Detailed Answer — How Oregon law treats release of funds held in trust when a deed is not yet recorded
When money is being held in trust or by an escrow holder as part of a real estate transaction, Oregon law and common practice focus on three separate legal concepts: (1) whether title to the property has actually transferred between the parties, (2) how recording affects third-party notice and priority, and (3) what the escrow or trust instructions require of the holder of the funds.
1. Deed validity and delivery
Under Oregon law, a properly executed and delivered deed that the grantee accepts generally transfers title between the grantor and grantee even if the deed has not yet been recorded. Recording is not what creates the conveyance; rather, recording provides public notice and protects the grantee against later competing claims by third parties. For background on Oregon statutes that govern conveyances and recording, see Oregon Revised Statutes, Title 7 (Conveyances) — chapter on recording and conveyances: Oregon Revised Statutes (ORS).
2. Recording and notice / priority
Recording a deed in the county land records protects the grantee against subsequent purchasers or creditors who do not have notice of the unrecorded conveyance. If the deed is not recorded, a subsequent purchaser or lender who records first (and has no actual or constructive notice of the earlier unrecorded deed) may gain priority in some situations. Because of that risk, many buyers, lenders, and title companies insist on recording before releasing funds.
3. Escrow/trust duties and instructions control the holder’s actions
The person or entity holding funds (escrow agent, attorney, title company, or trustee) must follow the written escrow or trust instructions. Those instructions typically specify the conditions that must be satisfied before funds are released — for example, presentation of a recorded deed, delivery of title insurance, payoff of liens, or a signed closing statement. A holder who disburses funds contrary to binding instructions or without meeting agreed conditions can face liability for breach of fiduciary duty, conversion of funds, or damages to the other party.
Can funds be released before recording?
Short answer: sometimes — but only if the escrow/trust instructions (and any applicable contract or lender requirements) allow it and the escrow holder is comfortable with the legal risk. Typical scenarios where an escrow holder might release funds before the deed appears in the recorder’s index include:
- The escrow instructions expressly permit release upon delivery of an executed and acknowledged deed (not necessarily recorded), supported by a tenant-in-possession or acceptance by the grantee.
- The parties provide a written indemnity or holdback agreement that protects the escrow holder and the buyer against loss if a later problem arises (for example, a recorded lien that predates the conveyance).
- A lender requires a temporary disbursement under agreed conditions and the lender or title company issues protections (for example, a lender’s title policy or further escrow holdbacks) to manage risk.
Why many escrow holders wait for recording
Releasing funds only after the deed appears in the county recorder’s indexed records eliminates many risks: it gives public notice the grantee claims title and reduces the chance that a later-recording third party will assert superior rights. Title companies frequently will not disburse sale proceeds or loan funds until the deed and any mortgage or lien instruments have been recorded in the proper county and the title company confirms recordation.
Practical risks if funds go out before recording
- The seller or another party could have undisclosed creditors, judgment liens, or other claims that attach before the deed is recorded.
- A later bona fide purchaser or creditor who records first may gain priority against the purchaser who relied on the unrecorded deed.
- The escrow holder can be sued for improper disbursement if it fails to follow instructions.
Practical steps that reduce risk
- Require the escrow holder to disburse only after the deed is recorded and the county recorder’s confirmation or index entry is received.
- Obtain a title insurance commitment (or final policy) that insures against title defects and identifies exceptions.
- Use a written indemnity or holdback for a short, specified period if the parties agree to disburse before the county finishes indexing the instrument.
- Confirm that payoff checks for existing liens aren’t released until the payoff instruments are recorded or satisfied.
- Have the escrow agent or closing attorney confirm recording status with the county recorder and retain proof (recording receipt or instrument number) before disbursement.
How to proceed in a typical Oregon closing
In most Oregon closings, escrow or title companies will: (1) receive closing funds, (2) supervise signature and delivery of deeds and loan documents, (3) take the documents to the county recorder for filing, and (4) disburse funds only after receiving confirmation of recordation (or when their written instructions allow a different arrangement). If you are a buyer, seller, lender, or escrow holder, the safe default is to require recordation confirmation before releasing funds unless there are clear, documented instructions and indemnities to the contrary.
Helpful Hints
- Ask your escrow holder or closing agent for their standard release conditions and insist those conditions be in writing.
- Get a recording receipt or instrument number from the county recorder before funds are disbursed.
- Request title insurance — a lender’s or owner’s policy mitigates many risks from pre-recording problems.
- If parties agree to early disbursement, require a written indemnity protecting the party who might otherwise suffer a priority loss.
- Understand county recording speed: some Oregon counties index instruments faster than others; confirm expected timing with the county recorder.
- If a lender is involved, follow the lender’s requirements — lenders routinely insist on recording before releasing loan proceeds.
- If anything is unclear, consult a real estate attorney before authorizing release; a short legal opinion or escrow instruction revision can prevent large losses later.