When money is held in escrow for a real estate sale and the deed has not yet been recorded: what you need to know under Washington law

Short answer: Whether funds held in trust or escrow can be released before a deed is recorded depends on the escrow instructions, the parties’ agreement, and the duties of the escrow agent or title company. Recording the deed is not strictly required to transfer ownership between the parties, but the lack of recordation creates risk. Escrow agents generally must follow written instructions and may face liability if they disburse funds contrary to those instructions or before safe conditions (like recording or issuer-confirmed title) are satisfied.

Detailed answer — how this works in Washington

1) Escrow/trust relationship and instructions control the outcome. Most sales use an escrow or title company that holds buyer funds and deed documents until closing conditions are met. The escrow agreement (written instructions) normally tells the escrow agent when to record the deed and when to disburse funds. Under basic contract principles, the escrow agent must follow those instructions. If the instructions require the deed to be recorded before funds are released, the agent should wait.

2) Recording vs. legal transfer. In Washington a properly executed and delivered deed transfers title as between the parties even if it is not yet recorded, but recording provides constructive notice of the transfer to the world and protects the new owner against later claims by third parties. See the Washington recording statute and rules for how recording gives public notice: RCW 65.04.010. Because unrecorded conveyances are vulnerable to later conflicting transfers or liens, many buyers and title companies require recording (or at least a recording receipt/confirmation) before disbursing funds.

3) Risks of releasing funds before recordation.

• Buyer risk: If the seller receives funds but the deed never gets recorded (or the seller later sells again or encumbers the property), the buyer may lose priority and face difficulty enforcing ownership against third parties.
• Escrow agent/title company risk: Disbursing funds before the closing conditions are satisfied can create liability for breach of escrow instructions, negligence, or conversion. Title insurers can deny coverage or pursue subrogation where funds were released improperly.
• Seller risk: If the deed is recorded but funds are not timely disbursed according to agreements, the seller may have remedies against the escrow agent for breach of contract.

4) Practical safe practices used in Washington closings.

• Many escrow agents record the deed first and then disburse funds only after receiving the stamped/recorded document or a county recording receipt.
• If recording is delayed, escrow agents sometimes obtain a written holdback agreement or an indemnity from the buyer or seller before releasing funds.
• Title companies typically confirm that they have issued or will issue a title policy and will not disburse proceeds until they have secured an insurable, marketable interest—often by ensuring the deed is recorded.

Typical outcomes depending on common scenarios

– If the escrow instructions explicitly require recording before disbursement: the escrow agent should not release funds until the deed is recorded or the county provides proof of recording.

– If the escrow instructions say funds may be released upon delivery of a signed deed (but not recording): the buyer has an equitable interest once the deed is properly delivered, but the buyer is still exposed to third-party claims until recording. The escrow agent may still be liable if releasing funds violates standard practice or the escrow agreement.

– If funds are released prematurely and the deed is not recorded: the harmed party may have claims for contract breach, conversion, or negligence against the escrow agent, and may need to pursue quiet-title or other litigation to enforce ownership. Title insurance may respond depending on the policy terms and the company’s actions.

Relevant Washington legal principle

Recording statutes create public notice and affect priority of interests in real property. For how recording provides constructive notice in Washington, see RCW 65.04.010: app.leg.wa.gov/RCW/default.aspx?cite=65.04.010.

Helpful hints

• Read the escrow instructions carefully. The written instructions control the escrow agent’s duty to release funds.
• Require a recording condition: ask that funds be disbursed only after the deed is recorded or when the escrow agent provides a county recording receipt or stamped copy of the recorded deed.
• Obtain title insurance. A lender’s or owner’s title policy can protect against many post-closing problems, but check exclusions and timing requirements.
• Ask the escrow agent to confirm the recording number or provide the recorded instrument’s page/recording stamp before disbursement.
• Consider a holdback or escrowed contingency if a specific lien release, payoff, or other condition causes a recording delay.
• Document all communications with the escrow agent and title company. Written confirmation of instructions and status helps if a dispute arises.
• If the escrow agent proposes releasing funds before recording, get independent legal advice before consenting.

When to consult an attorney

If you face a real situation where funds have been released but the deed has not been recorded, or if the escrow agent is pressuring you to approve an early disbursement, consult a Washington real estate attorney promptly. An attorney can review the escrow instructions, title commitments, and recording status and advise on remedies.

Disclaimer: This article explains general legal principles under Washington law and is for educational purposes only. It is not legal advice and does not create an attorney-client relationship. For advice about a specific transaction, contact a licensed Washington attorney.