The Requirements of Escrow

Escrow is said to exist when a buyer of real property agrees through a valid written contract to relinquish all control over his or her purchase money in exchange for the seller's grant deed. This makes escrow a legal process, and the written contract that brings escrow into existence is usually the real estate purchase contract and receipt for deposit and later accompanied by the written escrow instructions. Either instrument, if properly written and signed by the principals in escrow (buyers, sellers, and often lenders, too), could be enforced by the courts as a binding contract. Escrows must therefore comply with contract law. Not only do the principals have to comply with the contracts they have signed, but also the escrow agent has to comply with the escrow instructions. Remember that the escrow instructions are actually drawn up by the escrow agent to help the principals accomplish their arm's-length transaction, but they are written in such a way that the principals are actually instructing the escrow agent as to the principals' wishes for the transfer of the title to the property in escrow.

A contract sufficient to involve an escrow must comply with the four basic requirements for a valid contract. These are competent parties, mutual consent, lawful nature and valid consideration. A fifth requirement, a proper writing, is necessary only in certain contracts.