Can escrow or trust funds be released before the deed is recorded in New York?

Short answer: Possibly, but it depends on the escrow agreement, the closing conditions, and risk allocation. Under New York law, recording a deed gives future notice to third parties, so releasing funds before the deed is recorded can create significant risk unless the parties and the escrow agent take specific protective steps.

Detailed answer — how New York law and common practice apply

Start with two basic legal points. First, a deed generally must be in writing and recorded to protect a purchaser from third-party claims that arise after the conveyance but before anyone takes steps to protect their own interest. New York’s recording statute governs priority and notice rules; see Real Property Law §291 for the basic recording rule (recording protects a subsequent purchaser who takes without notice and records first): https://www.nysenate.gov/legislation/laws/RPP/291. Second, funds held in escrow are controlled by the escrow (or trust) agreement and the escrow agent’s instructions — that is contract law.

Because of these rules, an escrow agent, title company, lender, or buyer will often refuse to release sale proceeds to a seller until the buyer’s deed is both delivered and recorded or until the parties obtain a substitute assurance that protects the buyer’s priority. Why? If the seller gets the money before the deed is recorded, a third party — such as a judgment creditor, a later buyer who records first, or a lender that files a lien before the deed is recorded — could claim an interest that defeats the buyer’s unrecorded deed. In short: the buyer could lose priority even though it paid for the property.

Typical facts and outcomes

• Hypothetical: Buyer deposits the purchase price into escrow, the seller signs the deed, but the deed is not yet recorded. If the escrow instructions condition release of funds on recordation (a common instruction), the escrow agent must withhold funds until the recording is confirmed.
• If escrow instructions say to release on delivery of the signed deed (but before recording), the escrow agent faces a risk that the buyer’s title will be vulnerable to intervening liens or later-recorded interests.
• Title companies and lenders commonly require either (a) simultaneous recordation and wire release (the recording clerk or title company confirms recording and then releases funds), or (b) a written indemnity or undertaking that protects the buyer if a third-party claim arises because recording was delayed.

When release before recordation may be acceptable

Release before recordation is sometimes acceptable if one or more of the following is true:

• The escrow agreement expressly authorizes release of funds upon delivery of the deed and other closing documents, and all parties knowingly consented to that term;
• The buyer receives a title insurance commitment or policy insuring against loss from intervening liens that would have attached before recordation (title insurance often covers such risk subject to policy terms and exceptions);
• The escrow agent has other protective measures — for example, a simultaneous closing procedure where the deed is presented for recording and the funds are wired at the same moment; or the seller provides a guaranty or indemnity;
• The parties use a title company or a closing agent that issues a recording warranty or undertakes to cure a recording defect.

When release is risky or should be refused

• If the escrow instructions tie release to recordation but the seller demands funds first, the escrow agent should not release funds without written, signed revised instructions from all parties.
• If no title insurance binder/commitment is in place, or there is an unresolved lien or judgment appearing in a title search, releasing funds before recordation is high-risk.
• If the buyer or lender requires recordation to perfect priority (as is common under New York law), releasing funds first could defeat the buyer’s protection under the recording statute (see Real Property Law §291: https://www.nysenate.gov/legislation/laws/RPP/291).

Practical closing practices that reduce risk

Closings in New York typically follow one of these safe procedures:

1. Simultaneous recording and funding: The deed is recorded and the title company or county clerk confirms recording, then the escrow agent releases funds immediately (often in the same minute/hour).
2. Escrowed release with indemnity: The buyer obtains a written indemnity from the seller (or an insurance-backed undertaking) agreeing to reimburse the buyer for loss if the buyer’s unrecorded conveyance is defeated.
3. Title insurance safeguards: The buyer obtains a title insurance policy that protects against liens or claims that arise due to delayed recording. The title insurer will often require recordation within a short time frame and may condition funds release on its own underwriting requirements.
4. Holding back a short, agreed-upon amount for a short period until recording is formally posted on the county’s records or online system.

Who decides whether funds may be released?

Primary decision-makers are those who hold the funds under the escrow contract: escrow agents, title companies, or closing attorneys. They must follow the written escrow instructions and applicable state law. If an escrow agent wrongfully releases funds in violation of the escrow instructions, the injured party may have a contract claim and the agent may face liability.

Steps you should consider before agreeing to an early release

• Insist on a clear, written escrow agreement that specifies exactly when funds are released.
• Require the deed to be recorded or require a confirmed recording report from the county clerk before funds move.
• Obtain a title insurance commitment or policy that covers intervening liens caused by delayed recording.
• If funds must be released early, obtain a seller indemnity or a title company undertaking to protect you for a defined period.
• Talk to a real estate attorney about adding protections such as escrow holdbacks, express undertakings, or other contract terms tailored to your transaction.

Example closing timeline (hypothetical)

Buyer and seller sign documents on Friday. The deed is delivered to the county clerk but the clerk logs recording early Monday morning. To avoid risk, the escrow agent either:

• waits for the clerk’s confirmation that the deed posted Monday morning and then releases funds Monday afternoon; or
• releases funds Friday only after the buyer receives a title insurance policy and the seller provides an indemnity securing the buyer for any intervening claims.

Why you should consult an attorney

Real estate closings involve contract, property, and title issues. Small differences in escrow wording or lender instructions can change who bears risk. A local New York real estate attorney can review the escrow instructions, the proposed title insurance, and any indemnities or undertakings before you authorize release.

Disclaimer

This article explains general principles of New York real property and escrow practice and is not legal advice. It does not create an attorney-client relationship. For advice about a specific transaction, consult a licensed New York real estate attorney.

Helpful Hints

• Always require written escrow instructions. Oral promises are risky.
• Insist on simultaneous recording and funding when possible.
• Use a reputable title company and obtain a title insurance commitment before funds are released.
• If the deed won’t be recorded immediately, get an express indemnity or an escrow holdback in writing.
• Check Real Property Law §291 for New York’s recording rule: https://www.nysenate.gov/legislation/laws/RPP/291.
• If you are an escrow agent, follow the escrow agreement precisely; seek a court order or joint written instructions from parties before deviating.