A real estate post-closing escrow agreement is an agreement in a real estate transaction where the parties agree to have money held by a third-party escrow agent over a specified time until the occurrence of some future event.
A post-closing escrow agreement can allow the parties to close even if there are outstanding issues that need further time to resolve. An example of where the parties could enter a post-closing escrow agreement is where there is an outstanding permit issue, code violation, or lien existing on the property at closing and the parties agree to close with the outstanding issue if seller agrees to have a certain amount of the closing proceeds held in escrow until seller resolves the issue. Once the issue is resolved, the amount held in escrow is released to the seller.
I have seen many disputes over post-closing escrow agreements. For this reason, I try to avoid them if possible. Parties seem to get complacent after a closing, and they often lose their determination to clear up issues in a timely manner. It is important for the party that places money in escrow to fulfill their obligations timely and be aware of the terms of the post-closing escrow agreement.
Aspects of any post-closing escrow agreement in a real estate transaction that need special attention include the following:
- Issue – Identify the issue that is to be resolved during the post-closing escrow period and the steps each party must take.
- Amount – Indicate the amount to be held in escrow until the issue is resolved.
- Timeframe – Be specific about the timeframe the parties have to resolve the issue before the escrow deposit is disbursed.
- Obligations – Ensure that all parties, including the escrow agent, are clear about their obligations under the terms of the agreement.
- Failure – If the party fails to timely resolve the issue, indicate what happens to the escrow deposit. If the deposit is to be released to the other party, then indicate when the escrow deposit will be released and specify who needs to be notified that the escrow deposit is being released.
- Cooperation – Indicate that each party needs to cooperate to resolve the outstanding issue. In many cases, a seller is resolving issues with the property after closing, when the buyer is occupying the property. Thus, seller or seller’s agents/contractors will need access to the property. The escrow agreement should state that the buyer needs to cooperate to allow access to the property to seller and seller’s agents. If either party does not cooperate, the escrow agreement should indicate what happens to the escrow deposit.
I recommend avoiding post-closing escrow deposits, if possible, but if the parties insist on closing with an escrow deposit arrangement, it is important to have a clear escrow agreement and ensure that all parties understand their obligations under the agreement and the timeframe to fulfill those obligations. Be specific about how, when, and to whom the escrow deposit is to be released.
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