Release of Escrow Due to an Expired Contract

Real estate laws and practices, including escrow procedures and customs, vary by state. In some states, parties to real estate transactions, such as buyers, sellers and lenders, see the close of escrow date as an approximate date for close, while in other states they view the close date as a firm, drop-dead date, after which the contract expires.

Escrow

Escrow refers to a closing of a transaction through a third party. In real estate, this third party might be a title and or escrow company or an attorney. The escrow agent receives the funds and documents necessary for the transaction and closes the transaction according to the instructions contained in the purchase contract.

Close Date

The escrow process takes place after the seller accepts the buyer’s offer. It ends when title conveys to the buyer and the seller receives the buyer’s funds for the purchase. Typically, the purchase contract contains a date by which the escrow is to close. Yet, sometimes, escrows close after the date specified in the contract. There are numerous reasons for a delayed close, such as additional requests from the buyer’s lender or errors in documents. Failure to close by the close date can create an expired contract. Yet, some contracts include provisions that allow the parties to remedy the delay, and often the parties voluntarily opt to close later.

Terms

An escrow officer won’t immediately assume the contract is dead, simply because the transaction failed to close on time. Unless the buyer or seller instructs the escrow officer to terminate the transaction and release the escrow, the escrow officer will typically proceed as if both parties intend to close. If escrow closes a week late, the buyer or seller normally could not come back and take legal issue with the escrow officer, claiming the officer had no right to close the transaction as the contract had expired, ending the agreement between the buyer and seller. Of course, if the terms in the contract expressly state the parties can’t close late, the buyer or seller might have an issue.

Release

When a contract fails to close, the escrow officer may request, in writing, instructions from both the buyer and seller to cancel the escrow officially. In some situations, the escrow officer obtains a quitclaim deed from the buyer, whereby the buyer releases any equitable title claims he has in the property. Equitable title is the right to real estate a buyer has after a seller accepts his offer, yet it does not mean the buyer owns the property. While any claim the buyer had on the property may end when the contract expires, obtaining a quitclaim deed prevents the buyer from returning later to make a claim on the property.

References

• "Modern Real Estate Practice"; Fillmore Galaty, et al.; 2006