien attached to the property. The seller and the property must meet certain specifications before the sale can move forward, and the escrow agent releases the deposit to the seller. Otherwise, they would have to return the deposit to the buyer. Escrow arrangements protect all parties involved in a real estate transaction and ensure the smooth transfer of property.
What is a breach of an escrow agreement?
All parties entering into an escrow agreement must do so in good faith. More than anything else, an escrow agreement is a contract. A breach of an escrow agreement is a breach of contract, which is illegal in New York. It happens when either the depositor, escrow agent or beneficiary fails to perform the obligations outlined in the agreement or attempts to defraud either party.
Legal remedies for a breach of contract
Some breaches happen because of misunderstandings and minor deviations from the terms of the contract, and such breaches are easy to resolve. However, when the breach leads to significant harm or loss for the non-breaching party, it might be in their best interest to hold the party liable. The non-breaching party can ask the court to order specific performance as a legal remedy. They may also seek monetary damages.