When to Release Closing Funds Held in Trust under Ohio Law

Short answer: Possibly—but only when the closing documents and escrow instructions clearly shift the risk. Under Ohio law, recording a deed gives constructive notice to the world, but title usually transfers on valid delivery and acceptance of a deed. That means funds in escrow can sometimes be released before the deed appears in the recorder’s index, but doing so carries legal and practical risks unless specific safeguards are in place.

How deed delivery and recording work in Ohio

Two separate events matter in Ohio real estate transfers:

• Delivery and acceptance of the deed: Under Ohio common-law principles, a properly executed deed transfers title once the grantor delivers it and the grantee accepts it. Recording is not required to effect the transfer between the parties.
• Recording the deed: Recording the deed in the county recorder’s office provides public (constructive) notice and protects the grantee against later purchasers or lienholders who lack prior notice. See Ohio Revised Code, chapter 5301 and related recording provisions (for example, Ohio Rev. Code §5301.25 and the chapter index at Ohio Rev. Code Chapter 5301).

Why title companies and sellers usually wait for recording before releasing funds

Most escrow instructions, lenders, and title companies require proof of recording before disbursing sale proceeds. That practice reduces exposure to problems such as:

• Competing claims or liens that arise before the deed is recorded.
• Errors in the deed (wrong legal description, missing signatures) that prevent recording.
• Wire fraud or misdirected funds if recording does not occur as expected.

When funds can be released before the deed is recorded

Disbursing escrowed funds before the recorder’s stamp is acceptable only when the escrow agreement or closing instructions expressly authorize it and appropriate protections exist. Typical safe conditions include:

• Clear escrow instructions signed by buyer, seller, lender, and escrow agent that permit release upon delivery and acceptance of the deed (rather than recorded proof).
• Title company issues a commitment and a title insurance policy (or agreement to issue) that covers the buyer immediately, often with a “gap” endorsement to protect against intervening claims between delivery and recording.
• Receipt from the county recorder confirming the deed has been accepted for recording (an acceptance/recording receipt) even if the deed is not yet posted to the online index.
• A written indemnity from the party receiving funds promising to return them or indemnify the escrow agent if recording fails or a competing claim arises.
• Lender approval (if the transaction involves mortgage financing) and satisfaction of lender payoff and lien release conditions.

Risks when funds are released before recording

Releasing funds early shifts risk to the party that parts with money or the escrow holder. Specific risks include:

• A later-filed judgment, lien, or mechanic’s lien that takes priority over the unrecorded deed as to third parties.
• Recording rejection or rejection for defects that delay or prevent title transfer, leaving the payer with no recorded protection.
• Potential disputes about whether the deed was actually delivered and accepted before funds were disbursed.

Practical checklist for handling escrowed funds in Ohio closings

1. Review the escrow instructions carefully. Never release funds contrary to written instructions.
2. Confirm deed delivery and acceptance in writing (signed acknowledgment by the buyer or buyer’s attorney).
3. Demand either: (a) a recorded deed or (b) an official recorder acceptance/sequence number and title company gap endorsement or immediate title insurance commitment.
4. Require written indemnity or escrow holdback language if anyone asks for early disbursement.
5. Confirm lender payoff and lien releases in writing when a mortgage is being paid off at closing.
6. Use traceable, certified disbursement methods and retain all transmittal records.
7. If unsure, delay disbursement until the recorder’s stamped document appears in the official index or until the title company issues the promised protections.

Hypothetical example

Seller A signs and delivers a deed to Buyer B at closing. The county recorder experiences a backlog and the deed is not posted for several days. The escrow agent has instructions that say: “Escrow agent shall disburse funds upon delivery of deed.” If the escrow agent follows those instructions and disburses funds immediately, Buyer B gets title (by delivery/acceptance), but Seller A’s payment is released before public notice exists—exposing Buyer B to risk if another creditor later files a claim that predates recording. If the escrow instructions instead required proof of recording, the agent would hold funds until the recorder stamps the document, protecting the buyer from third-party claims.

Where Ohio law fits in

Ohio statutes govern recording and the effect of recording for public notice. See Ohio Rev. Code Chapter 5301 for rules about conveyances and recording. Recording statutes establish notice and priority consequences, which is why many parties insist on recorded proof before disbursing funds. (See, for instance, Ohio Rev. Code §5301.25 and related provisions in Chapter 5301.)

When to call an attorney or title professional

Talk to a real estate attorney or your title company if:

• Closing parties ask to release funds contrary to written escrow instructions.
• There is a known title problem, pending judgment, or dispute over delivery of the deed.
• A lender or payoff party insists on special treatment before recording.

Helpful Hints

• Insist on written escrow instructions and follow them exactly.
• Ask for the recorder’s acceptance or sequence number if the recorded copy isn’t yet indexed online.
• Obtain a title insurance commitment or gap endorsement if funds will move before recording.
• Get a signed acknowledgment of deed delivery and acceptance from the grantee.
• Use indemnity agreements when parties request early disbursement.
• Keep documentation of wire transfers, payoffs, and correspondence in case disputes arise.
• When in doubt, delay disbursing funds until the recorder’s stamp appears or until counsel advises it’s safe.

Disclaimer: This article explains general principles of Ohio real property practice. It is educational only and not legal advice. For advice tailored to your situation, contact a licensed Ohio attorney or your title company.