Fundamentals of Real Estate Closings in Washington, Common Law Escrow Duties and Liabilities (Part 1)

Fundamentals of Real Estate Closings in Washington
IV. Common Law Escrow Duties and Liabilities

Gretchen Valentine is Underwriting Counsel for Fidelity National Title, where she advises company employees on title, escrow, and corporate practices. Gretchen received her BA from Whitman College and her JD cum laude from the Northern Illinois University College of Law. She was admitted to the Washington State Bar in 1991, and from 1991 to 1993 she clerked for the Honorable H. Joseph Coleman at the Washington State Court of Appeals, Division I. Gretchen co-authored a new chapter in the WSBA Real Property Deskbook entitled "Duties and Responsibilities of the Escrow Agent" and speaks regularly on topics relating to title and escrow.

The following materials are reprinted with the permission of the Washington State Bar Association from the Washington Real Property Deskbook (3d edition 1997) and the Washington Real Property Deskbook Volume I Supplement (3d edition 2000).

IV. COMMON LAW ESCROW DUTIES AND LIABILITIES

A. INTRODUCTION
In Washington, escrows may be handled by private escrow agents (regulated by the Department of Financial Institutions pursuant to Ch. 18.44 RCW), attorneys (regulated, as to their legal activities, by the Supreme Court), banks, title insurance companies and their agents, real estate brokers or agents, (regulated, to varying degrees, by supervising agencies) and receivers, executors, and trustees acting under court supervision. This chapter discusses the common law escrow duties and liabilities, which apply to each of the various entities and individuals conducting escrows in Washington.

B. COMMON LAW ESCROW DUTIES AND LIABILITIES
(1) Generally
An escrow holder is an agent with a fiduciary relationship to all principals to the escrow. National Bank v. Equity Investors, 81 Wn.2d 886, 909-10, 506 P.2d 20 (1973); Styrk v. Cornerstone Inv., Inc., 61 Wn. App. 463, 472, 810 P.2d 1366 (1991). The duty of a fiduciary includes the duty to comply strictly with the parties’ instructions and to act with skill, diligence, honesty and reasonable care in performing the fiduciary’s work. Equity Investors, 81 Wn.2d at 910 (quoting 30A C.J.S. Escrows); Styrk, 61 Wn. App. at 472. The duty of a fiduciary includes the same duty of fidelity that an agent or trustee owes its principals. Delson Lumber Co. v. Washington Escrow Co., 16 Wn. App. 546, 550, 558 P.2d 832 (1976).
An escrow agent’s duties are limited by the escrow agent’s instructions. Equity Investors, 81 Wn.2d at 909-10. The escrow instructions, sometimes called the escrow agreement, identify and express the agreement between the escrow agent and its principal. See Delson Lumber, 16 Wn. App. at 551 (citing Equity Investors, 81 Wn.2d at 910).

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