Can funds held in escrow be released before a deed is recorded? — Key information for Indiana transactions

Short answer: Sometimes. In Indiana, whether escrow (trust) funds can be released before a deed is recorded depends on the escrow instructions, the parties’ agreements, protections in place (like title insurance or holdbacks), and the closing agent’s policies. Releasing funds early increases risk for the buyer unless steps are taken to insure or guarantee the transfer of title.

Detailed answer — how this works under Indiana law

Real estate closings involve two separate acts: the transfer of title (the deed) and the distribution of purchase funds. Many closings use an escrow or trust agent (title company, attorney, or escrow company) to hold the deed and funds and to disburse each when conditions are met. The core legal point in Indiana is that recording the deed is not itself the act that creates title; it is a public notice device that protects parties against subsequent purchasers or liens. The general recording rules for Indiana are in the Indiana Code (Title 32, Article 21 — Recording Instruments). See the Indiana recording statutes: Indiana Code, Title 32, Article 21 (Recording Instruments).

Because recording provides public notice, closing agents commonly require the deed to be recorded (or obtain proof that it will be recorded immediately) before releasing funds. If funds are released before the deed is recorded, the buyer risks that the seller may still have legal or equitable claims against the property (such as outstanding liens, a competing sale, or even fraud), and a later unrecorded defect could harm the buyer’s title.

Common practices and permissible releases

Release on recorded deed: The safest and most common approach is to record the deed first (or obtain a recorded copy or recording receipt) and then disburse funds from escrow once recording is confirmed.
Release on escrow instructions: If escrow instructions expressly permit release of funds upon certain events (for example, upon delivery of a properly executed and notarized deed even if not yet recorded), the escrow agent may follow those instructions. But many title companies will still hold funds until recording to protect themselves and their title insurance obligations.
Release with security: Funds may be released before recording if the buyer obtains protections such as a title insurance policy issued at closing, a specific holdback amount, an indemnity/escrow agreement, or the closing agent obtains an immediate recording receipt or unconditional verification from the county recorder showing the deed has been accepted.
Conditional or partial disbursement: Sometimes a portion of proceeds (payoff of mortgage, seller’s net) is released while a small holdback remains until recorded deed is confirmed.

Risks if funds are released before deed is recorded

If the seller or another party has a prior unrecorded claim (lien, judgment, or a competing transfer), the buyer’s position can be compromised.
If the deed is defective (bad signature, improper notarization, fraud), a recorded deed will not cure defects created before recording; the buyer may face costly litigation.
The escrow agent or closer who disburses funds before recording can face liability to the buyer for negligent disbursement if they fail to follow escrow instructions or fail to obtain adequate protections.
Restoring funds if the deed problem arises can be difficult — the buyer’s remedy may require litigation for breach of contract, rescission, or a claim under title insurance.

What the law and title industry expect in Indiana

Indiana recording statutes govern notice and the mechanics of recording (see link above). Title insurers and reputable closing agents generally follow practices designed to ensure the buyer receives marketable title. That often means not releasing funds until:

Deed is recorded and recording information (instrument number or recording receipt) is obtained, or
Title insurance is bound and any required endorsements or payoffs are in place, or
There is an agreed holdback or escrow arrangement providing clear protection for the buyer.

Practical steps to protect yourself in Indiana

Confirm escrow instructions in writing. Make sure instructions state precisely when funds will be released and what counts as acceptable proof of recording.
Require a copy of the recorded deed or a recording receipt (instrument/book & page or instrument number) before full disbursement.
Obtain a title insurance commitment (or final policy) at closing. A lender’s and owner’s title policy protect against many risks linked to defects and unrecorded prior claims.
Negotiate a holdback if there are unresolved issues (for example, prorations, bills, repairs, or pending payoffs). Even a modest holdback can provide leverage until recording is verified.
Use an experienced Indiana closer (title company or attorney) familiar with local recorder practices and the county’s recording timeline.
If you are the buyer, consider an indemnity agreement requiring the seller to repay funds if title issues arise due to the seller’s defects.

What to do if funds were released but the deed wasn’t recorded

Immediately request a recorded copy or the recorder’s receipt from the closing agent.
Contact your title company and review your title insurance commitment/policy for coverage and claim procedures.
If you suspect misconduct by the closer or seller (fraud, negligence), consult an Indiana real estate attorney promptly to evaluate remedies such as rescission, damages, or an equitable action to quiet title or place a lien.
Preserve all closing documents and communications. Those are central to any dispute about whether disbursement followed instructions.

Helpful hints

Don’t assume recording is automatic — ask the closer for the recording instrument number or receipt.
Insist that escrow instructions specifically define what documentation allows release of funds (e.g., recorded deed copy, instrument number, title insurance policy).
If time is sensitive, negotiate a partial disbursement with a clear holdback for recording confirmation.
Check with the county recorder’s online records (if available) to confirm recording yourself.
Get title insurance at closing — it often provides faster remedies than suing after a loss.

Final note: The practical answer turns on the escrow terms and protections you obtain. Recording is a critical protective step, and release of funds prior to recorded deed carries risk unless covered by express, written protections.

Disclaimer: This article explains general principles of Indiana real estate practice and recording law. It is educational only and not legal advice. For advice about a specific situation, consult a licensed Indiana real estate attorney.