When closing funds are released before a deed is recorded: Massachusetts overview

Short answer: Yes — funds held in escrow or by a trustee can be released before a deed is recorded, but doing so creates legal risks. Whether release is appropriate depends on the written escrow/closing instructions, the parties’ contract, title status, and protections (indemnities or title insurance) in place. In Massachusetts, recording a deed affects priority and public notice under the state’s real property law (see Mass. Gen. Laws, ch. 183).

Detailed answer — how this works in Massachusetts

Massachusetts law treats recording as the primary way to give public notice of an ownership change and to establish priority against third parties. The statutory framework for deeds and recording is in the Massachusetts General Laws, chapter 183 (Real Property):
https://malegislature.gov/Laws/GeneralLaws/PartII/TitleI/Chapter183.

In practice, commercial closings use escrow (trust) arrangements and closing instructions that specify the conditions for releasing funds. Typical conditions include execution and delivery of a properly signed deed, payment of outstanding encumbrances, delivery of mortgage payoff documentation, and recording of the deed (often evidenced by receipt or filing stamp).

There are several common scenarios:

• Escrow instructions require recording before release: If the parties or escrow agent agree that the funds will remain in escrow until the deed is recorded, the agent must follow those instructions. Releasing funds sooner would breach the escrow agreement and expose the agent to liability.
• Escrow instructions permit release before recording: The instructions sometimes permit release upon delivery of a signed deed (or proof the deed has been sent for recording) plus a seller indemnity or title insurance commitment. In that case the agent may release funds consistent with those terms, even if the deed is not yet recorded.
• Closing attorneys or lenders may require additional protections: A lender or buyer commonly requires recording before funding or will accept an indemnity agreement, a recording holdback, or title insurance that insures the post-closing title despite a recording delay.

Why recording matters:

• Recording gives constructive notice to the world of a purchaser’s interest. Until recorded, a later bona fide purchaser or creditor who records first may have superior rights.
• Unrecorded deeds may leave the grantee vulnerable to claims from the seller’s later creditors or to subsequent recorded interests.
• Title insurance and indemnities are commonly used to shift or limit this risk when funds are released before recording.

Typical protections that allow release before recording

Commercial closings often use one or more of the following to permit a pre-recording release while limiting risk:

• Written escrow or closing instructions: Clear instructions that set precise triggering events for release (e.g., executed deed, wiring instructions, payoff letters).
• Seller indemnity or holdback: Seller signs an agreement to indemnify buyer for losses caused by failing to record promptly; or a portion of funds is held back until recording is confirmed.
• Title insurance commitment: A title insurer issues a commitment or interim coverage that protects the buyer even if the deed records a few days later.
• Recording affidavit or proof of mailing: Evidence that the deed has been submitted for recording, sometimes together with a short agreed delay to allow the registry to process the paper.

Risks and remedies if funds are released too soon

If funds are released before recording without proper authority or protections, possible consequences include:

• Escrow agent liability for breach of contract or negligence.
• Buyer exposure if a subsequent bona fide purchaser or creditor records first and claims priority.
• Claims to recover funds from the seller if the seller refuses to record or if liens appear after release.
• Need for equitable remedies (rescission) or an action to quiet title to resolve competing claims.

Where a dispute arises, courts will look to the escrow instructions, the parties’ written agreements (purchase and sale agreement), and the conduct of the parties and escrow agent. Massachusetts courts apply equitable principles to trace and protect interests when appropriate, but litigation is costly and uncertain.

Practical checklist for Massachusetts buyers, sellers, and escrow agents

1. Put all release conditions in writing. Make the escrow agent’s duties and triggers unambiguous.
2. Prefer recording-before-funding if feasible. This is the cleanest way to protect priority.
3. If you accept pre-recording release, require title insurance, seller indemnity, or a holdback to cover recording delays or intervening claims.
4. Require evidence that the deed was presented for recording (stamp, receipt, or filing confirmation) before disbursing funds when possible.
5. Use a reputable closing attorney or escrow company licensed to handle Massachusetts real estate closings and familiar with local registry practice.

Hypothetical example

Buyer wires purchase money to escrow. The seller delivers a signed deed but the county registry has a backlog and won’t stamp the deed for two business days. The escrow instructions either (a) require recording before release — funds stay in escrow until stamped; or (b) allow release upon delivery of the signed deed plus a seller indemnity and a title insurance commitment — funds may be released immediately if those protections are in place. If the escrow agent ignores a recording-required instruction and releases funds, the buyer may have claims against the escrow agent and the seller.

Where to look in Massachusetts law

Massachusetts’s real property statutes and the registry system are administered under the General Laws, chapter 183. For the text and structure of the recording statutes, see:
Mass. Gen. Laws, ch. 183 (Real Property).
For local registry and practical recording information, see the Massachusetts Registries of Deeds page:
https://www.mass.gov/orgs/registries-of-deeds.

When to consult an attorney

Contact an attorney if any of the following apply:

• The escrow instructions are unclear or conflict with the purchase and sale agreement.
• There is a backlog or dispute at the registry of deeds.
• The seller resists recording after receiving funds.
• You need advice on indemnity language, holdbacks, or title insurance wording.

Helpful hints

• Always read and confirm the escrow/closing instructions before sending funds.
• Ask for a title insurance commitment in advance when recording is delayed.
• Insist on a recording holdback or indemnity if the escrow agent will release funds before the deed is filed.
• Keep documentary proof of every step: executed deed, payoff letters, recording receipts, and wire confirmations.
• Use a Massachusetts-licensed closing attorney or established escrow company familiar with your county’s registry practices.
• If you are an escrow agent, follow written instructions strictly; get written consent to deviate from them.

Disclaimer: This article provides general information about Massachusetts law and common closing practices. It is not legal advice. For advice about a specific situation, consult a licensed Massachusetts attorney who can review your documents and facts.