Most of the time, escrowed or trust funds should not be released until the transaction conditions in the escrow agreement have been satisfied. Whether the deed must be recorded before funds are released depends on the escrow instructions, the type of deed delivery and acceptance, title review or title insurance requirements, and South Dakota’s recording/notice rules. Releasing funds early can create risk that a buyer loses protection against later claims or subsequent purchasers.

How deed recording and title transfer work in South Dakota

Two separate things matter when real estate changes hands: (1) the transfer of title (delivery and acceptance of the deed), and (2) public notice of that transfer (recording the deed). Under South Dakota law, recording an instrument provides constructive notice to the world that the instrument exists. That means a later purchaser or lender who checks the public records is treated as having notice of recorded documents. You can read South Dakota’s recording statutes here: SDCL Chapter 43‑4 (Recording of Instruments).

However, recording itself is not always the only act that transfers ownership. If a deed is properly delivered to and accepted by the grantee, equitable title can pass even before the deed is recorded. But because recording gives constructive notice, an unrecorded deed can be vulnerable to claims by later bona fide purchasers or lienholders who rely on the public records.

When escrow/trust funds are normally released

Escrow or trust funds are released according to the escrow agreement (or trust instructions) and applicable law. Typical safe conditions for releasing funds include:

• Receipt of a deed that has been properly executed, delivered, and accepted by the grantee.
• Recording of the deed in the county land records, or confirmation from the title company that a policy will be issued showing the buyer’s interest.
• Clear title or the satisfaction/clearance of any title exceptions or liens.
• All closing documents executed (seller’s affidavits, payoff instructions for mortgages, tax proration adjustments, lender funding conditions satisfied).

If the escrow instructions require recording before disbursement, the escrow agent should wait until recording confirms a marketable public record. If the parties agree in writing that funds may be disbursed only after recording, that written instruction controls.

Scenarios where funds might be released before recording

There are reasonable situations in which escrow agents release funds before the deed posts to the recorder’s office:

• Title company issues a lender’s or owner’s title insurance commitment and confirms that recording will occur later that same day; escrow disburses concurrently with title company assurances.
• The parties sign an explicit escrow instruction that allows conditional release before recording (for example, when the recording system is closed and the deed will record the next business day).
• Deed has been delivered and accepted by the buyer and the seller’s mortgage payoff is required to be paid immediately to satisfy a lien; the escrow agent follows written disbursement instructions tied to verified payoff demands.

Even in these cases, escrow agents usually obtain written confirmations or indemnities to limit their exposure if recording does not occur or if competing claims arise.

Risks of releasing funds before recording

Releasing funds before the deed is recorded can create these risks:

• A later purchaser or lender who records first may have priority over the unrecorded deed because recording provides constructive notice.
• Paying off liens before confirmation of recording can leave the buyer exposed if the seller retains rights through an unrecorded conveyance or a forged deed.
• The escrow agent or title company may face indemnity claims if a subsequent claim clouds title and the disbursement violated escrow instructions.

Practical checklist for buyers, sellers, and escrow agents in South Dakota

1. Read the escrow/trust agreement carefully. Follow the written disbursement conditions exactly.
2. Require written confirmation from the title company that it will issue an owner’s policy or commitment and explain whether the policy will be issued before or after recording.
3. Consider requiring that recording occur (or that the deed be presented for recording and a confirmation number obtained) before large disbursements.
4. If the parties allow earlier disbursement, obtain written indemnity or holdbacks until recording is confirmed.
5. Escrow agents should document communications and retain payoff demands, recording receipts, and title company statements in the escrow file.

Example hypotheticals

Hypothetical A — Safe release: Buyer and seller sign escrow instructions that require the deed to be recorded before disbursement. The escrow agent holds funds until the deed posts in the county records. The agent disburses funds only after confirming the recorder’s acceptance. This minimizes risk.

Hypothetical B — Conditional release with protections: The buyer and seller both agree that the county recorder is closed and recording will occur the next business day. The title company gives a commitment and the parties provide written indemnity allowing immediate payoff of the seller’s mortgage that morning. The escrow agent disburses the mortgage payoff but holds a negotiated holdback until the deed posts. This balances practical needs and risk management.

When to consult an attorney

If the transaction has unusual facts—multiple liens, a seller who is refusing to sign post-closing paperwork, suspicion of fraud, or conflicting recording claims—get legal advice. An attorney can review escrow instructions, examine the chain of title, and help negotiate protective language such as indemnities or holdbacks.

Helpful Hints

• Always follow the written escrow agreement. It governs disbursement.
• Recording gives constructive notice in South Dakota: check public records before assuming safety. See SDCL Chapter 43‑4: https://sdlegislature.gov/Statutes/Codified_Laws/DisplayStatute.aspx?Type=Statute&Chapter=43-4.
• Ask the title company for an owner’s policy or a recorded-deed endorsement to limit post-closing risk.
• If you must release funds before recording, insist on written protections: written agreement, title company confirmation, retainers/holdbacks, or indemnity.
• Document everything: receipts, payoff letters, recording confirmation numbers, and title company communications.