Escrow, closing, and settlement: Understanding the role and responsibilities of the agent

TL;DR:

• Escrow agents serve as neutral fiduciaries, guiding transactions from offer to recordation.
• Their responsibilities include verifying title, disbursing funds, and protecting sensitive information.
• Written instructions must be clear, legal, and followed precisely to avoid risk and liability.
• ALTA, MBA, and MISMO created standardized closing instruction templates to reduce confusion and improve consistency.
• Agents should not offer legal advice and must refer disputes or pre-policy issues to the claims department.
• Courts affirm that escrow agents must act impartially, diligently, and in accordance with written instructions.
• With shifting regulatory enforcement, agents must stay informed and use tools like SAFEvalidation® to protect transactions.

Escrow can be a confusing term, particularly because terminology and practices vary by state. First American Principal Trainer, Tish Bush and V.P., Division Operations, Stefanie Lollis explored the evolving role of the escrow agent. With regional nuances and a shifting regulatory landscape, their webinar helps demystify this critical role in real estate transactions and offers best practices that agents can apply to their day-to-day work. Here’s a summary of the key insights from their presentation.

What is escrow?

Also known as the settlement agent or closing agent—depending on the region—their job is to guide the transaction from offer to close.

The term “escrow” may refer to both the closing process and post-closing financial arrangements. Regardless of whether settlement and title services are handled by one company or split between two, the responsibilities remain the same for what we’ll refer to throughout this blog post as the “escrow agent.”

The essentials of the escrow agent’s role.

The primary duty of an escrow agent is to remain neutral, never favoring one party over another. Escrow agents serve as fiduciaries and intermediaries in a real estate transaction, holding and disbursing funds only when all contractual obligations are satisfied. The agent verifies that the property title is clear, ensures that all written instructions have been followed, and ultimately facilitates the transfer of ownership through recordation.

A closer look at the escrow process.

While the workflow may vary, the process typically begins when one party delivers funds, documents, and/or instructions to the escrow agent. This is usually the buyer submitting an earnest money deposit along with a purchase contract and loan instructions. The agent acts as a neutral third party between buyers, sellers, real estate agents, lenders, attorneys, and others involved.

1. Party delivers funds, documents, and/or instructions to the escrow agent.
2. Escrow agent validates and executes instructions.
3. Escrow agent disburses funds and records documents.

These documents can vary significantly in format and content due to regional and lender differences. For example, a California Agreement of Sale (AOS) may span thirteen pages, while a New Jersey version may be just five.

To remain compliant and protect all parties, escrow agents should act only upon written instructions. They are responsible for evaluating those instructions to ensure clarity, legality, and that they do not expose the agency to unnecessary risk.

After validating and executing instructions, the escrow agent disburses funds and records documents. Fraud prevention remains a top priority. The SAFEvalidation® service, which First American Title offers at no additional cost for its transactions, provides a secure portal that protects against wire fraud for mortgage payoffs and account verifications.

Confidentiality is also critical. Before, during, and even after a transaction closes, escrow agents must not disclose sensitive details—such as the purchase price or buyer identity—to anyone not directly involved in the transaction.

Fiduciary responsibilities of the escrow agent.

At the heart of the escrow agent’s role is their fiduciary responsibility. A fiduciary is a person or entity that is legally and ethically expected to uphold four key responsibilities:

1. Acting in the other’s best interest.
2. Acting in good faith.
3. Providing all relevant facts.
4. Avoiding conflicts of interest.

Fiduciary responsibility begins the moment the agent receives money, documents, or instructions—often starting with a real estate purchase contract.

The push for consistency through uniform closing instructions.

To address long-standing inconsistencies in lender instructions, the American Land Title Association (ALTA) and the Mortgage Bankers Association (MBA) partnered with the Mortgage Industry Standards Maintenance Organization (MISMO) to develop uniform closing instruction templates. These templates weren’t designed to enforce rigid language across all lenders; rather, they offer a standardized format to help title and settlement professionals navigate instructions more easily.

If you’ve ever had to dig through pages of disjointed instructions or guess who’s responsible for what, you’ll understand the value of this effort. The templates aim to simplify the escrow process, ensuring that critical information—such as title requirements, funding conditions, and closing statements—appears in a consistent, predictable layout regardless of the lender.

Two key documents were created:

• Master Closing Instructions Template – covering general policies and lender expectations
• Transactional Closing Instructions Template – specific to the details of each transaction

These templates were developed with significant industry input and are intended to be powerful resources for settlement agents. However, in reviewing recent closings, it’s clear that adoption remains inconsistent, and both content and formatting vary widely.

Still, the conceptualized instructions remain valuable. The templates help agents identify and focus on critical transaction details. It’s important that escrow agents remain vigilant in reviewing the instructions provided for each transaction. In many cases, the agent may even need to proactively request instructions from the lender.

Best practices for reviewing transactional closing instructions.

Some general cautions to keep in mind when reviewing transactional closing instructions include:

• Always expect transactional instructions. If they are not received, request them from the lender immediately—and in writing.
• Don’t assume consistency. Even familiar lenders may change formats or requirements, so review all instructions thoroughly.
• Be mindful of your state’s regulations. Local customs or laws may override or prohibit certain instructions.

Curative actions: when to act and when to refer.

Escrow agents often receive requests to “fix” issues from buyers, sellers, or real estate professionals. However, not all matters should be handled in-house. Best practices include:

• Stay in your lane. Escrow agents must not provide legal advice or make decisions with potential legal ramifications, such as in cases involving disputes or divorce.
• Refer to claims when appropriate. If the issue relates to events prior to the policy’s effective date, refer it to the claims department.
• Communicate clearly with clients. Explaining why a task can or cannot be completed is just as important as the task itself. Good customer service starts with clear, accurate information.

Legal precedents reinforce escrow agent responsibilities.

Recent legal cases underscore the escrow agent’s role as a neutral fiduciary. Courts have affirmed that:

• Escrow agents are trustees bound by written instructions.
• They must act impartially and diligently.
• They owe a fiduciary duty to both the buyer and the seller.

These rulings reinforce the core principles emphasized in the webinar: neutrality, diligence, adherence to instructions, and transparency.

A changing enforcement landscape.

Recent shifts at the Consumer Financial Protection Bureau (CFPB) have included paused enforcement actions and the termination of contracts with expert witnesses. While the CFPB remains operational, its future is uncertain. As a result, state attorneys general and local consumer protection agencies may assume a greater enforcement role moving forward.

Escrow agents should stay informed, understand their responsibilities, and leverage available support—from legal counsel to technology tools—to safeguard all parties and uphold the integrity of the transaction. From navigating evolving closing instructions to avoiding legal pitfalls and maintaining impartiality under pressure, today’s escrow agents must demonstrate both diligence and adaptability.

Looking for more education and support?

Visit AgentNet® Knowledge or contact your First American Title agency representative for additional tools, guidance, and best practices.

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First American Title Insurance Company, and the operating divisions thereof, make no express or implied warranty respecting the information presented and assume no responsibility for errors or omissions. First American, the eagle logo, and First American Title are registered trademarks or trademarks of First American Financial Corporation and/or its affiliates.

The following post is for informational purposes only and is not and may not be construed as legal advice. No third party entity may rely upon anything contained herein when making legal and/or other determinations regarding its escrow practices, and such third party should consult with an attorney prior to embarking upon any specific course of action.

This post may not be distributed without written permission from First American.