Can funds held in trust be released if the deed hasn’t been recorded yet?

Short answer: It depends. In Alabama, whether funds held in trust or escrow can be released before the deed is recorded turns on the escrow agreement (the trust instructions), whether the deed has been validly delivered to the buyer, title and lender requirements, and concerns about priority and constructive notice under Alabama’s recording laws. Recording protects against later claims by third parties, but recording is not the only factor that determines whether the escrow agent should or may release funds.

How the law generally treats deeds, delivery, and recording in Alabama

Two separate but related concepts determine what happens at a real estate closing:

Delivery and validity of the deed: Under general property law principles, a properly executed deed that is actually delivered to the grantee (or to an agreed escrow agent with instructions) typically transfers title even if it is not yet recorded. Recording is not required to make the conveyance effective between the parties.
Recording and constructive notice: Recording a deed gives constructive notice to third parties and establishes priority against later purchasers or creditors. Alabama’s recording statutes set out the legal framework for public notice and priority (see Alabama recording provisions in Title 35, Chapter 4 of the Alabama Code: https://www.legislature.state.al.us/aliswww/ACODE/ACODE2015/35/35-4-1.htm).

What that means for funds held in trust or escrow

Escrow agents, closing attorneys, or title companies hold funds in trust under explicit escrow instructions or a written agreement. Those instructions define the conditions that must be satisfied before disbursement—for example, that the deed be delivered and recorded, that a deed of trust or mortgage be recorded, that title insurance be issued, or that all closing documents be returned with certain endorsements.

So, in practice:

If the escrow instructions say funds will be released only after the deed is recorded, the escrow agent generally must follow those instructions before releasing funds.
If the instructions permit release once the deed has been delivered (even if not yet recorded), the escrow agent may disburse funds after delivery and confirmation of any other required conditions.
If a lender requires recording before funding or demands that funds be held until its mortgage or deed of trust is properly recorded, the escrow agent typically will not disburse funds until the lender’s required recordings are confirmed.

Practical risks of releasing funds before recording

Priority risk: If the deed was delivered but not recorded, a later purchaser or creditor who records first may obtain priority against unrecorded interests. Recording protects the grantee against claims by third parties.
Title risk: The buyer may not be able to show marketable or insurable title until the deed is recorded and reflected in the chain of title, which can cause problems for lenders or title insurers.
Escrow agent liability: If the escrow agent disburses funds contrary to the escrow agreement, the agent can be liable to the party for whom it was supposed to safeguard the funds.

Typical safe options and common practices

Escrow agents and title companies often require confirmation of recording (a recorded deed return or a recording receipt) before releasing sale proceeds.
Lenders usually require that their mortgage or deed of trust be recorded prior to funding loan proceeds.
Parties sometimes use post-closing holdbacks, escrowed indemnity agreements, or title endorsements to address limited risks if immediate release is needed before recording is confirmed.
Buying title insurance and obtaining a final title report after recording can reduce the risk of loss from competing claims.

Checklist: What to confirm before asking an escrow agent to release funds

Review the escrow/trust instructions: do they require recording or just delivery?
Confirm whether the deed has been legally delivered to the grantee or to the escrow agent per instructions.
Ask for proof of recording (recording receipt, instrument number, or recorded instrument copy) if the instructions require recording.
Check lender requirements: has the lender confirmed its mortgage/deed of trust was recorded?
Confirm issuance (or conditional issuance) of title insurance and any required endorsements.
If funds must be released early, obtain written indemnities or holdback language to protect the party at risk.

Relevant Alabama statutory authority

Alabama’s recording statutes set out the public recording system and its effect on notice and priority. See the recording provisions in Title 35, Chapter 4 of the Code of Alabama: https://www.legislature.state.al.us/aliswww/ACODE/ACODE2015/35/35-4-1.htm. Those statutes explain how recorded instruments give notice to third parties and affect priority among competing claims. Because recording law is central to the risks described above, escrow agents and parties normally factor those rules into their instructions.

When to consult an Alabama attorney or title company

Contact a local Alabama real estate attorney or your title company when:

Escrow instructions are unclear, or the parties disagree about conditions for disbursement.
The deed was delivered but not yet recorded and a party asks to release funds.
There is an apparent competing claim, lien, or unresolved title defect that recording would help address.

Helpful Hints

Never assume recording is a formality — confirm the instrument number or obtain a recorded copy.
Put any agreement to release funds before recording in writing and include indemnities or holdbacks.
Know who the escrow agent answers to: follow the written escrow instructions, not informal requests.
Ask the title company for a post-closing title update showing the recorded deed and any recorded mortgage.
When in doubt, delay release until you have documentary proof of recording or clear written instructions from all parties.

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 your specific situation under Alabama law, consult a licensed Alabama attorney or your title company.