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

Short answer: Sometimes — but it depends on the written escrow/closing instructions, the purchase contract, and the risks under Kentucky recording law. Releasing funds before the deed is recorded can create legal exposure for the escrow agent, seller, or buyer unless the disbursement conditions are clear and satisfied. This article explains how that works in Kentucky and what steps you can take to reduce risk.

How transfers, deeds, and recording relate in Kentucky

When a real estate sale closes, two different events are relevant:

Delivery of the deed (the seller signs and transfers legal title to the buyer); and
Recording the deed in the county land records (public notice of the transfer).

Recording is important because it gives public notice and protects the buyer’s interest against later claims by other purchasers or lien creditors who act without notice. Kentucky’s statutes on the recording of conveyances are collected in KRS Chapter 382; those rules determine how an unrecorded deed affects other parties’ rights. See Kentucky Revised Statutes, chapter on conveyances: KRS Chapter 382 (Recording and Conveyances).

Who controls escrow funds and when they can be released?

Funds held in trust (often called escrow or closing funds) are controlled by the escrow or closing instructions agreed to by the parties and by any applicable escrow agreement or title company policies. The escrow agent’s legal duty is to follow those written instructions. Key points:

If the escrow instructions require recording the deed as a condition precedent to disbursement, the escrow agent should not release funds until the deed is recorded.
If the instructions say funds are released at closing upon delivery of a signed deed (even if not yet recorded), the escrow agent may release funds if the deed has been properly executed and delivered and all other conditions are met.
If the instructions are ambiguous, the escrow agent faces risk — including claims by a party who later loses title because the deed was not recorded.

Why releasing funds before recording can be risky in Kentucky

Even if the buyer receives the deed at closing, a deed that is not recorded remains unprotected against later claims by third parties who purchase or record without notice. That means:

The buyer may have equitable title but lacks the public-record protection that helps against subsequent bona fide purchasers or judgment lienholders.
An escrow agent who releases funds before recording — if the escrow instructions required recording first — may be liable for losses that result.
Sellers who accept funds and fail to cause recordation (or who divert funds) can face claims for breach of contract or constructive trusts.

Typical safe practices for buyers, sellers, and escrow agents

To reduce risk in Kentucky transactions, parties and closing agents commonly use these protections:

Make recording of the deed a clear condition for final disbursement in the escrow/closing instructions.
Require the closing/title company to record the deed immediately and provide the escrow agent with a recorded copy or an official recording receipt before releasing funds.
Use title insurance — an owner’s policy protects the buyer against many title defects and risks arising from unrecorded matters.
Agree to short holdbacks when the recording process is delayed (for example, retain a small portion of proceeds until the recorded deed is returned).
If there is a dispute, instruct the escrow agent to hold funds or file an interpleader action rather than releasing funds prematurely.

Common scenarios and what usually happens

Below are typical fact patterns and practical outcomes under Kentucky practice:

Deed delivered but not yet recorded due to clerical delay: If the deed was delivered and the escrow instructions allow release on delivery, many escrow agents will disburse, but risk remains until recording is complete. Better: hold funds until you have a recorded copy or a county clerk receipt.
Buyer delivered funds, seller refuses to deliver deed: Buyer can seek specific performance or damages; the escrow agent who released funds contrary to instructions may be liable. Consider suing or asking the court to freeze proceeds.
Fraudulent resale before deed recorded: If the seller conveys the same property to another buyer and records first (or to a bona fide purchaser without notice), the unrecorded deed owner may lose priority. Recording statutes and title insurance determine remedies.

Practical steps to take right now

Do not authorize release of trust funds unless the written escrow instructions are satisfied.
Ask the closing/title company for a recorded deed copy or a county clerk recording receipt before authorizing disbursement.
Insist on title insurance if you are the buyer.
If funds were released prematurely, consult a Kentucky real estate attorney promptly — remedies may include seeking return of funds, filing an interpleader or filing suit against the escrow agent or seller.

Where Kentucky law matters

Kentucky’s recording statutes shape who wins in disputes over competing claims. See KRS Chapter 382 for the statutory rules on recording and notice: https://apps.legislature.ky.gov/statutes/chapter/382. In practice, the combination of contract law (escrow instructions), title insurance, and the recording statutes determines outcomes.

Helpful hints

Make the recording requirement explicit in escrow and purchase agreements.
Request a recorded-deed PDF or scanned image from the county clerk before disbursement.
Use a reputable title company that records documents as part of closing and provides a recorded copy quickly.
Consider a small, temporary holdback if the county recording office is delayed (e.g., due to mechanical processing).
If a dispute arises, put the escrow agent on written notice and consider asking the agent to file an interpleader or for a court order before any release.
Buyers: obtain owner’s title insurance at closing for protection against unrecorded or prior claims.

Disclaimer: This article explains general principles of Kentucky real estate and escrow practice and is not legal advice. It does not create an attorney-client relationship. For advice about a specific situation, contact a licensed Kentucky attorney who handles real estate and escrow disputes.