Delaware: Releasing Escrow or Trust Funds Before a Deed Is Recorded

Yes — but releasing escrow or trust funds before a deed is recorded carries risk and depends on what the parties agreed to, the escrow instructions, and the role of the closing agent or title company. In Delaware, recording a deed creates constructive notice to the world. If funds are released before recording and a competing claim later appears, the party who proceeded without recorded protection may have limited remedies. For this reason, many buyers and their counsel insist that funds remain in escrow until the deed is recorded and evidence of recordation is delivered to the buyer or escrow agent.

Detailed answer — how this works under Delaware law

There are three separate but related legal questions to consider:

1. What do the contract and escrow instructions say? Delaware parties are bound by their written purchase agreement and the escrow or closing instructions given to the settlement agent. Common conditions for releasing funds include: delivery of an executed and acknowledged deed to the buyer or escrow agent, receipt of a title commitment showing clear title, or actual recording of the deed. If the escrow instructions require recording before release, the closing agent should not release funds until recording is confirmed.
2. What protection does recording provide in Delaware? Recording a deed gives constructive notice to later purchasers and creditors, so the recorded grantee has stronger protection against subsequent claims. See Delaware Code, Title 25 (Real and Personal Property) for the state’s recording statutes: https://delcode.delaware.gov/title25/ . Because recording creates public notice, a buyer who relies solely on an unrecorded deed and released funds may be vulnerable to third-party creditors or subsequent bona fide purchasers.
3. Who holds the funds and what duties does that holder have? Escrow agents, title companies, and attorneys who hold funds owe duties laid out in the escrow instructions, any controlling statutes, and professional rules. They generally must follow the express conditions for release. If an agent releases funds contrary to the instructions and loss follows, the injured party may have claims for breach of contract, breach of fiduciary duty, or negligence against the agent.

Practical examples (hypotheticals):

• Hypothetical A — Safe release: The escrow instructions say the title company will release funds only after it confirms the deed is recorded and issues a final title policy. The company waits for the recording confirmation and then releases funds. The buyer has recorded, protected title, and minimal risk.
• Hypothetical B — Risky release: The seller delivers a signed deed to the buyer but the buyer asks the escrow agent to release funds immediately before the recorder’s office posts the deed. A subsequent creditor claims a lien that predates the buyer’s claim but was not discoverable until after the release. The buyer may face a loss and must pursue remedies against the seller or escrow agent, which may be time-consuming and uncertain.
• Hypothetical C — Competing purchaser: The buyer pays, the seller pockets funds, but a second purchaser records first. If the second purchaser is a bona fide purchaser for value without notice, recording priority and any applicable recording statute or case law will determine who prevails. Recording first generally preserves priority in many circumstances.

Legal remedies if funds are released prematurely or improperly

• Breach of contract claims against the opposing party if they violated the purchase agreement.
• Claims against the escrow agent or closing attorney for failing to follow escrow instructions.
• Equitable remedies such as injunctions or quiet-title actions to clear competing claims.
• Title insurance claims if the buyer purchased a policy that would cover the loss.

Statutory context: Delaware’s recording statutes are collected in Title 25 of the Delaware Code. For an overview of the statutes that govern conveyances and public recording, see: https://delcode.delaware.gov/title25/ .

Practical steps to reduce risk

Before agreeing to release funds when a deed has not yet been recorded, consider these precautions:

• Require an express escrow instruction that funds will be released only after the deed is recorded and a recorded copy is delivered to the buyer or buyer’s attorney.
• Obtain a receipt of filing or recording confirmation from the county recorder’s office showing the deed book and page or instrument number.
• Purchase owner’s title insurance with exceptions explained in writing. A title policy can cover many post-closing risks.
• Ask the closing agent for an indemnity agreement if they will release funds before recording—this shifts some risk back to the agent.
• Check for liens, judgments, and other encumbrances during the title search and require removal or payoff of offending liens at closing.
• Include protective contract terms: escrow holdback, retention until recording, or contractual remedies for failure to deliver marketable title.

Helpful Hints

• Do not rely on an unrecorded deed as your only protection. Recording converts a private act into public notice.
• Insist on a written escrow instruction rather than oral assurances.
• Get recording confirmation in writing (a recorded instrument number or copy) before accepting a release of funds.
• Buy title insurance and review the preliminary title report carefully for exceptions and outstanding liens.
• If funds are released prematurely, act quickly—preserve documents, notify your closing agent and insurer, and seek legal advice.