Overview

This article explains how Tennessee law treats funds held in trust or escrow when a deed has not yet been recorded. It answers common questions a buyer, seller, or escrow agent might have, explains the risks, and lists practical steps to protect your interests. This is educational information only and not legal advice.

Short answer

Generally, funds held in escrow or trust should not be released until the closing conditions in the purchase contract and escrow instructions are met. In Tennessee, actual transfer of ownership depends on delivery and acceptance of a valid deed; recording the deed protects the grantee against third parties and establishes priority, but recording is not always the sole proof that the transaction closed. Because recording affects risk and priority, most escrow agreements require either (1) a recorded deed, (2) an executed deed delivered to escrow with clear proof of delivery and acceptance, or (3) a title insurance commitment showing the new owner. Releasing money before the deed is recorded can expose the buyer, escrow agent, and title insurer to loss.

Key Tennessee law points that matter

• Deed transfer vs. recording: Under Tennessee property law, the transfer of title generally occurs when a valid deed is delivered and accepted. Recording a deed protects the grantee against subsequent purchasers or creditors, but recording is a separate step that preserves priority.
• Escrow and fiduciary duties: Escrow agents, closing attorneys, and brokers who hold trust funds must follow the escrow instructions and applicable industry regulations. Tennessee regulates real estate brokerage conduct through the Real Estate Commission; brokers often have statutory obligations about trust accounts and disbursement of funds.
• Contract controls: The purchase agreement and escrow instructions typically spell out the exact conditions for disbursement. Those written conditions usually control what must happen before the escrow agent can release funds.

For the official Tennessee code and regulatory resources, search the Tennessee Code and Real Estate Commission resources at the Tennessee General Assembly and Tennessee Department of Commerce & Insurance sites:

• Tennessee Code and statutes (Tennessee General Assembly)
• Tennessee Real Estate Commission (escrow/trust account rules)

Why recording matters

Recording a deed in the county register of deeds gives public notice of the transfer and establishes priority against later claims. If you release escrow funds before recording and another creditor or buyer claims an interest, the unrecorded grantee may have weaker protection against competing claims. In short: recording reduces the risk that a third party can challenge title or priority.

Common scenarios and how Tennessee law typically treats them

1) Buyer funds go to escrow; deed executed but not yet recorded

If the deed has been properly executed and delivered into escrow and the escrow instructions allow disbursement upon execution (not recording), some escrow agents may release funds after verifying delivery and acceptance. However, most prudent escrow instructions require either the deed to be recorded or a title insurance policy showing vested title before releasing funds to the seller.

2) Seller asks for funds before recording because county recording office is delayed

Delays at the register of deeds are common, but accepting seller requests to release funds before recording creates risk. Escrow agents should follow the written instructions: if those instructions require recording, the delay alone is not a reason to disburse. Parties often agree to short, written waivers that specify who bears the risk while waiting to record.

3) Broker or agent holds earnest money

Real estate brokers in Tennessee must follow trust-account rules and the contract’s terms. They can be personally liable if they disburse funds contrary to escrow instructions. When in doubt, brokers should refuse to disburse until parties provide clear, written authorization or a court order.

4) Title insurance and closing agent practice

Title companies commonly issue a commitment showing coverage upon closing; many will not insure the buyer (or will issue limited coverage) if funds are released before recording. The safest practice: require either recorded deed or an agreed-upon short post-closing recording window with protections (e.g., seller retains responsibility for recording, or seller executes indemnity).

Practical checklist — what to ask for before releasing funds

1. Review the purchase contract and escrow instructions. Do they require recorded deed, title insurance, or other conditions?
2. Request proof of delivery and acceptance of the deed (original deed properly executed and acknowledged).
3. Ask for a recorded-deed receipt or official recording confirmation number from the county register of deeds, if available.
4. Obtain a title insurance commitment or binder’s confirmation naming the buyer as insured.
5. Get written, signed authorization from all parties if they agree to an alternative (e.g., release now with specified protections).
6. If a broker or escrow agent is unsure, consider using an attorney or court interpleader to distribute funds safely.

What if funds were released and the deed never got recorded?

If funds have been released but the deed was never recorded or title problems surface, remedies may include:

• Demanding the seller correct the situation (record the deed or provide indemnity).
• Making a claim against title insurance (if issued).
• Pursuing breach of contract claims against the seller for failing to deliver clear title or record the deed as promised.
• Pursuing claims against the escrow agent or broker for disbursing contrary to instructions or failing to follow fiduciary duties.

Tips for buyers, sellers, and escrow agents in Tennessee

• Buyers: insist on either a recorded deed or a title policy before authorizing final payment.
• Sellers: understand that buyers and escrow agents will be reluctant to release funds before public recording unless you provide strong assurances or indemnity.
• Escrow agents/brokers: follow the escrow instructions exactly. If instructions are ambiguous, get a signed amendment or a court order before disbursing funds.
• Keep written records: maintained escrow instructions, evidence of recording attempts, and any waivers or indemnities signed by the parties.

Where to find Tennessee statutes and more help

Look up Tennessee statutes and specific rules about conveyances and recording on the Tennessee General Assembly site. For rules and guidance on trust accounts and escrow obligations for real estate professionals, check the Tennessee Real Estate Commission.

• Tennessee General Assembly (statutes and searchable code)
• Tennessee Real Estate Commission — escrow and trust account rules

Helpful Hints

• Never rely on a verbal promise to record; get written proof or a recording receipt.
• Title insurance is a practical hedge — ask your title company what it needs before issuing coverage.
• If you are an escrow agent uncertain about competing instructions, consider filing an interpleader or seeking court guidance to avoid personal liability.
• Use a closing checklist that ties each disbursement to a specific closing event (e.g., recorded deed, seller payoff, recorded release of liens).
• If the county recorder is slow, document attempts to record (timestamped receipts, email confirmations) and consider a narrow written agreement about temporary risk allocation.

Disclaimer

This content is for education and general guidance only and is not legal advice. Laws and procedures vary and facts matter. For a binding answer about your specific situation in Tennessee, consult a licensed Tennessee attorney or an experienced closing agent.