Can escrow or trust funds be released if the deed hasn’t been recorded yet?

Short answer: Sometimes — but it depends on the purchase contract, the escrow or trust instructions, and practical protections (like title insurance or a recording acknowledgement). Under Vermont law, recording a deed is the primary way to give constructive notice of a buyer’s ownership to the world, so releasing funds before recordation increases risk unless the parties and escrow agent have clear, enforceable instructions and protective steps in place.

Detailed answer (how this works under Vermont law)

This answer explains three things you need to understand: (1) what “recording” does, (2) how escrow/trust funds are normally handled at closing, and (3) what to watch out for if funds are to be released before the deed is recorded.

1. What recording does in Vermont

Recording a deed does not itself create title, but it gives constructive notice of the grant to third parties and establishes priority against later claims. Vermont’s recording statutes (see Title 27 of the Vermont Statutes Online) govern how instruments affecting real estate are indexed and how public notice works. You can review Vermont’s property statutes here: https://legislature.vermont.gov/statutes/title/27.

Key practical point: if a deed is properly executed and delivered to the buyer, the buyer may hold title even before recordation, but until the deed is recorded the buyer’s ownership may not be protected against third parties (for example, a later buyer or a judgment creditor who records an intervening interest).

2. How escrow and trust funds are usually handled at closing

Escrow or trust funds are held by a neutral third party (escrow agent, title company, or attorney) under written instructions that typically require certain closing conditions before the money is paid out. Common conditions include:

• Receipt of a fully executed and delivered deed in the grantee’s favor;
• Successful recordation (filing) of the deed in the county registry of deeds; or
• Issuance of a title insurance policy showing the buyer’s title (or a title company commitment stating obligations).

Many escrow instructions explicitly require that the deed be recorded before the funds are released. That approach protects the buyer and ensures the order of events: deed recorded, then seller gets the money.

3. When funds may be released before the deed is recorded — and the risks

Funds may be released before recording if the escrow agreement or closing documents allow it, or if the parties give written waiver or alternative protections. Typical scenarios include:

• Escrow instructions permit release upon delivery of the executed deed to the escrow agent, with the agent agreeing to promptly record the deed; or
• The buyer receives a title insurance commitment or a lender’s assurance and signs a written waiver that they accept the risk; or
• The parties insert a short holdback or indemnity for a specified period until recordation actually occurs.

Risks if funds are released before recordation:

• If the seller takes the money and fails to record the deed (or later conveys to a third party), the buyer may need to sue to enforce the deed, quiet title, or recover damages.
• Creditors or lienholders who record before the deed may take priority over the buyer.
• Problems may arise with mortgage lenders if the mortgage or payoff instructions depend on actual recordation in the chain of title.

Practical protections and best practices under Vermont practice

To protect both buyer and seller, parties commonly use one or more of these practical steps:

• Insist escrow instructions require recordation as a condition of release. If you are the buyer, make sure the escrow agent confirms in writing that the deed will be recorded before funds are disbursed.
• Obtain a title insurance commitment at or before closing. Title insurance protects against many post-closing recording defects or intervening claims, subject to its terms and exceptions.
• Use a short express holdback or indemnity clause: a portion or the whole of the seller proceeds is held until the escrow agent confirms recording or until evidence of recordation is filed with the escrow holder.
• Get a recorded-document receipt number or stamped copy showing the deed’s recording entry before instructing release.
• If the escrow holder is a title company, have the company provide a written commitment to record and to issue title insurance promptly upon recordation.

Remedies if funds were released improperly

If funds are released before the deed is recorded and a problem later emerges, potential remedies under Vermont practice may include:

• Breach of contract or breach of escrow agreement claims against the party that released funds in violation of instructions;
• Specific performance or quiet title actions to enforce the deed;
• Rescission and damages if the transaction is voided for fraud or misrepresentation; and
• Claims against the title insurer if a title policy was issued and covered the loss.

Which remedy applies depends on the facts, the written agreements, and whether the buyer already holds an executed deed (even if unrecorded). A local attorney can evaluate which claims best fit a given situation.

Helpful Hints

• Always read the escrow instructions and purchase contract carefully. If the contract requires recordation before release, do not accept a verbal assurance to the contrary.
• Ask the escrow agent for a stamped copy or receipt showing the deed’s recording number before you authorize disbursement.
• Get a title insurance commitment before closing. Title insurance is a common and practical protection for buyers in Vermont.
• If you must agree to an early release, seek written indemnity from the seller and get a clear timeline for recordation. Consider keeping a portion of funds in holdback as a contingency.
• If funds were released improperly and you may have lost ownership priority, contact a Vermont real estate attorney right away to preserve remedies and statutory deadlines.

Where to look in Vermont law

Vermont’s statutes on property and recording are in Title 27 of the Vermont Statutes. You can read those provisions here: https://legislature.vermont.gov/statutes/title/27. For specific questions about escrow obligations or remedies, a local attorney can point to the precise sections that apply to your situation and interpret how courts in Vermont treat unrecorded deeds and priority disputes.

Disclaimer: This article is for general informational purposes only and does not constitute legal advice. It does not create an attorney-client relationship. For advice about a particular situation in Vermont, consult a licensed Vermont attorney.